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NATIONS

ADAM SMITE
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MR . mather
 ON THE

WEALTH OF NATIONS.

BY

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

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 AN INQUIRY

INTO THE

NATURE AND CAUSES

OF THE

WEALTH OF NATIONS

BY

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

WITH
A LIFE OF THE AUTHOR, AN INTRODUCTORY DISCOURSE, NOTES,
AND SUPPLEMENTAL DISSERTATIONS.

VOL. I.

By J. R. McCULLOCH ,
Late Professor of Political Economy in the University of London.

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 INTRODUCTORY. *

Of the Inquiry into the Nature and Causes ofthe Wealth of Nations.

AN historical view of the different forms under which human affairs have
appeared in different ages and nations, naturally suggests the question, Whether
the experience of former times may not now furnish some general principles to
enlighten and direct the policy of future legislators ? The discussion, however,
to which this question leads, is of singular difficulty ; as it requires an accurate
analysis of by far the most complicated class of phenomena that can possibly
engage our attention, those which result from the intricate and often the imper-
ceptible mechanism of political society ;-a subject of observation which seems,
at first view, so little commensurate to our faculties, that it has been generally
regarded with the same passive emotions of wonder and submission with which,
in the material world, we survey the effects produced by the mysterious and un-
controllable operation of physical causes. It is fortunate that upon this, as upon
many other occasions, the difficulties which had long baffled the efforts of solitary
genius begin to appear less formidable to the united exertions of the race ; and
that in proportion as the experience and the reasonings of different individuals
are brought to bear upon the same objects, and are combined in such a manner
as to illustrate and to limit each other, the science of politics assumes more
and more that systematical form which encourages and aids the labours of
future inquirers.
In prosecuting the science of politics on this plan, little assistance is to be
derived from the speculations of ancient philosophers, the greater part of
whom, in their political inquiries, confined their attention to a comparison of
the different forms of government, and to an examination of the provisions they
made for perpetuating their own existence, and for extending the glory of the
state. It was reserved for modern times to investigate those universal principles
of justice and of expediency, which ought, under every form of government, to
regulate the social order ; and of which the object is to make as equitable a
distribution as possible, among all the different members of a community, of
the advantages arising from the political union.
The invention of printing was perhaps necessary to prepare the way for
these researches. In those departments of literature and of science, where
genius finds within itself the materials of its labours ; in poetry, in pure
geometry, and in some branches of moral philosophy ; the ancients have not
only laid the foundations on which we are to build, but have left great and
finished models for our imitation. But in physics, where our progress depends
on an immense collection of facts, and on a combination of the accidental
lights daily struck out in the innumerable walks of observation and experiment ;
and in politics, where the materials of our theories are equally scattered, and
are collected and arranged with still greater difficulty, the means of commu-
nication afforded by the press have, in the course of two centuries, accelerated
the progress of the human mind far beyond what the most sanguine hopes of
our predecessors could have imagined.
* From Memoir by Dugald Stuart on the works of Adam Smith, LL.D.
6 INTRODUCTORY.

The progress already made in this science, inconsiderable as it is in com.

parison of what may be yet expected, has been sufficient to show that the
happiness of mankind depends, not on the share which the people possesses,
directly or indirectly, in the enactment of laws, but on the equity and ex-
pediency of the laws that are enacted. The share which the people possesses
n the government is interesting chiefly to the small number of men whose
object is the attainment of political importance ; but the equity and expediency
of the laws are interesting to every member of the community and more
especially to those whose personal insignificance leaves them no encourage-
ment, but what they derive from the general spirit of the government under
which they live.
It is evident, therefore, that the most important branch of political science is
that which has now for its object to ascertain the philosophical principles of
jurisprudence ; or (as Mr. Smith in his Theory of Moral Sentiments expresses
it) to ascertain the general principles which ought to run through and be the
' foundation of the laws of all nations. In countries where the prejudices of
the people are widely at variance with these principles, the political liberty
which the constitution bestows only furnishes them with the means of accom-
plishing their own ruin and if it were possible to suppose these principles
completely realized in any system of laws, the people would have little reason
to complain, that they were not immediately instrumental in their enactment.
The only infallible criterion of the excellence of any constitution is to be found
in the detail of its municipal code ; and the value which wise men set on
political freedom, arises chiefly from the facility it is supposed to afford, for the
introduction of those legislative improvements which the general interests of
the community recommend to. I cannot help adding, that the capacity of a
people to exercise political rights with utility to themselves and to their country,
presupposes a diffusion of knowledge and of good morals, which can only
result from the previous operation of laws unfavourable to industry, to order, br
and to freedom .
Of the truth of these remarks, enlightened politicians seem now to be in
general convinced ; for the most celebrated works which have been produced in
the different countries of Europe during the last thirty years, by Smith,
Quesnai, Turgot, Campomanes, Beccaria, and others, have aimed at the im
provement of society, not by delineating plans of new constitutions, but by
enlightening the policy of actual legislators. Such speculations, while they
are more essentially and more extensively useful than any others have no
tendency to unhinge established institutions, or to inflame the passions of the
multitude. The improvements they recommend are to be effected by means
too gradual and slow in their operation to warm the imaginations of any but of
the speculative few ; and in proportion as they are adopted, they consolidate
the political fabric, and enlarge the basis upon which it rests.
To direct the policy of nations with respect to one most important class of
its laws, those which form its system of political economy, is the great aim of
Mr. Smith's Inquiry : and he has unquestionably had the merit of presenting
to the world the most comprehensive and perfect work that has yet appeared
on the general principles of any branch of legislation. The example which he
has set will be followed, it is to be hoped, in due time, by other writers,
for whom the internal policy of states furnishes many other subjects of
discussion no less curious and interesting; and may accelerate the progress
of that science which Lord Bacon has so well described in the following
passage : " Finis et scopus quem leges intueri, atque ad quem jussiones et
sanctiones suas dirigere debent, non alius est, cives feliciter
'degant; id fiet, si pietate et religione recte inmoribus honesti ;
'armis adversus hostes externas tuti; legum auxilio adversus seditiones et
*privatas injurias muniti ; imperio et magistratibus obsequentes ; copiis et
 INTRODUCTORY.
• opibus locupletes et florentes fuerint.- Certe cognitio ista ad viros civiles
proprie spectat ; qui optime nôrunt, quid ferat societas humana, quid salus
populi, quid æquitas naturalis quid gentium mores, quid rerumpublicarum.
formæ diversæ ; ideoque possint de legibus, ex principiis et præceptis tam
· æquitatis naturalis, quam politices decernere. Quamobrem id nunc agatur, ut
fontes justitiæ et utilitatis publicæ petantur, et in singulis juris partibus
• character quidam et idea justi exhibeatur, ad quam particularium regnorum et
rerumpublicarum leges probare, atque inde emendationem moliri quisque, cui
'hoc cordi erit et curæ, possit.' The enumeration contained in the foregoing
passage, of the different objects of law, coincides very nearly with that given
by Mr. Smith in the conclusion of his Theory of Moral Sentiments; and the
precise aim of the political speculations192which he then announced, and of
which he afterwards published so valuable a part in his Wealth of Nations, was
to ascertain the general principles of justice and of expediency, which ought to
guide the institutions of legislators on these important articles ;-in the
words of Lord Bacon, to ascertain those leges legum, " ex quibus informatio
peti possit, quid in singulis legibus bene aut perperam402positum aut con-
stitutum sit.'
The branch of legislation which Mr. Smith has made choice of as the subject
of his work, naturally leads me to remark a very striking contrast between the
spirit of ancient and of modern policy in respect to the Wealth of Nations.
The great object of the former was to counteract the love of money and a taste
for luxury, by positive institutions ; and to maintain in the great body of the
people, habits of frugality and a severity of manners. The decline of states
is uniformly ascribed by the philosophers and historians, both of Greece and
Rome, to the influence of riches on national character ; and the laws of
Lycurgus, which, during a course of ages, banished the precious metals from
Sparta, are proposed by many of them as the most perfect model of legislation
devised by human wisdom. How opposite to this is the doctrine of modern
politicians Far from considering poverty as an advantage to a state, their
great aim is to open new sources of national opulence, and to animate the
activity of all classes of the people, by a taste for the comforts and the accom-
modations of life.
sy One aprincipal cause of this difference between the spirit of ancient and
modern policy, may be found in the difference between the sources of national
wealth in ancient and modern times. In ages when commerce and manu-
factures were yet in their infancy, and among states constituted like most of the
ancient republics, a sudden influx of riches. from abroad was justly
dreadful as an evil, alarming to the morals, to the industry, and to the freedom
of a people. So different however is the case at present, that the most wealthy
nations are those where the people are the most laborious, and where they
enjoy the greatest degree of liberty. Nay, it was was the general diffusion of
wealth among the lower orders of men, which first gave birth to the spirit of
independence in modern Europe, and which has produced under some of its
governments, and especially under our own, a more equal diffusion of freedom
and of happiness than took place under the most celebrated constitutions of
antiquity.
Without this diffusion of wealth among the lower orders, the important
effects resulting from the invention of printing would have been extremely
limited for a certain degree of ease and independence is necessary to inspire
men with the desire of knowledge, and to afford them the leisure which is
Jequisite for acquiring it ; and it is only by the rewards which such a state of
society holds up to industry and ambition, that the selfish passions of the
multitude can be interested in the intellectual improvement of their children.
The extensive propagation of light and refinement arising from the influence of
the press, aided by the spirit of commerce, seems to be the remedy provider
 8 INTRODUCTORY.

by nature against the fatal effects which would otherwise be produced by the
subdivision of labour accompanying the progress of the mechanical arts :
nor is anythng wanting to make the remedy effectual, but wise institutions to
facilitate general intsruction, and to adapt the education of individuals to the
stations they are to occupy. The mind of the artist, which from the limited
sphere of his activity, would sink below the level of the peasant or the savage,
might receive in infancy the means of intellectual enjoyment and the seeds of
moral improvement ; and even the insipid uniformity of his professional en-
gagements, by presenting no object to awaken his ingenuity or to distract his
attention, might leave him at liberty to employ his faculties on subjects more
interesting to himself, and more extensively useful to others.
These effects, notwithstanding a variety of opposing causes which still exist,
have already resulted, in a very sensible degree, from the liberal policy of
modern times. Mr. Hume, in his Essay on Commerce, after taking notice of
the numerous armies raised and maintained by the small republics in the ancient
world, ascribes the military power of these states to their want of commerce
and luxury. 'Few artisans were maintained by the labour of the farmers, and
'therefore
• more soldiers might live upon it.' He adds, however, that ' the
" policy of ancient times was VIOLENT, and contrary to the NATURAL course of
things ; ' -by which, I presume he means, that it aimed too much at modifying,
by the force of positive institutions, the order of society, according to some
preconceived idea of expediency ; without trusting sufficiently to those prin-
ciples of the human constitution, which, wherever they are allowed free scope,
not only conduct mankind to happiness, but lay the foundation of a progressive
improvement in their condition and in their character. The advantages which
modern policy possesses over the ancient, arise pincipally from its conformity,
in some of the most important articles of political economy, to an order of
things recommended by nature ; and it would not be difficult to show, that where
it remains imperfect, its errors may be traced to the restraints it imposes on the
natural course of human affairs. Indeed, in these restraints may be discovered
the latent seeds of many of the prejudices and follies which infect modern
manners, and which have so long bid defiance to the reasonings of the philoso-
pher and the ridicule of the satirist.
The foregoing very imperfect hints appeared to me to form, not only a
proper, but in some measure a necessary introduction to the few remarks I have
to offer on Mr. Smith's Inquiry ; as they tend to illustrate a connection between
his system of commercial politics, and those speculations of his earlier years,
in which he aimed more professedly at the advancement of human improve-
ment and happiness. It is this view of political economy that can alone render
it interesting to the moralist, and can dignify calculations of profit and loss in
the eye of the philosopher. Mr. Smith has alluded to it in various passages of
his work, but he has nowhere explained himself fully on the subject ; and the
great stress he has laid on the effects of the division of labour in increasing its
productive powers, seems, at first sight, to point to a different and very melan-
choly conclusion, -that the same causes which promote the progress of the
arts, tend to degrade the mind of the artists ; and, of consequence, that the
growth of national wealth implies a sacrifice of the character of the people.
The fundamental doctrines of Mr. Smith's system are now so generally
known, that it would have been tedious to offer any recapitulation of them in
this place, even if I could have hoped to do justice to the subject within the
limits which I have prescribed to myself at present. I shall content myself,
therefore, with remarking, in general terms, that the great and leading object of
his speculations is, to illustrate the provision made by nature in the principles
of the human mind, and in the circumstances of man's external situation, for
a gradual and progressive augmentation in the means of national wealth ; and
to demonstrate, that the most effectual plan for advancing a people to greatness,
 INTRODUCTORY.

is to maintain that order of things which nature has pointed out ; by allowing
everyman, as long as he observes the rules ofjustice, to pursue his own interest
in his own way, and to bring both his industry and his capital into the freest
competition with those of his fellow-citizens. Every system of policy which
endeavours, either by extraordinary encouragements to draw towards a par
ticular species of industry a greater share of the capital of the society than
what would naturally go to it, or, by extraordinary restraints, to force from a
particular species of industry some share of the capital which would otherwise
be employed in it, is, in reality, subversive of the great purpose which it means
to promote.
What the circumstances are which, in modern Europe, have contributed to
disturb this order of nature, and, in particular, to encourage the industry of
towns at the expense of that of the country, Mr. Smith has investigated with
great ingenuity ; and in such a manner, as to throw much new light on the
history of that state of society which prevails in this quarter of the globe. His
observations on this subject tend to show, that these circumstances were, in
their first origin, the natural and the unavoidable result of the peculiar situation
of mankind during a certain period ; and that they took their rise, not from any
general scheme of policy, but from the private interests and prejudices of
particular orders of men.
The state of society, however, which at first arose from a singular combina
tion of accidents, has been prolonged much beyond its natural period by a
false system of political economy, propagated by merchants and manufacturers ;
a class of individuals, whose interest is not always the same with that of the
public, and whose professional knowledge gave them many advantages, more
particularly in the infancy ofthis branch of science, in defending those opinions
which they wished to encourage. By means of this system, a new set of
obstacles to the progress of national prosperity has been created. Those which
arose from the disorders of the feudal ages, tended directly to disturb the
internal arrangements of society, by obstructing the free circulation of labour
and of stock, from employment to employment, and from place to place. The
false system of political economy which has been hitherto prevalent, as its pro-
fessed object has been to regulate the commercial intercourse between different
nations, has produced its effect in a way less direct and less manifest, but equally
prejudicial to the states that have adopted it.
On this system, as it took its rise from the prejudices, or rather from the
interested views, of mercantile speculators, Mr. Smith bestows the title of the
Commercial or Mercantile System ; and he has considered at great length its
two principal expedients for enriching a nation, -restraints upon importation,
and encouragements to exportation. Part of these expedients, he observes,
have been dictated by the spirit of monopoly, and part by a spirit of jealousy
against those countries with which the balance of trade is supposed to be dis-
advantageous. All of them appear clearly, from his reasonings, to have a
tendency unfavourable to the wealth of the nation which imposes them. His
remarks with respect to the jealousy of commerce are expressed in a tone of
indignation which he seldom assumes in his political writings.
'In this manner (says he) the sneaking arts of underling tradesmen are erected
'• into political maxims for the conduct of a great empire. By such maxims as
these, nations have been taught that their interest consisted in beggaring all
'· their neighbours. Each nation has been made to look with an invidious eye
upon the prosperity of all the nations with which it trades, and to consider
· their gain as its own loss. Commerce, which ought naturally to be among
nations, as among individuals, a bond of union and friendship, has become the
most fertile source of discord and animosity. The capricious ambition of
kings and ministers has not, during the present and the preceding century,
' been more fatal to the repose of Europe, than the impertinent jealousy of
ΤΟ INTRODUCTORY.

' merchants and manufacturers. The violence and injustice of the rulers
mankind is an ancient evil, for which perhaps the nature of human affairs can
scarce admit of a remedy. But the mean rapacity, the monopolizing spirit of
' merchants and manufacturers, who neither are nor ought to be the rulers of
' mankind, though it cannot perhaps be corrected, may very easily be prevented
' from disturbing the tranquillity of anybody but themselves.'
Such are the liberal principles which, according to Mr. Smith, ought to direct
the commercial policy of nations ; and of which it ought to be the great object
of legislators to facilitate the establishment. In what manner the execution of
the theory should be conducted in particular instances, is a question of a very
different nature, and to which the answer must vary, in different countries,
according to the different circumstances of the case. In a speculative work,
such as Mr. Smith's, the consideration of this question did not fall properly
under his general plan ; but that he was abundantly aware of the danger to be
apprehended from a rash application of political theory, appears not only from.
the general strain of his writings, but from some incidental observations which
he has expressly made upon the subject. So unfortunate (says he, in one
* passage) are the effects of all the regulations of the mercantile system, that
they not only introduce very dangerous disorders into the state of the body
politic, but disorders which it is often difficult to remedy, without occasioning,
for a time at least, still greater disorders. In what manner, therefore, the
natural system of perfect liberty and justice ought gradually to be restored,
we must leave to the wisdom of future statesmen and legislators to determine.'
In the last edition of his Theory of Moral Sentiments, he has introduced some
remarks, which have an obvious reference to the same important doctrine. The
following passage seems to refer more particularly to those derangements of the
social order which derived their origin from the feudal institutions.
The man whose public spirit is prompted altogether by humanity and
benevolence, will respect the established powers and privileges even of indi-
Ividuals, and still more of the great orders and societies into which the state is
divided. Though he should consider some of them as in some measure
abusive, he will content himself with moderating what he often cannot
annihilate without great violence. When he cannot conquer the rooted
prejudices of the people by reason and persuasion, he will not attempt to
subdue them by force ; but will religiously observe what, by Cicero, is justly
Icalled the divine maxim of Plato, never to use violence to his country no more
' than to his parents. He will accommodate, as well as he can, his public
arrangements to the confirmed habits and prejudices of the people ; and wil
remedy, as well as he can, the inconveniencies which may flow from the want
of those regulations which the people are averse to submit to. When he
cannot establish the right, he will not disdain to ameliorate the wrong ; but,
· like Solon, when he cannot establish the best system of laws, he will endeavour
to establish the best that the people can bear."
These cautions with respect to the practical application of general principles
were peculiarly necessary from the author of " The Wealth of Nations : as the
unlimited freedom of trade, which it is the chief aim of his work to recom-
mend, is extremely apt, by flatiering the indolence of the statesman, to suggest
to those who are invested with absolute power, the idea of carrying it into
immediate execution. ' Nothing is more adverse to the tranquillity of a
6
statesman (says the author of an Eloge on the Administration of Colbert,
" than a spirit of moderation ; because it condemns him to perpetual observa-
" theimperfection ; vwhis windder the shelter of a
the melancholy sense of his own
few general principles, a systematical politician enjoys a perpetual calm. By
the help of one alone, that of a perfect liberty of trade, he would govern the
world, and would leave human affairs to arrange themselves at pleasure, under
 INTRODUCTORY.

the operation of the prejudices and the self-interests of individuals. If these

run counter to each other, he gives himself no anxiety about the consequence,
he insists that the result cannot be judged of till after a century or two shall
have elapsed. If his contemporaries, in consequence of the disorder into
which he has thrown public affairs, are scrupulous about submitting quietly to
"the experiment, he accuses them of impatience. They alone, and not he, are
to blame for what they have suffered ; and the principle continues to be incul-
cated with the same zeal and the same confidence as before. ' These are the
words of the ingenious and eloquent author of the Eloge on Colbert, which
obtained the prize from the French Academy in the year 1763 ; a perform-
ance which, although confined and erroneous in its speculative views, abounds
with just and important reflections of a practical nature. How far his remarks
apply to that particular class of politicians whom he had evidently in his eye in
the foregoing passage, I shall not presume to decide.
It is hardly necessary for me to add to these observations, that they do not
detract in the least from the value of those political theories which attempt to
delineate the principles of a perfect legislation. Such theories (as I have else-
where observed) ought to be considered merely as descriptions of the ultimate
objects at which the statesman ought to aim. The tranquillity of his adminis-
tration, and the immediate success of his measures, depend on his good sense
and his practical skill ; and his theoretical principles only enable him to direct
his measures steadily and wisely, to promote the improvement and happiness of
mankind, and prevent him from being ever led astray from these important
ends by more limited views of temporary expedience. In all cases (says Mr.
Hume) it must be advantageous to know what is most perfect in the kind, that
we may be able to bring any real constitution or form of government as near
it as possible, by such gentle alterations and innovations as may not give too
great disturbance to society."
The limits of this Memoir make it impossible for me to examine particu-
larly the merit of Mr. Smith's work in point of originality. That his docrine
concerning the freedom of trade and of industry coincides remarkably with
that which we find in the writings of the French Economists, appears from the
slight view of their system which he himself has given. But it surely cannot
be pretended by the warmest admirers of that system, that any one of its
numerous expositors has approached to Mr. Smith in the precision and pers
picuity with which he has stated it, or in the scientific and luminous manner
in which he has deduced it from elementary principles. The awkwardness of
their technical language, and the paradoxical form in which they have chosen
to present some of their opinions, are acknowledged , even by those who are
most willing to do justice to their merits ; whereas it may be doubted, with
respect to Mr. Smith's Inquiry, if there exists any book beyond the circle of
the mathematical and physical sciences, which is at once so agreeable in its
arrangement to the rules of a sound logic, and so accessible to the examination
of ordinary readers. Abstracting entirely from the author's peculiar and original
speculations, I do not know that, upon 2 any subject whatever, a work has been
produced in our times, es, containing so methodical, so comprehensive, and so
judicious a digest of all the most profound and enlightened philosophy
ofthe age.
Injustice also to Mr. Smith, it must be observed, that although some
economical writers had the start of him in publishing their doctrines to the
world, these doctrines appear, with respect to him, to have been altogether
original, and the result of his own reflections. Of this, I think, every person
must be convinced, who reads the Inquiry with due attention, and is at pains
to examine the gradual and Beautiful progress of the author's ideas ; but in
case any doubt should remain on this head, it may be proper to mention, that
Mr. Smith's political lectures, comprehending the fundamental principles of
12 INTRODUCTORY.

his Inquiry, were delivered at Glasgow as early as the year 1752 or 1753,
at a period, surely, when there existed no French performance on the subject
that could be of much use to him in guiding his researches. In the year 1756,
indeed, M. Turgot (who is said to have imbibed his first notions concerning
the unlimited freedom of commerce from an old merchant, M. Gournay)
published in the Encyclopédie, an article which sufficiently shows how com-
pletely his mind was emancipated from the old prejudices in favour of com
mercial regulations : but that even then, these opinions were confined to a few
speculative men in France, appears from a passage in the Mémoires sur la Vie
et les Ouvrages de M. Turgot ; in which, after a short quotation from the
article just mentioned, the author adds : These ideas were then considered as
' paradoxical ; they are since become common, and they will one day be
adopted universally.'
The Political Discourses of Mr. Hume were evidently of greater use to Mr.
Smith than any other book that had appeared prior to his lectures. Even
Mr. Hume's theories, however, though always plausible and ingenious, and in
most instances profound and just, involve some fundamental mistakes ; and,
when compared with Mr. Smith's, afford a striking proof, that, in considering
a subject so extensive and so complicated, the most penetrating sagacity,
if directed only to particular questions, is apt to be led astray by first appear-
ances ; and that nothing can guard us effectually against error, but a compre
hensive survey of the whole field of discussion, assisted by an accurate and
patient analysis of the ideas about which our reasonings are employed. It
may be worth while to add, that Mr. Hume's essay ' On the Jealousy of Trade, '
with some other of his political discourses, received a very flattering proof of
M. Turgot's approbation, by his undertaking the task of translating them into
the French language.
I am aware that the evidence I have hitherto produced of Mr. Smith's
originality may be objected to as not perfectly decisive, as it rests entirely on
the recollection of those students who attended his first courses of moral philo-
sophy at Glasgow : a recollection which, at the distance of forty years, cannot
be supposed to be very accurate. There exists, however, fortunately, a short
manuscript, drawn up by Mr. Smith in the year 1755, and presented by him
to a society of which he was then a member, in which paper a pretty long
enumeration is given of certain leading principles, both political and literary,
to which he was anxious to establish his exclusive right, in order to prevent
the possibility of some rival claims which he thought he had reason to appre-
hend, and to which his situation as a professor, added to his unreserved com.
munications in private companies, rendered him peculiarly liable. This paper
is at present in my possession. It is expressed with a good deal of that honest
and indignant warmth, which is perhaps unavoidable by a man who is conscious
of the purity of his own intentions, when he suspects that advantages have
been taken of the frankness of his temper. On such occasions, due allowances
are not always made for those plagiarisms, which, however cruel in their effects,
do not necessarily imply bad faith in those who are guilty of them for the
bulk of mankind, incapable themselves of original thought, are perfectly unable
to form a conception of the nature of the injury done to a man of inventive
genius by encroaching on a favourite speculation. For reasons known to
some members of this society, it would be improper, by the publication of this
manuscript, to revive the memory of private differences ; and I should not
have even alluded to it, if I did not think it a valuable document ofthe progress
of Mr. Smith's political ideas at a very early period. Many of the most im
portant opinions in ' The Wealth of Nations ' are there detailed ; but I shall
quote only the following sentences : Man is generallyconsidered by statesmen
and projectors as the materials of a sort of political mechanics. Projectors
' disturb nature in the course of her operations in human affairs; and it requires
 INTRODUCTORY. 13

no more than to let her alone, and give her fair play in the pursuit of her
ends, that she may establish her own designs.'-And in another passage :
'Little else is requisite to carry a state to the highest degree of opulence from
'the lowest barbarism, but peace, easy taxes, and a tolerable administration
' ofjustice ; all the rest being brought about by the natural course of things.
' All government; which thwart this natural course, which force things into
' another channel, or which endeavour to arrest the progress of society at a
-
' particular point, are unnatural , and to support themselves are obliged to be
oppressive and tyrannical.'-' A great part ofthe opinions (he observes) enume.
rated in this paper, is treated of at length in some lectures which I have
' still by me, and which were written by the hand of a clerk who left my
' service six years ago. They have all of them been the constant subjects of
· my lectures since I first taught Mr. Craigie's class, the first winter I spent in
Glasgow, down to this day, without any considerable variation. They had
'all of them been the subjects of lectures which I read at Edinburgh the winter
'before I left it, and I can adduce innumerable witnesses, both from that place
' and from this, who will ascertain them sufficiently to be mine. '
After all, perhaps, the merit of such a work as Mr. Smith's is to be estimated
less from the novelty of the principles it contains, than from the reasonings
employed to support these principles, and from the scientific manner in which
they are unfolded in their proper order and connection. General assertions
with respect to the advantages of a free commerce may be collected from
various writers of an early date. But in questions of so complicated a nature
as occur in political economy, the credit of such opinions belongs of right to
the author who first established their solidity, and followed them out to their
remote consequences ; not to him who, by a fortunate accident, first stumbled
on the truth.
Besides the principles which Mr. Smith considered as more peculiarly his
own, his Inquiry exhibits a systematical view of the most important articles of
political economy, so as to serve the purpose of an elementary treatise on that
very extensive and difficult science. The skill and the comprehensiveness of
mind displayed in his arrangement, can be judged of by those alone who have
compared it with that adopted by his immediate predecessors. And perhaps,
in point of utility, the labour he has employed in connecting and methodizing
their scattered ideas, is not less valuable than the results of his own original
speculations : for it is only when digested in a clear and natural order, that
truths make their proper impressions on the mind, and that erroneous opinions
can be combated with success.
It does not belong to my present undertaking (even if I were qualified for
such a task) to attempt a separation of the solid and important doctrines of Mr.
Smith's book from those opinions which appear exceptionable or doubtful. I
acknowledge, that there are some of his conclusions to which I would not be
understood to subscribe implicitly ; more particularly in that chapter, where he
treats of the principles of taxation ; a subject, which he has certainly examined
in a manner more loose and unsatisfactory than most of the others which have
fallen under his review.
It would be improper for me to conclude this section without taking notice
of the manly and dignified freedom with which the author uniformly delivers
his opinions, and of the superiority which he discovers throughout to all the
little passions connected with the factions of the times in which he wrote,
Whoever takes the trouble to compare the general tone of his composition with
the period of its first publication cannot fail to feel and acknowledge the force
of this remark. It is not often that a disinterested zeal for truth has so soon
met with its just reward. Philosophers (to use an expression of Lord Bacon's)
are ' the servants of posterity ;' and most of those who have devoted their
talents to the best interests of mankind, have been obliged, like Bacon, to
 14
INTRODUCTO
beque RY .
s
th o
the ideaatohf eirwat another generaun
ti on was to reap consyo themse
a race yet born, and to ole lves with

10 997) DO NO
Infere Daphni pyros, carpent tua poma nepote
: sehind
anddeJetowedtl shiye
fo
Mr. Smith was more rtunate ; or rather, in this respect, his fortune was
singular. He survived the publication of his work only fifteen years ; and yet,
during that short period, he had not only the satisfaction of ver se
oreingIngottopest lo
the posi
tion which it at first excited gradually subdue, but to witness the practical
infiuence of his writings on the commercial policy of hi countr aldt ut
s y.
Hol oder strelo a to baad od)

BIOGRA om vd
PHICAL NOTICE OF ADAM SMIT
zjH,
a
LL F.R.S.bb
ADAM SMITH was born at Ki rk.caDld
.,y, Ju ne 5, 1723,
When about three years old he was carried off by tinkers or gipsies from the house
of his aunt Douglass, but was soon recoveredfrom th1em. school
72 , Aatndthweasme sickoflyKichrk
il-
caldy he made rapid progress, and showed extraordinary3po wers of a mory. Hed.
was of friendly te mp ma
erament but absent in nner, and had a habit of eaking sp
to himself when alone. In 1737 he became a student at Glasgow University, and
in 17 40 nt to lliol College, Oxford, enjoying an exhibition on the Snell'
we Ba
foundation. At Glasgow, his favourite studies were mathematics and natural
philosophy, andthe political history of mankind, and his rulingpassion wasto
contribute to the happiness and improvement ofsociety. To his knowledge of Greek
maasy be due the clearness and fulness with which he states his political
re onings.
After a residence at Oxford ofseven years, he returned to Kirkcaldy, and lived
two years with his mother, an ardent student but without any fixed plan for his
future life. He had been destined for the Church of England, but preferred to
live in Scotland.
and belles lettres, unRe
demo patr
vieng Edag
to on ine bu
ofrg inKa
Lohrd 48,s. he read lectures on rhetoric
17me
r th
In 1751 , he was elected Professor of Logic in the University of Glasgow ; and
fo Pr Ph
the year llowing, he became ofessor of Moral ilosophy there. In delivering
his lectures, Mr. Smith trusted almost entirely to extemporary elocution. His
ma er, though not graceful, was plain and unaffected, and he never failed to
intenn
rest his hearers.
science taught by him be Hica
s me fata
repu shti
ioon
nablfie,lled
anhi
d shicl opsinro
s as nsswe
ioom diescbr
thos
; re andchin
usse es thof e
clubs and literary societies of Glasgow. While he became thus
lecturer, he was preparing for the press his System of Morals
edition of his Essays appeared in 1757 under the title The Thse eory of Moas
Sentiments, thefoundation of his litera, ry reputation . minent raa l
Towards the close of 1763, Mr. Smith the first
Duke of Buccleugh, returning to London in 1766. For the next ten years he
lived with his mother at arranged to visi the c
t o wi th
long retreat, by the public Kiati onld
rkca ofy an d in 1776, accountedthtoe co thentwo
inrl
entdforthhise
ap Co mm issioner of
the Wealth of Nations. ' In 1778, Mr. Smith was poinNa ted a
Customs in Scotland. In 1784, he lost his mothin tu
ine 1788,re
erto; th his codusCa
an in,usMi
es ss of
Douglass, died, to whom he had been strongly attached ; and in July , 1790 , he
died, having a short while before, in conversation with his friend Riddell,
regretted that ' He had done so little hai) petto con al 31
Abov biographic notes and literary opinions have been abridged from a paper on The
Li[fe andeWritings of Adam Smith, ' by Professor Dugald Stewart, of Edinburgh, 1793. A." M.1

atsonstar Jasd sdl of plasist

 2DA!
ITSAS doliw ntiv sakimno sanda
lo samoox adho novborib ed of boroug
Do Jensquill 5 10CONTENTS . BOLZA
-ai otioun brg
PAGE 疑い ます 92001 PAGE
the rant
INTRODUCTION AND PLAN OF THE WORK 17 of Improvement upon the
1000 BOOK I. Price of three different sorts of
rude Produce--First Sort 186
Of the causes of Improvement inthe Produc- Second Sort .186-188
tive Powers of Labour, and of the order Third Sort 188-196
according to which its produce is Conclusion of the Digression con-
naturally distributed among the different cerning the Variations in the
ranks ofthe people. Value of Silver 196-203
CHAP. I. Ofthe Division of Labour 19-26 BeEffects ofthe Progress of Improve- 71 29209)
CHAP. II. Ofthe Principle which givestre lopment upon the real Price of Van
occasion to the Division of Labour . 26-29 Manufactures • 204-212
Conclusio n of the Chapter 212-218
CHAP. III. That the Division of I
Labour is limited by the Extent of
the Markets 10 29-32 BOOK II. T10 EV mploy
CHAP. IV. Of the Origin and the Use Ofthe Nature, Accumulation, and Employ-
ofMoney 132-37 ment of Stock.
CHAP. V. Of the Real and Nominal oldes INTRODUCTION ⚫ 219-220
Price of Commodities, or of their CHAP. I. Ofthe Divis ofStock 220-226
Price in Labour and their Price in CHAP. II. Of Money considered as apsad
Money 38-51 particular Branch of the generallaw
CHAP. VI. Ofthe Component Parts of Stock of the Society, or of the Ex- or
the Price of Commodities • 51-57 pense of maintaining the National ord
CHAP. VII. Of the Natural and Market Capital 237-264
Price of Commodities 57-64 CHAP. III. Of the Accumulation of
CHAP. VIII. Of the Wages of Labour 64-82 Capital, or of Productive and Un
CHAP. IX. Ofthe Profits of Stock . productive Labour 264-280
CHAP. X. Of Wages and Profit inthe 3-91 CHAP. IV. Of Stock lent at Interest . 280-2872
Of the Different Employ-
mentsV.ofCapit
CHAP.
different Employments of Labour 287-300
and of Stock 91-92
PARTI. Inequalities arising from BOOK III.
the Nature ofthe Employments
themselves . 92-107 Of the Different Progress of Opulence in
PART II. Inequalities occasioned Different Nations.
bythe Policy of Europe • 107-137 CHAP. I. Of the Natural Progress of
CHAP. XI. Ofthe Rent of Land 127-129 Opulence. 300-304
PART I. Of the Produce of Land CHAP. II. Of the Discouragement of
which always affords Rent 129-141 Agriculture in the ancient States of
PART II. Ofthe Produce of Land Europe, after the fall of the Roman
whichsometimes does, and some- Empire 304-313
times does not, afford Rent . 142-152 CHAP. III. Of the Rise and Progress
PART III. Ofthe Variationsinthe of Cities and Towns, after the fall
Proportion between the respec- ofthe Roman Empire • 313-322
tive Values of that sort of Pro- CHAP. IV. How the Commerce ofthe
duce which always affords Rent, Towns contributed to the Improve-
and of that which sometimes I JAKO 322-332
does, and sometimes does not, ment ofthe Country
afford Rent • 152-154 BOOK IV.
Digression concerning the Varia
tions in the Value of Silver dur OfSystems ofPolitical Economy.
ing the course of the four last INTRODUCTION • 333
Centuries-First Period • • 154-166
Second Period • 166-167 CHAP. I. Ofthe Principle of the Com-
Third Period 167-181 mercial or Mercantile System • 333-351
Variations in the Proportion be- CHAP. II. Of the Restraints upon the
tween the respective Values of Importation from Foreign Countries
Gold and Silver . 181-185 of such Goods as can be produced
Grounds of the suspicion that the at Home . • 351-367
Value of Silver maystill continue CHAP. III. Of the extraordinary Re-
to decrease . 185-186 straints upon the Importation of
Different Effects of the Progress Goods of almost all kinds, from
16 CONTENTS.

PAGE PAGA
those Countries with which the PART I. Expense of Defence • 560-570
Balance is supposed to be disadvan- PARTII. Ofthe Expense ofJustice 570-571
tageous-- PART III. Of the Expense of
PART I. Ofthe Unreasonableness Public Works and Public In-
of those Restraints, even upon stitutions. 571-578
the Principles ofthe Commercial ARTICLEI. Of the PublicWorks
System . 368-373 and Institutions for facilitat-
Digression concerning Banks of ing the Commerce of Society.
Deposit, particularly concerning Ist. Forfacilitatingthe general
that of Amsterdam . 373-380 Commerce of the Society.
PART II. Of the Unreasonable- 2nd. Forfacilitatingparticular
ness of those extraordinary Re- Branches of Commerce 578-600
straints, upon other Principles . 381-389 ARTICLE II. Ofthe Expense of
CHAP. IV. Of Drawbacks • 389-393 the Institutions for the Edu-
CHAP. V. Of Bounties. • • 393-408 cation ofYouth • 600-621
ARTICLE III. Of the Expense
Digression concerning the Corn of the Institutions for the In-
Trade and Corn Laws • 408-427 struction of People ofall Ages 622-644
CHAP. VI. OfTreaties of Commerce . 427-436 PART IV. Ofthe Expense ofsup-
CHAP. VII. OfColonies,- porting the Dignity ofthe Sove-
PART I. Of the Motives for estab- reign . 645-64€
lishing new Colonies 437-444 CHAP. II. Sources of the General or
PART II. Causes ofthe Prosperity Public Revenue of the Society • 640
of new Colonies • 444-465 PART I. Ofthe Funds or Sources
PART III. Of the Advantages of Revenue which may parti-
which Europe has derived from cularly belong to the Sove-
the Discovery of America, and reign or Commonwealth •· 647-653
from that of a passage to the PART II. Of Taxes 653-657
EastIndies by the Cape of Good ARTICLE I. Taxes upon Rent ;
Hope 465-508 upon the Rent of Land 655-663
CHAP. VIII. Conclusion of the Mer- Taxes which are proportioned
cantile System . • · 508-524 not to the Rent, but to the
CHAP. IX. Of the Agricultural Sys- Produce of Land . · 663-666
tems, or ofthose Systems ofPolitical Taxes upon Rent of Houses . 666-672
Economy which represent the Pro- ARTICLE II. Taxes upon Profit,
duce of Land as cither the sole or or upon the Revenue arising
the principal Source of the Revenue from Stock 673-677
and Wealth of every Country . • 524-546 Taxes upon the profit of parti-
cular Employments 677-682
APPENDIX. APPENDIX to Articles I. and II.
Account ofHerring Busses fitted outin Taxes on Capital Value of
Scotland,the amount oftheir Cargoes Lands, Houses, and Stock 682-687
and the Bounties on them . 425 ARTICLE III. Taxes upon the
Account of Foreign Salt imported into Wages of Labour 687-690
Scotland, and of Scotch Salt de- ARTICLE IV. Taxes which, it is
livered duty free, for the Herring intended, should fall indiffer-
Fishery • 426 ently upon every different
Species of Revenue • 690-691
BOOK V. Capitation Taxes 691
Taxes upon consumable Com-
Of the Revenue of the Sovereign or modities . 692-721
Commonwealth.
CHAP. I. Ofthe Expenses ofthe Sove- CHAP. III. OfPublic Debts. 725-760
reign or Commonwealth 546-560
 AN INQUIRY

INTO THE NATURE and CAUSES OF

THE WEALTH ' OF NATIONS

INTRODUCTION AND Plan of The Work.

THE annual labour of every nation is the fund which originally
supplies it with all the necessaries and conveniencies of life which
it annually consumes, and which consist always either in the imme-
diate produce of that labour, or in what is purchased with that produce
from other nations.
According, therefore, as this produce, or what is purchased with it,
bears a greater or smaller proportion to the number of those who are
to consume it, the nation will be better or worse supplied with all the
necessaries and conveniencies for which it has occasion.
But this proportion must, in every nation, be regulated by two
different circumstances ; first, by the skill, dexterity, and judgment
with which its labour is generally applied ; and, secondly, by the pro-
portion between the number of those who are employed in useful
labour, and that of those who are not so employed. Whatever be the
soil, climate, or extent of territory of any particular nation, the abun-
dance or scantiness of its annual supply must, in that particular situa-
tion, depend upon those two circumstances.
The abundance or scantiness of this supply, too, seems to depend
more upon the former of those two circumstances than upon the latter.
Among the savage nations of hunters and fishers, every individual who
is able to work, is more or less employed in useful labour, and endea
" ours to provide, as well as he can, the necessaries and conveniencies
of life, for himself, or such of his family or tribe as are either too old,
or too young, or too infirm to go a hunting and fishing. Such nations,
however, are so miserably poor, that from mere want, they are fre-
quently reduced, or, at least, think themselves reduced, to the neces-
sity sometimes of directly destroying, and sometimes of abandon-
ing their infants, their old people, and those afflicted with lingering
diseases, to perish with hunger, or to be devoured by wild beasts.
Among civilized and thriving nations, on the contrary, though a great
2
18 PLAN OF THIS WORK AS LAID OUT BY THE AUTHOR.

number of people do not labour at all, many of whom consume the

produce of ten times, frequently of a hundred times more labour than
the greater part of those who work ; yet the produce of the whole
labour of the society is so great, that all are often abundantly supplied,
and a workman, even of the lowest and poorest order, if he is frugal
and industrious, may enjoy a greater share of the necessaries and
conveniencies of life than it is possible for any savage to acquire.
The causes of this improvement in the productive powers of labour,
and the order according to which its produce is naturally distributed
among the different ranks and conditions of men in the society, make
the subject of the first Book of this Inquiry.
Whatever be the actual state of the skill, dexterity, and judgment
with which labour is applied in any nation, the abundance or scanti-
ness of its annual supply must depend, during the continuance of that
state, upon the proportion between the number of those who are
annually employed in useful labour, and that of those who are not so
employed. The number of useful and productive labourers, it will
hereafter appear, is every where in proportion to the quantity of
capital stock which is employed in setting them to work, and to the
particular way in which it is so employed. The Second Book, there-
fore, treats of the nature of capital stock, of the manner in which it
is gradually accumulated, and of the different quantities of labour
which it puts into motion, according to the different ways in which
it is employed .
Nations, tolerably well advanced as to skill, dexterity, and judgment,
in the application of labour, have followed very different plans in the
general conduct or direction of it ; and those plans have not all been
equally favourable to the greatness of its produce. The policy of some
nations has given extraordinary encouragement to the industry of the
country ; that of others to the industry of towns. Scarce any nation
has dealt equally and impartially with every sort of industry. Since
the downfall of the Roman empire, the policy of Europe has been more
favourable to arts, manufactures, and commerce, the industry of towns,
than to agriculture, the industry of the country. The circumstances
which seem to have introduced and established this policy are explained
in the Third Book.
Though these different plans were, perhaps, first introduced by th
private interests and prejudices of particular orders of men, without
any regard to, or foresight of, their consequences upon the general
welfare of the society ; yet they have given occasion to very different
theories of political economy ; of which some magnify the importance
of that industry which is carried on in towns, others of that which is
carried on in the country. Those theories have had a considerable
nfluence, not only upon the opinions of men of learning, but upon the
public conduct of princes and sovereign states. I have endeavoured in
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 19

the Fourth Book, to explain, as fully and distinctly as I can, those dif-
ferent theories, and the principal effects which they have produced in
different ages and nations.
To explain in what has consisted the revenue of the great body of
the people, or what has been the nature of those funds, which, in dif-
ferent ages and nations, have supplied their annual consumption , is
the object of these four first Books. The Fifth and last Book treats of
the revenue of the sovereign, or commonwealth. In this book I have
endeavoured to show ; first, what are the necessary expenses of the
sovereign, or commonwealth ; which of those expenses ought to be
defrayed by the general contribution of the whole society ; and which
of them, by that of some particular part only, or of some particular
members of it : secondly, what are the different methods in which the
whole society may be made to contribute towards defraying the ex-
penses incumbent on the whole society, and what are the principal
advantages and inconveniencies of each of those methods and, thirdly
and lastly, what are the reasons and causes which have induced almost
all modern governments to mortgage some part of this revenue, or to
contract debts, and what have been the effects of those debts upon the
real wealth, the annual produce of the land and labour of the society.

BOOK I.— OF THE CAUSES OF IMPROVEMENT IN THE PRODUCTIVE

POWERS OF LABOUR, AND OF THE ORDER ACCORDING TO WHICH
ITS PRODUCE IS NATURALLY DISTRIBUTED AMONG THE DIF-
FERENT RANKS OF THE PEOPLE.

CHAP. I. Ofthe Division ofLabour.

THE greatest improvement in the productive powers of labour, and the
greater skill, dexterity, and judgment with which it is any where
directed, or applied, seem to have been the effects of the division of
labour.
The effects of the division of labour, in the general business of
society, will be more easily understood, by considering in what manner
it operates in some particular manufactures. It is commonly supposed
to be carried furthest in some very trifling ones ; not perhaps that it
really is carried further in them than in others of more importance :
but in those trifling manufactures which are destined to supply the
small wants of but a small number of people, the whole number of
workmen must necessarily be small ; and those employed in every
different branch of the work can often be collected into the same work-
shop, and placed at once under the view of the spectator. In those
great manufactures, on the contrary, which are destined to supply the
20 DIVISION OF LABOUR PRACTISED IN MAKING PINS.

great wants of the great body of the people, every different branch of
the work employs so great a number of workmen, that it is impossible
to collect them all into the same workshop. We can seldom see
more, at one time, than those employed in one single branch. Though
in such manufactures, therefore, the work may really be divided into a
much greater number of parts, than in those of a more trifling nature,
the division is not near so obvious, and has accordingly been much
less observed.
To take an example, therefore, from a very trifling manuracture
but one in which the division of labour has been very often taken
notice of, the trade of the pin-maker ; a workman not educated to this
business (which the division of labour has rendered a distinct trade),
nor acquainted with the use of the machinery employed in it (to the
invention of which the same division of labour has probably given
occasion), could scarce, perhaps, with his utmost industry, make one
pin in a day, and certainly could not make twenty. But in the way in
which this business is now carried on, not only the whole work is a
peculiar trade, but it is divided into a number of branches, of which
the greater part are likewise peculiar trades. One man draws out the
wire, another straightens it, a third cuts it, a fourth points it, a fifth
grinds it at the top for receiving the head ; to make the head requires
two or three distinct operations ; to put it on, is a peculiar business ; to
whiten the pins is another ; it is even a trade by itself to put them into
the paper ; and the important business of making a pin is, in this
manner, divided into about eighteen distinct operations, which, in some
manufactories, are all performed by distinct hands, though in others
the same man will sometimes perform two or three of them. I have
seen a small manufactory of this kind where ten men only were em-
ployed, and where some of them consequently performed two or three
distinct operations. But though they were very poor, and therefore
bus indifferently accommodated with the necessary machinery, they
could, when they exerted themselves, make among them about twelve
pounds of pins in a day. There are in a pound upwards of four thou-
sand pins of a middling size. Those ten persons, therefore, could make
among them upwards of forty-eight thousand pins in a day. Each per-
son , therefore, making a tenth part of forty-eight thousand pins, might
be considered as making four thousand eight hundred pins in a day.
But if they had all wrought separately and independently, and without
any of them having been educated to this peculiar business, they cer-
tainly could not each of them have made twenty, perhaps not one pin
in a day ; that is, certainly, not the two hundred and fourtieth, perhaps
not the four thousand eight hundredth part of what they are at present
capable of performing, in consequence of a proper division and com-
bination of their different operations.
In every other art and manufacture, the effects of the division of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 21

labour are similar to what they are in this very trifling one ; though, in
many ofthem, the labour can neither be so much subdivided, nor reduce
to so great a simplicity of operation. The division of labour, however
so far as it can be introduced, occasions, in every art, a proportionable
increase of the productive powers of labour. The separation of different
trades and employments from one another, seems to have taken place,
in consequence of this advantage. This separation, too, is generally
carried furthest in those countries which enjoy the highest degree of
industry and improvement ; what is the work of one man in a rude
state of society, being generally that of several in an improved one.
In every improved society, the farmer is generally nothing but a
farmer ; the manufacturer, nothing but a manufacturer. The labour,
too, which is necessary to produce any one complete manufacture, is
almost always divided among a great number of hands. How many
different trades are employed in each branch of the linen and woollen
manufactures, from the growers of the flax and the wool, to the bleachers
and smoothers of the linen, or to the dyers and dressers of the cloth !
The nature of agriculture, indeed, does not admit of so many sub-
divisions of labour, nor of so complete a separation of one business
from another, as manufacturers. It is impossible to separate so en-
tirely, the business of the grazier from that of the corn-farmer, as the
trade of the carpenter is commonly separated from that of the smith.
The spinner is almost always a distinct person from the weaver ; but
the ploughman, the harrower, the sower of the seed, and the reaper of
the corn, are often the same. The occasions for those different sorts
of labour returning with the different seasons of the year, it is impossi-
ble that one man should be constantly employed in any one of them.
This impossibility of making so complete and entire a separation of all
the different branches of labour employed in agriculture, is perhaps the
reason why the improvement of the productive powers of labour in this
art does not always keep pace with their improvement in manufactures.
The most opulent nations, indeed , generally excel all their neighbours
in agriculture as well as in manufactures ; but they are commonly more
distinguished by their superiority in the latter than in the former.
Their lands are in general better cultivated, and having more labour
and expense bestowed on them, produce more in proportion to the
extent and natural fertility of the ground. But this superiority of pro-
duce is seldom much more than in proportion to the superiority of
labour and expense. In agriculture, the labour of the rich country is
not always much more productive than that of the poor ; or, at least, it
is never so much more productive, as it commonly is in manufactures.
The corn of the rich country, therefore, will not always, in the same
degree of goodness, come cheaper to market than that of the poor.
The corn of Poland, in the same degree of goodness, is as cheap as
that of France, notwithstanding the superior opulence and improve.
 22 ADVANTAGES ACCRUING TO MEN FROM DIVISION OF LABOUR.

ment ofthe latter country. The corn of France is, in the corn pro-
vinces, fully as good , and in most years nearly about the same price
with the corn of England, though, in opulence and improvement, France
is perhaps inferior to England. The corn-lands of England, however,
are better cultivated than those of France, and the corn-lands of France
are said to be much better cultivated than those of Poland. But though
the poor country, notwithstanding the inferiority of its cultivation, can,
in some measure, rival the rich in the cheapness and goodness of its
corn, it can pretend to no such competition in its manufactures ; at
least if those manufactures suit the soil, climate, and situation of the
rich country. The silks of France are better and cheaper than those
of England, because the silk manufacture, at least under the present
high duties upon the importation of raw silk, does not so well suit the
climate of England, as that of France. But the hard-ware and the
coarse woollens of England are beyond all comparison superior to
those of France, and much cheaper, too, in the same degree of good-
ness. In Poland there are said to be scarce any manufactures of any
kind, a few of those coarser household manufactures excepted , without
which no country can well subsist. *
This great increase of the quantity of work, which, in consequence
of the division of labour, the same number of people are capable of
· performing, is owing to three different circumstances ; first, to the
increase of dexterity in every particular workman ; secondly to the
saving of the time which is commonly lost in passing from one species
of work to another ; and lastly, to the invention of a great number of
machines which facilitate and abridge labour, and enable one man to
do the work of many.
I. The improvement of the dexterity of the workman necessarily
increases the quantity of the work he can perform ; and the division of
labour, by reducing every man's business to some one simple operation,
and by making this operation the sole employment of his life, neces-
sarily increases very much the dexterity of the workman. A common
smith, who, though accustomed to handle the hammer, has never been
used to make nails, if upon some particular occasion he is obliged to
attempt it, will scarce I am assured, be able to make above two of
three hundred in a day, and those, too, very bad ones. A smith who
has been accustomed to make nails, but whose sole or principal
business has not been that of a nailer, can seldom with his utmost
diligence make more than eight hundred or a thousand nails in a day.
I have seen several boys under twenty years of age who had never
exercised any other trade but that of making nails, and who, when
they exerted themselves, could make, each of them, upwards of two
thousand three hundred nails in a day. The making of a nail, how-
ever, is by no means one of the simplest operations. The same person
blows the bellows, stirs or mends the fire as there is occasion, heats the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 23

iron, and forges every part of the nail. In forging the head too he is
obliged to change his tools. The different operations into which the
making of a pin, or of a metal button, is subdivided, are all of them
much more simple, and the dexterity of the person, of whose life it has 1
been the sole business to perform them, is usually much greater. The
rapidity with which some of the operations of those manufactures are
performed, exceeds what the human hand could, by those who had
never seen them, be supposed capable of acquiring.
II. The advantage which is gained by saving the time commonly
lost in passing from one sort of work to another, is much greater than
we should at first view be apt to imagine it. It is impossible to pass
very quickly from one kind of work to another, that is carried on in
a different place, and with quite different tools. A country weaver,
who cultivates a small farm, must lose a good deal of time in passing
from his loom to the field, and from the field to his loom. When the
two trades can be carried on in the same workhouse, the loss of time
is no doubt much less. It is even in this case, however, very consider-
able. A man commonly saunters a little in turning his hand from
one sort of employment to another. When he first begins the new
work he is seldom very keen and hearty ; his mind, as they say, does
not go it, and for some time he rather trifles than applies to good
purpose. The habit of sauntering and of indolent careless application,
which is naturally, or rather necessarily, acquired by every country
workman who is obliged to change his work and his tools every half
hour, and to apply his hand in twenty different ways almost every day
of his life, renders him almost always slothful and lazy, and incapable
of any vigorous application even on the most pressing occasions.
Independent, therefore, of his deficiency in point of dexterity, this
cause alone must always reduce considerably the quantity of work
which he is capable of performing.
III. Everybody must be sensible how much labour is facilitated
and abridged by the application of proper machinery. It is unneces-
sary to give any example. I shall only observe, therefore, that the in-
vention of all those machines by which labour is so much facilitated and
abridged, seems to have been originally owing to the division of labour.
Men are much more likely to discover easier and readier methods of
attaining any object, when the whole attention of their minds is
directed towards that single object, than when it is dissipated among a
great variety of things. But in consequence of the division of labour,
the whole of every man's attention comes naturally to be directed
towards some one very simple object. It is naturally to be expected,
therefore, that some one or other of those who are employed in each
particular branch of labour should soon find out easier and readier
methods of performing their own particular work, wherever the nature
of it admits of such improvement. A great part of the machines
24 IMPROVEMENTS IN MACHINERY, HOW ORIGINATING.

made use of in those manufactures in which labour is most subdivided,

were originally the inventions of common workmen, who being each
of them employed in some very simple operation, naturally turned their
thoughts towards finding out easier and readier methods of performing
it. Whoever has been much accustomed to visit such manufactures,
must frequently have been shown very pretty machines, which were
the inventions of such workmen, in order to facilitate and quicken
heir own particular part of the work. In the first steam-engines, a boy
was constantly employed to open and shut alternately the communica-
tion between the boiler and the cylinder, according as the piston either
ascended or descended. One of those boys , who loved to play with
his companions , observed that, by tying a string from the handle of
the valve which opened this communication, to another part of the
machine, the valve would open and shut without his assistance, and
leave him at liberty to divert himself with his playfellows. One of the
greatest improvements that has been made upon this machine, since
it was first invented, was in this manner the discovery of a boy who
wanted to save his own labour.
All the improvements in machinery, however, have by no means
been the inventions of those who had occasion to use the machines.
Many improvements have been made by the ingenuity of the makers
of the machines, when to make them became the business of a peculiar
trade ; and some by that of those who are called philosophers or men
of speculation, whose trade it is not to do anything, but to observe
everything ; and who, upon that account, are often capable of com-
bining together the powers of the most distant and dissimilar objects.
In the progress of society, philosophy or speculation becomes, like
every other employment, the principal or sole trade and occupation of
a particular class of citizens. Like every other employment too, it is
subdivided into a great number of different branches, each of which
affords occupation to a peculiar tribe or class of philosophers ; and
this subdivision of employment in philosophy, as well as in every other
business, improves dexterity and saves time. Each individual becomes
more expert in his own peculiar branch, more work is done upon the
whole, and the quantity of science is considerably increased by it.
It is the great multiplication of the productions of all the different
arts, in consequence of the division of labour, which occasions, in a
well-governed society, that universal opulence which extends itself to
the lowest ranks of the people. Every workman has a great quantity
of his own work to dispose of beyond what he himself has occasion
for ; and every other workman being exactly in the same situation, he
is enabled to exchange a great quantity of his own goods for a great
quantity, or, what comes to the same thing, for the price of a great
quantity of theirs. He supplies them abundantly with what they have
occasion for, and they accommodate him as amply with what he has
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 25

occasion for, and a general plenty diffuses itself through all the dif
ferent ranks of the society.
Observe the accommodation of the most common artificer or day-
labourer in a civilized and thriving country, and you will perceive that
the number of people of whose industry a part, though but a small
part, has been employed in procuring him this accommodation, exceeds
all computation. The woollen coat, for example, which covers the
day-labourer, as coarse and rough as it may appear, is the produce of
the joint labour of a great multitude of workmen. The shepherd, the
sorter of the wool, the wool- comber or carder, the dyer, the scribbler,
the spinner, the weaver, the fuller, the dresser, with many others, must
all join their different arts in order to complete even this homely produc-
tion. How many merchants and carriers, besides, must have been em-
ployed in transporting the materials from some of those workmen to
others who often live in a very distant part of the country ! how much
commerce and navigation in particular, how many ship-builders, sailors,
sail-makers, rope-makers, must have been employed in order to bring
together the different drugs made use of by the dyer, which often come
from the remotest corners of the world ! What a variety of labour too
is necessary in order to produce the tools of the meanest of those
workmen. To say nothing of such complicated machines as the ship
of the sailor, the mill of the fuller, or even the loom of the weaver, let
us consider only what a variety of labour is requisite in order to form
that very simple machine, the shears with which the shepherd clips
the wool. The miner, the builder of the furnace for smelting the ore,
the feller of the timber, the burner of the charcoal to be made use of in
the smelting-house, the brick-maker, the bricklayer, the workmen who
attend the furnace, the mill-wright, the forger, the smith, must all of
them join their different arts in order to produce them. Were we to
examine, in the same manner, all the different parts of his dress and
household furniture, the coarse linen shirt which he wears next his
skin, the shoes which cover his feet, the bed which he lies on, and all
the different parts which compose it, the kitchen grate at which he
prepares his victuals, the coals which he makes use of for that purpose,
dug from the bowels of the earth, and brought to him perhaps by a
long sea and a long land carriage, all the other utensils of his kitchen,
all the furniture of his table, the knives and forks, the earthen or
pewter plates upon which he serves up and divides his victuals, the
different hands employed in preparing his bread and his beer, the
glass window which lets in the heat and the light, and keeps out the
wind and the rain, with all the knowledge and art requisite for pre-
paring that beautiful and happy invention, without which these northern
parts of the world could scarce have afforded a very comfortable
habitation, together with the tools of all the different workmen em-
ployed in producing those different conveniences ; if we examine, I
26 THE PRINCIPLE OF BARTER UNKNOWN TO TH← BRUTE CREATION.

say, all these things, and consider what a variety of labour is employed
about each of them, we shall be sensible that without the assistance
and co-operation of many thousands, the very meanest person in a
civilized country could not be provided, even according to, what we
very falsely imagine, the easy and simple manner in which he is com-
monly accommodated. Compared, indeed, with the more extravagant
luxury of the great, his accommodation must no doubt appear ex-
tremely simple and easy ; and yet it may be true, perhaps, that the
accommodation of an European prince docs not always so much
exceed that of an industrious and frugal peasant, as the accommoda-
tion of the latter exceeds that of many an African king, the absolute
master of the lives and liberties of ten thousand naked savages.

CHAP. II.- Ofthe Principle which gives Occasion to the Division of

Labour.
THIS division of labour, from which so many advantages are derived,
is not originally the effect of any human wisdom, which foresees and
intends that general opulence to which it gives occasion. It is the
necessary, though very slow and gradual, consequence of a certain pro-
pensity in human nature which has in view no such extensive utility ;
the propensity to truck, barter, and exchange one thing for another.
Whether this propensity be one of those original principles in human
nature, of which no further account can be given ; or whether, as
seems more probable, it be the necessary consequence of the faculties
of reason and speech, it belongs not to our present subject to inquire.
It is common to all men, and to be found in no other race of animals,
which seem to know neither this nor any other species of contracts.
Two greyhounds, in running down the same hare, have sometimes the
appearance of acting in some sort of concert. Each turns her towards
his companion, or endeavours to intercept her when his companion
turns her towards himself. This , however, is not the effect of any con-
tract, but of the accidental concurrence of their passions in the same
object at that particular time. Nobody ever saw a dog make a fair
and deliberate exchange of one bone for another with another dog. No-
body ever saw one animal by its gestures and natural cries signify to
another, this is mine, that yours I am willing to give this for that.
When an animal wants to obtain something either of a man or of ano-
ther animal, it has no other means of persuasion but to gain the favour
of those whose service it requires. A puppy fawns upon its dam, and
a spaniel endeavours by a thousand attractions to engage the attention
of its master who is at dinner, when it wants to be fed by him . Man
sometimes uses the same arts with his brethren, and when he has no
other means of engaging them to act according to his inclinations, en-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 27

deavours by every servile and fawning attention to obtain their good

will. He has not time, however, to do this upon every occasion. In
civilized society, he stands at all times in need of the co-operation and
assistance of great multitudes, while his whole life is scarce sufficient
to gain the friendship of a few persons. In almost every other race of
animals each individual, when it is grown up to maturity, is entirely in-
dependent, and in its natural state has occasion for the assistance of no
other living creature. But man has almost constant occasion for the
help of his brethren, and it is in vain for him to expect it from their
benevolence only. He will be more likely to prevail if he can interest
their self-love in his favour, and show them that it is for their own
advantage to do for him what he requires of them. Whoever offers to
another a bargain of any kind, proposes to do this. Give me that which
I want, and you shall have this which you want, is the meaning of
every such offer ; and it is in this manner that we obtain from one
another the far greater part of those good offices which we stand in
need of. It is not from the benevolence of the butcher, the brewer, or
the baker, that we expect our dinner, but from their regard to their own
interest. We address ourselves, not to their humanity, but to their self-
love ; and never talk to them of our own necessities, but of their advan-
tages. Nobody but a beggar chooses to depend chiefly upon the bene-
volence of his fellow-citizens. Even a beggar does not depend upon it
entirely. The charity of well-disposed people, indeed, supplies him
with the whole fund of his subsistence. But though this principle
ultimately provides him with all the necessaries of life which he has
occasion for, it neither does nor can provide him with them as he has
occasion for them. The greater part of his occasional wants are sup-
plied in the same manner as those of other people, by treaty, by barter,
and by purchase. With the money which one man gives him he pur-
chases food. The old clothes which another bestows upon him he ex-
changes for other old clothes which suit him better, or for lodging, or
for food, or for money, with which he can buy either food, clothes, or
lodging, as he has occasion.
As it is by treaty, by barter, and by purchase, that we obtain from
one another the greater part of those mutual good offices which we
stand in need of, so it is this same trucking disposition which originally
gives occasion to the division of labour. In a tribe of hunters or shep-
herds a particular person makes bows and arrows, for example, with
more readiness and dexterity than any other. He frequently exchanges
them for cattle or for venison with his companions ; and he finds at
last that he can in this manner get more cattle and venison, than if he
himself went to the field to catch them. From a regard to his own in-
terest, therefore, the making of bows and arrows grows to be his chief
business, and he becomes a sort of armourer. Another excels in
making the frames and covers of their little huts or movable houses
28 THE INFLUENCE OF EDUCATION UPON MEN. THE DOG.

He is accustomed to be of use in this way to his neighbours, who re-

ward him in the same manner with cattle and with venison, till at last
he finds it his interest to dedicate himself entirely to this employment,
and to become a sort of house-carpenter. In the same manner a third
becomes a smith, or a brazier ; a fourth a tanner or dresser of hides or
skins, the principal part of the clothing of savages. And thus the cer-
tainty of being able to exchange all that surplus part of the produce of
his own labour, which is over and above his own consumption, for such 1
parts of the produce of other men's labour as he may have occasion for,
encourages every man to apply himself to a particular occupation, and
to cultivate and bring to perfection whatever talent or genius he may
possess for that particular species of business.
The difference of natural talents in different men is, in reality, much
less than we are aware of ; and the very different genius which ap-
pears to distinguish men of different professions, when grown up to
maturity, is not upon many occasions so much the cause, as the effect
of the division of labour. The difference between the most dissi-
milar characters, between a philosopher and a common street porter,
for example, seems to arise not so much from nature, as from habit,
custom , and education. When they came into the world, and for the
first six or eight years of their existence, they were perhaps very much
alike, and neither their parents nor playfellows could perceive any re-
markable difference. About that age, or soon after, they come to be
employed in very different occupations. The difference of talents
comes then to be taken notice of, and widens by degrees, till at last the
vanity of the philosopher is willing to acknowledge scarce any resem-
blance. But without the disposition to truck, barter, and exchange, every
man must have procured to himself every necessary and conveniency
of life which he wanted. All must have had the same duties to per-
form , and the same work to do , and there could have been no such
difference of employment as could alone give occasion to any great
difference of talent.
As it is this disposition which forms that difference of talents, so
remarkable among men of different professions, so it is this same dis-
position which renders that difference useful. Many tribes of animals,
acknowledged to be all of the same species, derive from nature a much
more remarkable distinction of genius, than what, antecedent to custom
and education, appears to take place among men. By nature a philo-
sopher is not in genius and disposition half so different from a street
porter, as a mastiff is from a greyhound, or a greyhound from a spaniel,
or this last from a shepherd's dog. Those different tribes of animals ,
however, though all of the same species, are of scarce any use to one
another. The strength of the mastiff is not in the least supported either
by the swiftness of the greyhound, or by the sagacity of the spaniel, or
by the docility of the shepherd's dog. The effects of those different
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 29

geniuses and talents, for want of the power or disposition to barter and
exchange, cannot be brought into a common stock, and do not in the
least contribute to the better accommodation and conveniency of the
species. Each animal is still obliged to support and defend itself, sepa-
rately and independently, and derives no sort of advantage from that
variety of talents with which nature has distinguished its fellows.
Among men, on the contrary, the most dissimilar geniuses are of use to
one another ; the different produces of their respective talents, by the
general disposition to truck, barter, and exchange, being brought, as it
were, into a common stock, where every man may purchase whatever
part of the produce of other men's talents he has occasion for.

CHAP. III.-That the Division of Labour is limited by the Extent of

the Market.
As it is the power of exchanging that gives occasion to the division of
labour, so the extent of this division must always be limited by the
extent of that power, or, in other words, by the extent of the market.
When the market is very small, no person can have any encourage-
ment to dedicate himself entirely to one employment, for want of the
power to exchange all that surplus part of the produce of his own
labour, which is over and above his own consumption, for such part of
the produce of other men's labour as he has occasion for.
There are some sorts of industry, even of the lowest kind, which can
be carried on nowhere but in a great town. A porter, for example,
can find employment and subsistence in no other place. A village is
by much too narrow a sphere for him ; even an ordinary market town
is scarce large enough to afford him constant occupation. In the lone
houses and very small villages which are scattered about in so desert
a country as the Highlands of Scotland, every farmer must be butcher,
baker, and brewer for his own family. In such situations we can scarce
t expect to find even a smith, a carpenter, or a mason, within less than
twenty miles of another of the same trade. The scattered families
that live at eight or ten miles distance from the nearest of them, must
learn to perform themselves a great number of little pieces of work, for
which in more populous countries they would call in the assistance of
those workmen. Country workmen are almost everywhere obliged to
apply themselves to all the different branches of industry that have so
much affinity to one another as to be employed about the same sort o
materials. A country carpenter deals in every sort of work that is
made of wood : a country smith in every sort of work that is made of
iron. The former is not only a carpenter, but a joiner, a cabinet
maker, and even a carver in wood, as well as a wheelwright, a plough
30 COST OF TKANSPORT OF GOODS BY LAND OR BY WATER.

wright, a cart and waggon maker. The employments of the latter are
still more various. It is impossible there should be such a trade as
even that of a nailer in the remote and inland parts of the Highlands
of Scotland. Such a workman, at the rate of a thousand nails a day,
and three hundred working days in the year, will make three hundred
thousand nails in the year. But in such a situation it would be im .
possible to dispose of one thousand, that is, of one day's work in the
whole year.
As, by means of water-carriage, a more extensive market is open to
every sort of industry than what land-carriage alone can afford it, so it
is upon the sea-coast, and along the banks of navigable rivers, that
industry of every kind naturally begins to subdivide and improve itself,
and it is frequently not till a long time after that those improvements
extend themselves to the inland parts of the country. A broad-wheeled
waggon, attended by two men , and drawn by eight horses, in about six
weeks time carries and brings back between London and Edinburgh
near four ton weight of goods. In about the same time a ship navi-
gated by six or eight men, and sailing between the ports of London and
Leith, frequently carries and brings back two hundred ton weight of
goods. Six or eight men, therefore, by the help of water-carriage, can
carry and bring back in the same time the same quantity of goods
between London and Edinburgh, as fifty broad-wheeled waggons, at-
tended by a hundred men, and drawn by four hundred horses. Upon
two hundred tons of goods, therefore, carried by the cheapest land-
carriage from London to Edinburgh, there must be charged the main-
tenance of a hundred men for three weeks, and both the maintenance,
and, what is nearly equal to the maintenance, the wear and tear of four
hundred horses as well as of fifty great waggons. Whereas, upon the
same quantity of goods carried by water, there is to be charged only
the maintenance of six or eight men, and the wear and tear of a ship
of two hundred tons burthen, together with the value of the superior
risk, or the difference of the insurance between land and water-carriage.
Were there no other communication between those two places, there-
fore, but by land carriage, as no goods could be transported from the
one to the other, except such whose price was very considerable in
proportion to their weight, they could carry on but a small part of that
commerce which at present subsists between them, and consequently
could give but a small part of that encouragement which they at pre-
sent mutually afford to each other's industry. There could be little or
no commerce of any kind between the distant parts of the world.
What goods could bear the expense of land-carriage between London
and Calcutta ? Or if there were any so precious as to be able to sup-
port this expense, with what safety could they be transported through
the territories of so many barbarous nations ? Those two cities, how-
ver, at present carry on a very considerable commerce with each
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 31

other, and by mutually affording a market, give a good deal of encou

ragement to each other's industry.
Since such therefore are the advantages of water- carriage, it is
natural that the first improvements of art and industry should be made
where this conveniency opens the whole world for a market to the pro-
duce of every sort of labour, and that they should always be much later
in extending themselves into the inland parts of the country. The
inland parts of the country can for a long time have no other market
for the greater part of their goods, but the country which lies round
about them, and separates them from the sea coast, and the great
navigable rivers. The extent of their market therefore must for a
long time be in proportion to the riches and populousness of that
country, and consequently their improvement must always be posterior
to the improvement of that country. In our North American colonies
the plantations have constantly followed either the sea coast or the
banks of the navigable rivers, and have scarce anywhere extended
themselves to any considerable distance from both.
The nations that, according to the best authenticated history, appear
to have been first civilized, were those that dwelt round the coast of
the Mediterranean Sea. That sea, by far the greatest inlet that is
known in the world, having no tides, nor consequently any waves
except such as are caused by the wind only, was, by the smoothness of
its surface, as well as by the multitude of its islands, and the proximity
of its neighbouring shores, extremely favourable to the infant naviga-
tion of the world ; when, from their ignorance of the compass, men
were afraid to quit the view of the coast, and from the imperfection of
the art of ship-building, to abandon themselves to the boisterous waves
of the ocean. To pass beyond the pillars of Hercules, that is, to sail
out of the Straits of Gibraltar, was, in the ancient world, long con-
sidered as a most wonderful and dangerous exploit of navigation. It
was late before even the Phoenicians and Carthaginians, the most skilful
navigators and shipbuilders of those old times, attempted it, and they
were for a long time the only nations that did attempt it.
Of all the countries on the coast of the Mediterranean sea, Egypt
seems to have been the first in which either agriculture or manufactures
were cultivated and improved to any considerable degree. Upper
Egypt extends itself nowhere above a few miles from the Nile, and in
Lower Egypt that great river breaks itself into many different canals,
which, with the assistance of a little art, seem to have afforded a com-
munication by water-carriage, not only between all the great towns,
but between all the considerable villages, and even to many farm-
houses in the country ; nearly in the same manner as the Rhine and
the Maese do in Holland at present. The extent and easiness of this
inland navigation was probably one of the principal causes of the early
improvement of Egypt.
32 THE GREAT ADVANTAGES OF INLAND NAVIGATION.

The improvements in agriculture and manufactures seem likewise to

have been of very great antiquity in the provinces of Bengal in the
East Indies, and in some of the eastern provinces of China ; though
the great extent of this antiquity is not authenticated by any histories
of whose authority we, in this part of the world , are well assured. In
Bengal the Ganges and several other great rivers form a great number
of navigable canals , in the same manner as the Nile does in Egypt.
In the Eastern provinces of China too several great rivers form, by
their different branches, a multitude of canals, and by communicating
with one another afford an inland navigation much more extensive
than that either of the Nile or the Ganges, or perhaps than both of
them put together. It is remarkable that neither the ancient Egyptians,
nor the Indians, nor the Chinese encouraged foreign commerce, but
seem all to have derived their opulence from this inland navigation.
All the inland parts of Africa, and all that part of Asia which lies
any considerable way north of the Euxine and Caspian seas, the
ancient Scythia, the modern Tartary and Siberia, seem in all ages of
the world to have been in the same barbarous and uncivilized state in
which we find them at present. The sea of Tartary is the frozen ocean,
which admits of no navigation, and though some of the greatest rivers
in the world run through that country they are at too great a distance
from one another to carry commerce and communication through the
greater part of it. There are in Africa none of those great inlets, such
as the Baltic and Adriatic seas in Europe, the Mediterranean and
Euxine seas in both Europe and Asia, and the gulfs of Arabia,
Persia, India, Bengal, and Siam, in Asia, to carry maritime commerce
into the interior parts of that great continent ; and the great rivers of
Africa are at too great a distance from one another to give occasion to
any considerable inland navigation. The commerce , besides, which any
nation can carry on by means of a river which does not break itself
into any great number of branches or canals, and which runs into
another territory before it reaches the sea, can never be very consider-
able ; because it is always in the power of the nations who possess that
other territory to obstruct the communication between the upper
ountry and the sea. The navigation of the Danube is of very little
use to the different states of Bavaria, Austria and Hungary, in com
parison of what it would be if any of them possessed the whole of its
course till it falls into the Black Sea.

CHAP. IV.- Of the Origin and Use of Money.

WHEN the division of labour has been once thoroughly established. it
is but a very small part of a man's wants which the produce of his
own labour can supply. He supplies the far greater part of them by
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 33

exchanging that surplus part of the produce of his own labour, which
is over and above his own consumption, for such parts of the produce
of other men's labour as he has occasion for. Every man thus lives by
exchanging, or becomes in some measure a merchant, and the society
itself grows to be what is properly a commercial society.
But, when the division of labour first begun to take place, this power
of exchanging must frequently have been very much clogged and
embarrassed in its operations. One man, we shall suppose, has mor
of a certain commodity than he himself has occasion for, while another
has less. The former consequently would be glad to dispose of, and
the latter to purchase, a part of this superfluity. But, if this latter
should chance to have nothing that the former stands in need of, no
exchange can be made between them. The butcher has more meat in
his shop than he himself can consume, and the brewer and the baker
would each of them be willing to purchase a part of it. But they have
nothing to offer in exchange, except the different productions of their
respective trades, and the butcher is already provided with all the
bread and beer which he has immediate occasion for. No exchange
can, in this case, be made between them. He cannot be their merchant,
nor they his customers ; and they are all of them thus mutually less
serviceable to one another. In order to avoid the inconveniency of
such situations, every prudent man in every period of society, after the
first establishment of the division of labour, must naturally have
endeavoured to manage his affairs in such a manner as to have at all
times by him, besides the peculiar produce of his own industry, a
certain quantity of some one commodity or other, such as he imagined
few people would be likely to refuse in exchange for the produce of
their industry.
Many different commodities, it is probable, were successively both
thought of and employed for this purpose. In the rude ages of society,
cattle are said to have been the common instrument of commerce ;
and, though they must have been a most inconvenient one, yet in old
times we find things were frequently valued according to the number
of cattle which had been given in exchange for them. The armour of
Diomede, says Homer, cost only nine oxen ; but that of Glaucus cost
an hundred oxen. Salt is said to be the common instrument of com-
merce and exchanges in Abyssinia ; a species of shells in some parts of
the coast of India ; dried cod at Newfoundland ; tobacco in Virginia ;
sugar in some of our West Indian colonies ; hides or dressed leather
in some other countries ; and there is at this day a village in Scotland
where it is not uncommon, I am told, for a workman to carry nails
instead of money to the baker's shop or the ale house.
In all countries, however, men seem at last to have been determined
by irresistible reasons to give the preference, for this employment, to
metals above every other commodity. Metals can not only be kept
3
34 METALS THE MEDIUM OF EXCHANGE. ORIGIN OF COINED MONEY.

with as little loss as any other commodity, scarce anything being less
perishable than they are, but they can likewise, without any loss, be
divided into any number of parts, as by fusion those parts can easily
be re-united again ; a quality which no other equally durable commodi-
ties possess, and which more than any other quality renders them fit to
be the instruments of commerce and circulation. The man who wanted
to buy salt, for example, and had nothing but cattle to give in exchange
for it, must have been obliged to buy salt to the value of a whole ox,
or a whole sheep, at a time. He could seldom buy less than this,
because what he was to give for it could seldom be divided without
loss ; and if he had a mind to buy more, he must, for the same reasons,
have been obliged to buy double or triple the quantity, the value, to
wit, of two or three oxen, or of two or three sheep. If, on the contrary,
instead of sheep or oxen, he had metals to give in exchange for it, he
could easily proportion the quantity of the metal to the precise quantity
of the commodity which he had immediate occasion for.
Different metals have been made use of by different nations for this
purpose. Iron was the common instrument of commerce among the
ancient Spartans ; copper among the ancient Romans ; and gold and
silver among all rich and commercial nations.
Those metals seem originally to have been made use of for this pur-
pose in rude bars, without any stamp or coinage. Thus we are told by
Pliny (Plin. Hist. Nat. lib. 33. cap. 3. ) , upon the authority of Timæus,
an ancient historian, that, till the time of Servius Tullius, the Romans
had no coined money, but made use of unstamped bars of copper, to
purchase whatever they had occasion for. These rude bars, therefore,
performed at this time the function of money.
The use of metals in this rude state was attended with two very con-
siderable inconveniencies ; first, with the trouble of weighing ; and,
secondly, with that of assaying them. In the precious metals, where a
small difference in the quantity makes a great difference in the value,
even the business of weighing, with proper exactness, requires at least
very accurate weights and scales. The weighing of gold in particular
is an operation of some nicety. In the coarser metals, indeed, where
a small error would be of little consequence, less accuracy would, no
doubt, be necessary. Yet we should find it excessively troublesome, if
every time a poor man had occasion either to buy or sell a farthing's
worth of goods, he was obliged to weigh the farthing. The operation
of assaying is still more difficult, still more tedious, and, unless a part of
the metal is fairly melted in the crucible, with proper dissolvents, any
conclusion that can be drawn from it, is extremely uncertain. Before
the institution of coined money, however, unless they went through
this tedious and difficult operation, people must always have been liable
to the grossest frauds and impositions, and instead of a pound weight
of pure silver, or pure copper, might receive in exchange for their goods
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 35

an adulterated composition of the coarsest and cheapest materials,

which had, however, in their outward appearance been made to resem-
ble those metals. To prevent such abuses, to facilitate exchanges, and
thereby to encourage all sorts of industry and commerce, it has been
found necessary, in all countries that have made any considerable
advances towards improvement, to affix a public stamp upon certain
quantities of such particular metals as were in those countries com-
monly made use of to purchase goods. Hence the origin of coined
money, and of those public offices called mints ; institutions exactly of
the same nature with those of the aulnagers and stampmasters of
woollen and linen cloth. All of them are equally meant to ascertain,
by means of a public stamp, the quantity and uniform goodness of
those different commodities when brought to market.
The first public stamps of this kind that were affixed to the current
metals, seem in many cases, to have been intended to ascertain, what
it was both most difficult and most important to ascertain, the good-
ness or fineness of the metal, and to have resembled the sterling mark
which is at present affixed to plate and bars of silver, or the Spanish
mark which is sometimes affixed to ingots of gold, and which being
struck only upon one side of the piece, and not covering the whole
surface, ascertains the fineness, but not the weight of the metal,
Abraham weighs to Ephron the four hundred shekels of silver which he
had agreed to pay for the field of Machpelah. They are said however
to be the current money of the merchant, and yet are received by
weight and not by tale, in the same manner as ingots of gold and bars
of silver are at present. The revenues of the ancient Saxon kings of
England are said to have been paid, not in money, but in kind, that is,
in victuals and provisions of all sorts. William the Conqueror intro-
duced the custom of paying them in money. This money however
was, for a long time, received at the exchequer by weight and not
by tale.
The inconveniency and difficulty of weighing those metals with
exactness gave occasion to the institution of coins, of which the stamp,
covering entirely both sides of the piece and sometimes the edges too,
was supposed to ascertain not only the fineness, but the weight of the
metal. Such coins therefore were received by tale as at present, with-
out the trouble of weighing.
The denominations of those coins seem originally to have expressed
the weight or quantity of metal contained in them. In the time of
Servius Tullius, who first coined money at Rome, the Roman As or
Pondo contained a Roman pound of good copper. It was divided in
the same manner as our Troyes pound, into twelve ounces, each of
which contained a real ounce of good copper. The English pound
sterling in the time of Edward I. contained a pound, Tower weight, of
silver of a known fineness. The Tower pound seems to have been
3*
36 HISTORY OF THE POUNDS, SHILLINGS, AND PENCE CURRENCY.

something more than the Roman pound, and something less than
the Troyes pound. This last was not introduced into the mint of
England till the 18th of Henry VIII . The French livre contained in
the time of Charlemagne a pound, Troyes weight, of silver of a known
fineness. The fair of Troyes in Champagne was at that time frequented
by all the nations of Europe, and the weights and measures of so
famous a market were generally known and esteemed. The Scots
money pound contained, from the time of Alexander I. to that of
Robert Bruce, a pound of silver of the same weight and fineness with
the English pound sterling. English , French, and Scots pennies too,
contained all of them originally a real pennyweight of silver, the
twentieth part of an ounce, and the two-hundred-and-fortieth part of a
pound. The shilling too seems originally to have been the denomina-
tion of a weight. When wheat is at twelve shillings the quarter, says
an ancient statute of Henry III., then wastel bread of afarthing shall
weigh seven shillings and four pence. The proportion, however,
between the shilling and either the penny on the one hand, or the
pound on the other, seems not to have been so constant and uniform
as that between the penny and the pound. During the first race of the
kings of France, the French sou or shilling appears upon different
occasions to have contained five, twelve, twenty, and forty pennies.
Among the ancient Saxons a shilling appears at one time to have con-
tained only five pennies, and it is not improbable that it may have been
as variable among them as among their neighbours, the ancient Franks.
From the time of Charlemagne among the French , and from that of
William the Conqueror among the English, the proportion between the
pound, the shilling, and the penny, seems to have been uniformly the
same as at present, though the value of each has been very different.
For in every country of the world , I believe, the avarice and injustice
of princes and sovereign states, abusing the confidence of their sub-
jects, have by degrees diminished the real quantity of metal which had
been originally contained in their coins. The Roman As, in the latter
ages of the republic, was reduced to the twenty-fourth part of its
original value, and, instead of weighing a pound, came to weigh only
half an ounce. The English pound and penny contain at present
about a third only ; the Scots pound and penny about a thirty-sixth ;
and the French pound and penny about a fifty-sixth part of their
original value. By means of those operations the princes and sove-
reign states which performed them were enabled, in appearance , to pay
their debts and to fulfil their engagements with a smaller quantity
of silver than would otherwise have been requisite. It was indeed in
appearance only, for their creditors were really defrauded of a part of
what was due to them. All other debtors in the state were allowed the
same privilege, and might pay with the same nominal sum of the new
and debased coin whatever they had borrowed in the old. Such
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 37

operations, therefore, have always proved favourable to the debtor, and

ruinous to the creditor, and have sometimes produced a greater and
more universal revolution in the fortunes of private persons than could
have been occasioned by a very great public calamity.
It is in this manner that money has become, in all civilized nations,
the universal instrument of commerce, by the intervention of which
goods of all kinds are bought and sold, or exchanged for one another.
What are the rules which men naturally observe in exchanging them
either for money or for one another, I shall now proceed to examine.
These rules determine what may be called the relative or exchangeable
value of goods.
The word VALUE, it is to be observed, has two different meanings,
and sometimes expresses the utility of some particular object, and
sometimes the power of purchasing other goods which the possession
of that object conveys. The one may be called ' value in use ;' the
other, ' value in exchange.' The things which have the greatest value
in use have frequently little or no value in exchange ; and, on the con-
trary, those which have the greatest value in exchange have frequently
little or no value in use. Nothing is more useful than water : but it will
purchase scarce anything ; scarce anything can be had in exchange for
it. A diamond, on the contrary, has scarce any value in use, but a very
great quantity of goods may frequently be had in exchange for it.
In order to investigate the principles which regulate the exchange-
able commodities, I shall endeavour to show,—
I. What is the real measure of this exchangeable value ; or, wherein
consists the real price of all commodities.
II. What are the different parts of which this real price is composed
or made up.
III. And what are the different circumstances which sometimes
raise some or all of these different parts of price above, and sometimes
sink them below, their natural or ordinary rate ; or, what are the causes
which sometimes hinder the market price, that is, the actual price of
commodities, from coinciding exactly with what may be called their
natural price.
I shall endeavour to explain, as fully and distinctly as I can, those
three subjects in the three following chapters, for which I must very
earnestly entreat both the patience and attention of the reader : his
patience in order to examine a detail which may perhaps in some
places appear unnecessarily tedious ; and his attention in order to
understand what may, perhaps, after the fullest explication which I am
capable of giving it, appear still in some degree obscure. I am always
willing to run some hazard of being tedious in order to be sure that I
am perspicuous ; and after taking the utmost pains that I can to be
perspicuous, some obscurity may still appear to remain upon a subject
in its own nature extremely abstracted.
38 THE PRICE OF EVERYTHING IS THE TROUBLE OF ACQUIRING IT.

CHAP. V. - Of the real and nominal Price of Commodities, or of their

Price in Labour, and their Price in Money.

EVERY man is rich or poor according to the degree in which he can

afford to enjoy the necessaries, conveniencies, and amusements of
human life. But after the division of labour has once thoroughly
taken place, it is but a very small part of these with which a man's
own labour can supply him. The far greater part of them he must
derive from the labour of other people, and he must be rich or poor
according to the quantity of that labour which he can command, or
which he can afford to purchase. The value of any commodity, there-
fore, to the person who possesses it, and who means not to use or con-
sume it himself, but to exchange it for other commodities, is equal to
the quantity of labour which it enables him to purchase or command.
Labour, therefore, is the real measure of the exchangeable value of all
commodities.
Thereal price of everything, what everything really costs totheman who
wants to acquire it, is the toil and trouble of acquiring it. What every
thing is really worth to the man who has acquired it, and who wants to
dispose of it or exchange it for something else, is the toil and trouble
which it can save to himself, and which it can impose upon other
people. What is bought with money or with goods is purchased by
labour, as much as what we require by the toil of our own body. That
money or those goods indeed save us this toil. They contain the value
of a certain quantity of labour, which we exchange for what is supposed
at the time to contain the value of an equal quantity. Labour was the
first price, the original purchase money that was paid for all things. It
was not by gold or by silver, but by labour, that all the wealth of the
world was originally purchased ; and its value, to those who possess it,
and who want to exchange it for some new productions, is precisely
equal to the quantity of labour which it can enable them to purchase
or command.
Wealth, as Mr. Hobbes says, is power. But the person who either
acquires, or succeeds to a great fortune, does not necessarily acquire or
succeed to any political power, either civil or military. His fortune may
perhaps, afford him the means of acquiring both, but the mere possession
of that fortune does not necessarily convey to him either. The power
which that possession immediately and directly conveys to him, is the
power of purchasing ; a certain command over all the labour, or over
all the produce of labour which is then in the market. His fortune is
greater or less precisely in proportion to the extent of this power ; or
to the quantity of other men's labour, or, what is the same thing, of
the produce of other men's labour which it enables him to purchase or
command. The exchangeable value of everything must always be
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 39

precisely equal to the extent of this power which it will convey

to its owner.
But though labour be the real measure of the exchangeable value of
all commodities, it is not that by which their value is commonly esti-
mated. It is often difficult to ascertain the proportion between two
different quantities of labour. The time spent in two different sorts of
work will not always alone determine this proportion. The different
degrees of hardship endured, and of ingenuity exercised, must likewise
be taken into account. There may be more labour in an hour's hard
work than in two hours' easy business ; or in an hour's application to
a trade which it cost ten years' labour to learn , than in a month's
industry at an ordinary and obvious employment. But it is not easy to
find any accurate measure either of hardship or ingenuity. In exchang-
ing indeed the different productions of different sorts of labour for one
another, some allowance is commonly made for both. It is adjusted ,
however, not by any accurate measure, but by the higgling and the bar-
gaining of the market, according to that sort of rough equality which,
though not exact, is yet sufficient for carrying on the business of
common life.
Every commodity, besides, is more frequently exchanged for, and
thereby compared with, other commodities than with labour. It is
more natural therefore to estimate its exchangeable value by the quan-
tity of some other commodity, than by that of the labour which it can
purchase. The greater part of people too understand better what is
meant by a quantity of a particular commodity than by a quantity of
labour. The one is a plain and palpable object ; the other an abstract
notion, which, though it can be made sufficiently intelligible, is not
altogether so natural and obvious.
But, when barter ceases, and money has become the common instru-
ment of commerce, every particular commodity is more frequently ex-
changed for money than for any other commodity. The butcher seldom
carries his beef or his mutton to the baker or the brewer, in order to
exchange them for bread or for beer ; but he carries them to the market,
where he exchanges them for money, and afterwards exchanges that
money for bread and for beer. The quantity of money which he gets
for them regulates too the quantity of bread and beer which he can
afterwards purchase. It is more natural and obvious to him, therefore,
to estimate their value by the quantity of money, the commodity for
which he immediately exchanges them, than by that of bread and beer,
.ne commodities for which he can exchange them only by the interven-
tion of another commodity ; and rather to say that his butcher's meat
is worth threepence or fourpence a pound, than that it is worth three or
four pounds of bread, or three or four quarts of small beer. Hence it
comes to pass, that the exchangeable value of every commodity is more
frequently estimated by the quantity of money, than by the quantity
 40 LABOUR THE REAL, MONEY THE NOMINAL PRICE OF GOODS.

either of labour or of any other commodity which can be had in ex-

change for it.
Gold and silver, however, like every other commodity, vary in their
value, are sometimes cheaper and sometimes dearer, sometimes of
easier and sometimes of more difficult purchase. The quantity of
labour which any particular quantity of them can purchase or com-
mand, or the quantity of other goods which it will exchange for, depends
always upon the fertility or barrenness of the mines which happen to
P be known about the time when such exchanges are made. The dis-
covery of the abundant mines of America reduced , in the sixteenth
century, the value of gold and silver in Europe to about a third of what
it had been before. As it costs less labour to bring those metals from
the mine to the market, so when they were brought thither they could
purchase or command less labour ; and this revolution in their value,
though perhaps the greatest, is by no means the only one of which
history gives some account. But as a measure of quantity, such as the
natural foot, fathom, or handful, which is continually varying in its own
quantity, can never be an accurate measure of the quantity of other
things ; so a commodity, which is itself continually varying in its own
value, can never be an accurate measure of the value of other com-
modities. Equal quantities of labour, at all times and places, may
be said to be of equal value to the labourer. In his ordinary state of
health, strength and spirits ; in the ordinary degree of his skill and
dexterity, he must always lay down the same portion of his ease, his
liberty, and his happiness. The price which he pays must always be
the same, whatever may be the quantity of goods which he receives in
return for it. Of these indeed it may sometimes purchase a greater
and sometimes a smaller quantity ; but it is their value which varies,
not that of the labour which purchases them. At all times and places
that is dear which it is difficult to come at, or which it costs much
labour to acquire ; and that cheap which is to be had easily, or with
very little labour. Labour alone therefore, never varying in its own
value, is alone the ultimate and real standard by which the value of all
commodities can at all times and places be estimated and compared.
It is their real price ; money is their nominal price only.
But though equal quantities of labour are always of equal value to
the labourer, yet to the person who employs him they appear sometimes
to be of greater and sometimes of smaller value. He purchases them
sometimes with a greater and sometimes with a smaller quantity of
goods, and to him the price of labour seems to vary like that of all other
things. It appears to him dear in the one case, and cheap in the other.
In reality, however, it is the goods which are cheap in the one case, and
dear in the other.
In this popular sense therefore labour, like commodities, may be said
to have a real and a nominal price. Its real price may be said to con-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 41

sist in the quantity of the necessaries and conveniences of life which

are given for it ; its nominal price, in the quantity of money. The
labourer is rich or poor, is well or ill rewarded, in proportion to the real
not to the nominal price of his labour.
The distinction between the real and the nominal price of commodi-
ties and labour, is not a matter of mere speculation, but may sometimes
be of considerable use in practice. The same real price is always at
the same value ; but on account of the variations in the value of gold
and silver, the same nominal price is sometimes of very different
values. When a landed estate, therefore, is sold with a reservation of
a perpetual rent, if it is intended that this rent should always be of the
same value, it is of importance to the family in whose favour it is re-
served, that it should not consist in a particular sum of money. Its
value would in this case be liable to variations of two different kinds ;
first, to those which arise from the different quantities of gold and silver
which are contained at different times in coin of the same denomina-
tion ; and, secondly, to those which arise from the different values of
equal quantities of gold and silver at different times.
Princes and sovereign states have frequently fancied that they had a
temporary interest to diminish the quantity of pure metal contained in
their coins ; but they seldom have fancied that they had any to augment
it. The quantity of metal contained in the coins, I believe of all
nations, has, accordingly, been almost continually diminishing, and
hardly ever augmenting. Such variations therefore tend almost always
to diminish the value of a money rent.
The discovery of the mines of America diminished the value of gold
and silver in Europe. This diminution, it is commonly supposed,
though I apprehend without any certain proof, is still going on gradu-
ally, and is likely to continue to do so for a long time. Upon this sup-
position, therefore, such variations are more likely to diminish, than to
augment the value of a money rent, even though it should be stipulated
to be paid, not in such a quantity of coined money of such a denomi-
nation (in so many pounds sterling, for example), but in so many ounces
either of pure silver, or of silver of a certain standard.
1 The rents which have been reserved in corn have preserved their
value much better than those which have been reserved in money, even
where the denomination of the coin has not been altered. ' By the 18th
of Elizabeth it was enacted, That a third of the rent of all college
leases should be reserved in corn, to be paid, either in kind, or accord-
ing to the current prices at the nearest public market. The money
arising from this corn rent, though originally but a third of the whole,
is in the present times, according to Doctor Blackstone, commonly near
double of what arises from the other two-thirds. The old money rents
of colleges must, according to this account, have sunk almost to a fourth
part of their ancient value ; or are worth little more than a fourth part
42 DIFFERENCE IN VALUE BETWEEN COIN, AND MONEY RENTS.

of the corn which they were formerly worth. But since the reign of
Philip and Mary the denomination of the English coin has undergone
little or no alteration, and the same number of pounds, shillings and
pence have contained very nearly the same quantity of pure silver.
This degradation, therefore, in the value of the money rents of colleges,
has arisen altogether from the degradation in the value of silver.
When the degradation in the value of silver is combined with the
diminution of the quantity of it contained in the coin of the same
denomination, the loss is frequently still greater. In Scotland, where
the denomination of the coin has undergone much greater alterations
than it ever did in England, and in France, where it has undergone
still greater alterations than it ever did in Scotland, some ancient rents,
originally of considerable value, have in this manner been reduced
almost to nothing.
Equal quantities of labour will, at distant times, be purchased more
nearly with equal quantities of corn, the subsistence of the labourer,
than with equal quantities of gold and silver, or perhaps of any other
commodity. Equal quantities of corn, therefore, will, at distant times,
be more nearly of the same real value, or enable the possessor to pur-
chase or command more nearly the same quantity of the labour of other
people. They will do this, I say, more nearly than equal quantities of
almost any other commodity ; for even equal quantities of corn will not
do it exactly. The subsistence of the labourer, or the real price of
labour, as I shall endeavour to show hereafter, is very different upon
different occasions ; more liberal in a society advancing to opulence,
than in one that is standing still ; and in one that is standing still, than
in one that is going backwards. Every other commodity, however,
will at any particular time purchase a greater or smaller quantity of
labour in proportion to the quantity of subsistence which it can purchase
at that time. A rent therefore reserved in corn is liable only to the
variations in the quantity of labour which a certain quantity of corn
can purchase. But a rent reserved in any other commodity is liable,
not only to the variations in the quantity of labour which any particular
quantity of corn can purchase, but to the variations in the quantity
of corn which can be purchased by any particular quantity of that
commodity.
Though the real value of a corn rent, it is to be observed however,
varies much less from century to century than that of a money rent, it
varies much more from year to year. The money price of labour, as
I shall endeavour to show hereafter, does not fluctuate from year to
year with the money price of corn, but seems to be everywhere accom-
modated, not to the temporary or occasional, but to the average or
ordinary price of that necessary of life. The average or ordinary price
of corn again is regulated, as I shall likewise endeavour to show here-
after, by the value of silver, by the richness or barrenness of the mines
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 43

which supply the market with that metal, or by the quantity of labour
which must be employed, and consequently of corn which must be
consumed, in order to bring any particular quantity of silver from the
mine to the market. But the value of silver, though it sometimes
varies greatly from century to century, seldom varies much from year
to year, but frequently continues the same, or very nearly the same,
for half a century or a century together. The ordinary or average
money price of corn, therefore, may, during so long a period, continue
the same or very nearly the same too, and along with it the money
price of labour, provided, at least, the society continues, in other
respects, in the same or nearly in the same condition. In the mean
time the temporary and occasional price of corn may frequently be
double, one year, of what it had been the year before, or fluctuate, for
example, from five and twenty to fifty shillings the quarter. But when
corn is at the latter price, not only the nominal, but the real value of a
corn rent will be double of what it is when at the former, or will com-
mand double the quantity either of labour or of the greater part of
other commodities ; the money price of labour, and along with it that
of most other things, continuing the same during these fluctuations.
Labour, therefore, it appears evidently, is the only universal, as well
as the only accurate measure of value, or the only standard by which
we can compare the values of different commodities at all times and
at all places. We cannot estimate, it is allowed, the real value of
different commodities from century to century by the quantities of
silver which were given for them. We cannot estimate it from year to
year by the quantities of corn. By the quantities of labour we can,
with the greatest accuracy, estimate it both from century to century
and from year to year. From century to century, corn is a better
measure than silver, because, from century to century, equal quantities
of corn will command the same quantity of labour more nearly than
equal quantities of silver. From year to year, on the contrary, silver
is a better measure than corn, because equal quantities of it will more
nearly command the same quantity of labour.
But though in establishing perpetual rents, or even in letting very
long leases, it may be of use to distinguish between the real and
nominal price ; it is of none in buying and selling, the more common
and ordinary transactions of human life.
At the same time and place the real and the nominal price of all
commodities are exactly in proportion to one another. The more or
less money you get for any commodity, in the London market, for
example, the more or less labour it will at that time and place enable
you to purchase or command. At the same time and place, therefore,
money is the exact measure of the real exchangeable value of all com-
modities. It is so, however, at the same time and place only.
Though, at distant places, there is no regular proportion between the
44 THEORY OF EXCHANGE. THE MONEY PRICE OF GOODS.

real and the money price of commodities, yet the merchant who carries
goods from one to the other has nothing to consider but their money
price, or the difference between the quantity of silver for which he
buys them, and that for which he is likely to sell them. Half an
ounce of silver at Canton in China may command a greater quantity
both of labour and of the necessaries and conveniences of life, than an
ounce at London. A commodity, therefore, which sells for half an
ounce of silver at Canton may there be really dearer, of more real im-
portance to the man who possesses it there, than a commodity which
sells for an ounce at London is to the man who possesses it at London.
If a London merchant, however, can buy at Canton for half an ounce
of silver, a commodity which he can afterwards sell at London for an
ounce, he gains a hundred per cent. by the bargain, just as much as if
an ounce of silver was at London exactly of the same value as at
Canton. It is of no importance to him that half an ounce of silver at
Canton would have given him the command of more labour and of a
greater quantity of the necessaries and conveniences of life than an
ounce can do at London. An ounce at London will always give him
the command of double the quantity of all these, which half an ounce
could have done there, and this is precisely what he wants.
As it is the nominal or money price of goods, therefore, which finally
determines the prudence or imprudence of all purchases and sales, and
thereby regulates almost the whole business of common life in which
price is concerned, we cannot wonder that it should have been so much
more attended to than the real price.
In such a work as this, however, it may sometimes be of use to
compare the different real values of a particular commodity at different
times and places, or the different degrees of power over the labour of
other people which it may, upon different occasions , have given to
those who possessed it. We must in this case compare, not so much
the different quantities of silver for which it was commonly sold, as
the different quantities of labour which those different quantities of
silver could have purchased. But the current prices of labour at dis-
tant times and places can scarce ever be known with any degree of
exactness. Those of corn, though they have in few places been
regularly recorded, are in general better known and have been more
frequently taken notice of by historians and other writers. We must
generally, therefore, content ourselves with them , not as being always
exactly in the same proportion as the current prices of labour, but as
being the nearest approximation which can commonly be had to that
proportion. I shall hereafter have occasion to make several compari-
sons of this kind.
In the progress of industry, commercial nations have found it con-
venient to coin several different metals into money ; gold for larger
payments, silver for purchases of moderate value, and copper, or some
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 45

other coarse metal, for those of still smaller consideration. They have
always, however, considered one of those metals as more peculiarly the
measure of value than any of the other two ; and this preference
seems generally to have been given to the metal which they happened
first to make use of as the instrument of commerce. Having once
began to use it as their standard, which they must have done when
they had no other money, they have generally continued to do so even
when the necessity was not the same.
The Romans are said to have had nothing but copper money till
within five years before the first Punic war, (Pliny, lib. xxxiii. c. 3, )
when they first began to coin silver. Copper, therefore, appears to
have continued always the measure of value in that republic. At Rome
all accounts appear to have been kept, and the value of all estates to
have been computed, either in Asses or in Sestertii. The As was
always the denomination of a copper coin. The word Sestertius sig-
nifies two Asses and a half. Though the Sestertius, therefore, was (
originally a silver coin, its value was estimated in copper. At Rome,
one who owed a great deal of money, was said to have a great deal of
other people's copper.
The northern nations who established themselves upon the ruins of
the Roman empire, seem to have had silver money from the first
beginning of their settlements, and not to have known either gold or
copper coins for several ages thereafter. There were silver coins in
England in the time of the Saxons ; but there was little gold coined
till the time of Edward III . nor any copper till that of James I. of
Great Britain. In England, therefore, and for the same reason, I
believe, in all other modern nations of Europe, all accounts are kept,
and the value of all goods and of all estates is generally computed in
silver ; and when we mean to express the amount of a person's fortune,
we seldom mention the number of guineas, but the number of pounds
sterling which we suppose would be given for it.
Originally, in all countries, I believe, a legal tender of payment could
be made only in the coin of that metal, which was peculiarly considered
as the standard or measure of value. In England, gold was not con-
sidered as a legal tender for a long time after it was coined into money.
The proportion between the values of gold and silver money was not
fixed by any public law or proclamation ; but was left to be settled by
the market. If a debtor offered payment in gold, the creditor might
either reject such payment altogether, or accept of it at such a valua-
8
tion of the gold as he and his debtor could agree upon. Copper is not
at present a legal tender, except in the change of the smaller silver
coins. In this state of things the distinction between the metal which
was the standard, and that which was not the standard, was something
more than a nominal distinction.
In process of time, and as people became gradually more familiar
46 VALUE AND PROPORTION OF DIFFERENT COINED METALS .

with the use of the different metals in coin, and consequently better
acquainted with the proportion between their respective values, it has
in most countries, I believe, been found convenient to ascertain this
proportion, and to declare by a public law that a guinea, for example,
of such a weight and fineness , should exchange for one-and-twenty
shillings, or be a legal tender for a debt of that amount. In this state
of things, and during the continuance of any one regulated proportion
of this kind, the distinction between the metal which is the standard,
and the metal which is not the standard, becomes little more than a
nominal distinction.
In consequence of any change, however, in this regulated proportion,
this distinction becomes, or at least seems to become, something more
than nominal again. If the regulated value of a guinea, for example
was either reduced to twenty, or raised to two-and-twenty shillings, all
accounts being kept and almost all obligations for debt being expressed
in silver money, the greater part of payments could in either case be
made with the same quantity of silver money as before ; but would
require very different quantities of gold money ; a greater in the one
case, and a smaller in the other. Silver would appear to be more
invariable in its value than gold. Silver would appear to measure the
value of gold, and gold would not appear to measure the value of
silver. The value of gold would seem to depend upon the quantity of
silver which it would exchange for ; and the value of silver would not
seem to depend upon the quantity of gold which it would exchange
for. This difference, however, would be altogether owing to the custom
of keeping accounts, and of expressing the amount of all great and
small sums rather in silver than in gold money. One of Mr. Drum-
mond's notes for five-and-twenty or fifty guineas would, after an altera-
tion of this kind, be still payable with five-and-twenty or fifty guineas
in the same manner as before. It would, after such an alteration, be
payable with the same quantity of gold as before, but with very differ-
ent quantities of silver. In the payment of such a note, gold would
appear to be more invariable in its value than silver. Gold would
appear to measure the value of silver, and silver would not appear to
measure the value of gold. If the custom of keeping accounts, and of
expressing promissory notes and other obligations for money in this
manner, should ever become general, gold, and not silver, would be
considered as the metal which was peculiarly the standard or measure
of value.
In reality, during the continuance of any one regulated proportion
between the respective values of the different metals in coin, the value
of the most precious metal regulates the value of the whole coin.
Twelve copper pence contain half a pound, avoirdupois, of copper, of
not the best quality, which, before it is coined, is seldom worth seven-
pence in silver. But as by the regulation twelve such pence are ordered
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 47

to exchange for a shilling, they are in the market considered as worth

a shilling, and a shilling can at any time be had for them. Even before
the late reformation of the gold coin of Great Britain, the gold, that
part of it at least which circulated in London and its neighbourhood,
was in general less degraded below its standard weight than the greater
part of the silver. One and twenty worn and defaced shillings, how-
ever, were considered as equivalent to a guinea, which perhaps , indeed,
was worn and defaced too, but seldom so much so. The late regula- 4
tions have brought the gold coin as near perhaps to its standard
weight as it is possible to bring the current coin of any nation ; and
the order, to receive no gold at the public offices but by weight, is
likely to preserve it so, as long as that order is enforced. The silver
coin still continues in the same worn and degraded state as before the
reformation of the gold coin. In the market, however, one-and-twenty
shillings of the degraded silver coin are still considered as worth a
guinea of this excellent gold coin.
The reformation of the gold coin has evidently raised the value of
the silver coin which can be exchanged for it.
In the English mint a pound weight of gold is coined into forty-four
guineas and a half, which, at one-and-twenty shillings the guinea, is
equal to forty-five pounds fourteen shillings and sixpence. An ounce
of such gold coin, therefore, is worth 37. 175. 10d. in silver. In Eng-
land no duty or seignorage is paid upon the coinage, and he who
carries a pound weight or an ounce weight of standard gold bullion to
the mint, gets back a pound weight or an ounce weight of gold in coin,
without any deduction. Three pounds seventeen shillings and ten-
pence halfpenny an ounce, therefore, is said to be the mint price of
gold in England, or the quantity of gold coin which the mint gives in
return for standard gold bullion. Before the reformation of the gold
coin, the price of standard gold bullion in the market had for many
years been upwards of 37. 185. sometimes 37. 19s. and very fre-
quently 47. an ounce ; that sum, it is probable, in the worn and de-
graded gold coin, seldom containing more than an ounce of standard
gold. Since the reformation of the gold coin, the market price of
standard gold bullion seldom exceeds 37. 175. 7d. an ounce. Before
the reformation of the gold coin, the market price was always more or
less above the mint price. Since that reformation, the market price
has been constantly below the mint price. But that market price is
the same whether it is paid in gold or in silver coin. The late reforma-
tion of the gold coin, therefore, has raised not only the value of the
gold coin, but likewise that of the silver coin in proportion to gold
bullion, and probably too in proportion to all other commodities ;
though the price of the greater part of other commodities being influ-
enced by so many other causes, the rise in the value either of gold or
silver coin in proportion to them, may not be so distinct and sensible.
48 HOW THE PRICE OF BULLION IS RULED BY EXCHANGE RATES.

In the English mint a pound weight of standard silver bullion is

coined into sixty-two shillings, containing, in the same manner, a
pound weight of standard silver. 10 Five shillings and two-pence an
ounce, therefore, is said to be the mint price of silver in England, or
the quantity of silver coin which the mint gives in return for standard
silver bullion. Before the reformation of the gold coin, the market
price of standard silver bullion was, upon different occasions, five
shillings and four-pence, five shillings and five-pence, five shillings
and six-pence, five shillings and seven-pence, and very often five shil-
lings and eight-pence an ounce. Five shillings and seven-pence, how-
ever, seems to have been the most common price. Since the reforma-
tion of the gold coin, the market price of standard silver bullion has
fallen occasionally to five shillings and three-pence, five shillings and
four-pence, and five shillings and five-pence an ounce, which last price
it has scarce ever exceeded. Though the market price of silver bullion
has fallen considerably since the reformation of the gold coin, it has
not fallen so low as the mint price. "
In the proportion between the different metals in the English coin,
as copper is rated very much above its real value, so silver is rated
somewhat below it. In the market of Europe, in the French coin and
in the Dutch coin, an ounce of fine gold exchanges for about fourteen
ounces of fine silver. In the English coin, it exchanges for about fifteen
ounces, that is, for more silver than it is worth according to the com-
mon estimation of Europe. But as the price of copper in bars is not,
even in England, raised by the high price of copper in English coin, so
the price of silver in bullion is not sunk by the low rate of silver in
English coin. Silver in bullion still preserves its proper proportion to
gold ; for the same reason that copper in bars preserves its proper pro-
portion to silver.
Upon the reformation of the silver coin in the reign of William III .
the price of silver bullion still continued to be somewhat above the
mint price. Mr. Locke imputed this high price to the permission of
exporting silver bullion, and to the prohibition of exporting silver coin.
This permission of exporting, he said, rendered the demand for silver
bullion greater than the demand for silver coin. But the number of
people who want silver coin for the common uses of buying and selling
at home is surely much greater than that of those who want silver
bullion either for the use of exportation or for any other use. There
subsists at present a like permission of exporting gold bullion, and a
like prohibition of exporting gold coin " and yet the price of gold
bullion has fallen below the mint price. But in the English coin silver
was then, in the same manner as now, under-rated in proportion to
gold ; and the gold coin (which at that time too was not supposed to
require any reformation) regulated then, as well as now, the real value
of the whole coin. As the reformation of the silver coin did not then
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 49

reduce the price of silver bullion to the mint price, it is not very prob-
able that a like reformation will do so now.
Were the silver coin brought back as near to its standard weight as
the gold, a guinea, it is probable, would, according to the present pro-
portion, exchange for more silver in coin than it would purchase in
bullion. The silver containing its full standard weight, there would in
this case be a profit in melting it down, in order, first, to sell the bullion
for gold coin, and afterwards to exchange this gold coin for silver coin
to be melted down in the same manner. Some alteration in the present
proportion seems to be the only method of preventing this inconve-
niency.
The inconvenieney perhaps would be less if silver was rated in the
coin as much above its proper proportion to gold as it is at present
rated below it ; provided it was at the same time enacted that silver
should not be a legal tender for more than the change of a guinea, in
the same manner as copper is not a legal tender for more than the
13
change of a shilling. No creditor could in this case be cheated in
consequence of the high valuation of silver in coin ; as no creditor
can at present be cheated in consequence of the high valuation of
copper. The bankers only would suffer by this regulation. When a
run comes upon them they sometimes endeavour to gain time by pay-
ing in sixpences, and they would be precluded by this regulation from
this discreditable method of evading immediate payment. They
would be obliged in consequence to keep at all times in their coffers a
greater quantity of cash than at present ; and though this might no
doubt be a considerable inconveniency to them, it would at the same
time be a considerable security to their creditors.
Three pounds seventeen shillings and tenpence halfpenny (the mint
price of gold) certainly does not contain, even in our present excellent
gold coin, more than an ounce of standard gold, and it may be thought,
therefore, should not purchase more standard bullion. But gold in
coin is more convenient than gold in bullion, and though, in England,
the coinage is free, yet the gold which is carried in bullion to the mint,
tan seldom be returned in coin to the owner till after a delay of several
weeks. In the present hurry of the mint, it could not be returned till
after the delay of several months. This delay is equivalent to a small
duty, and renders gold in coin somewhat more valuable than an equal
quantity of gold in bullion. If in the English coin silver was rated
according to its proper proportion to gold, the price of silver bullion
would probably fall below the mint price even without any reformation
of the silver coin ; the value even of the present worn and defaced
silver coin being regulated by the value of the excellent gold coin for
which it can be changed.
A small seignorage or duty upon the coinage of both gold and silver
would probably increase still more the superiority of those metals in
4
50 FLUCTUATIONS IN THE MARKET PRICE OF GOLD.

coin above an equal quantity of either of them in bullion. The coin-

age would in this case increase the value of the metal coin in propor-
tion to the extent of this small duty ; for the same reason that the
fashion increases the value of plate in proportion to the price of that
fashion. The superiority of coin above bullion would prevent the
melting down of the coin, and would discourage its exportation. If
upon any public exigency it should become necessary to export the
coin, the greater part of it would soon return again of its own accord.
Abroad it could sell only for its weight in bullion. At home it would
buy more than that weight. There would be a profit, therefore, in
bringing it home again. In France a seignorage of about eight per
centis imposed upon the coinage, and the French 15coin, when ex-
ported, is said to return home again of its own accord.
The occasional fluctuations in the market price of gold and silver
bullion arise from the same causes as the like fluctuations in that of all
other commodities. The frequent loss of those metals from various
accidents by sea and by land, the continual waste of them in gilding
and plating, in lace and embroidery, in the wear and tear of coin, and
in that of plate ; require, in all countries which possess no mines of
their own, a continual importation, in order to repair this loss and this
waste. The merchant importers, like all other merchants, we may
believe, endeavour, as well as they can, to suit their occasional im.
portations to what, they judge, is likely to be the immediate demand.
With all their attention, however, they sometimes over-do the business,
and sometimes under-do it. When they import more bullion than is
wanted, rather than incur the risk and trouble of exporting it again,
they are sometimes willing to sell a part of it for something less
than the ordinary or average price. When, on the other hand, they
import less than is wanted, they get something more than this price.
But when, under all those occasional fluctuations, the market price
either of gold or silver bullion continues for several years together
steadily and constantly, either more or less above, or more or less
below the mint price : we may be assured that this steady and con-
stant, either superiority or inferiority of price, is the effect of some-
thing in the state of the coin, which, at that time, renders a certain
quantity of coin either of more value or of less value than the precise
quantity of bullion which it ought to contain. The constancy and
steadiness of the effect, supposes proportionable constancy and
steadiness in the cause.
The money of any particular country is, at any particular time and
place, more or less an accurate measure of value according as the cur-
rent coin is more or less exactly agreeable to its standard, or contains
more or less exactly the precise quantity of pure gold or pure silver,
which it ought to contain. If in England, for example, forty-four
guineas and a half contained exactly a pound weight of standard gold,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 51

or eleven ounces of fine gold and one ounce of alloy, the gold coin in
England would be as accurate a measure of the actual value of goods
at any particular time and place as the nature of the thing would
admit. But if, by rubbing and wearing, forty-four guineas and a half
generally contain less than a pound weight of standard gold- the
diminution, however, being greater in some pieces than in others--the
measure of value comes to be liable to the same sort of uncertainty to
which all other weights and measures are commonly exposed. As it .
rarely happens that these are exactly agreeable to their standard, the
merchant adjusts the price of his goods, as well as he can, not to what
those weights and measures ought to be, but to what, upon an average
he finds by experience they actually are. In consequence of a like
disorder in the coin, the price of goods comes, in the same manner, to
be adjusted, not to the quantity of pure gold or silver which the coin
ought to contain, but to that which, upon an average, it is found by
experience it actually does contain.
By the money-price of goods, it is to be observed, I understand
always the quantity of pure gold or silver for which they are sold, with-
out any regard to the denomination of the coin. Six shillings and
eight-pence, for example, in the time of Edward I., I consider as the
same money-price with a pound sterling in the present time ; because
it contained, as nearly as we can judge, the same quantity of pure
silver.

CHAP. VI. Of the Component Parts of the Price of Commodities.10

IN that early and rude state of society which precedes both the accu
mulation of stock and the appropriation of land, the proportion be-
tween the quantities of labour necessary for acquiring different objects
seems to be the only circumstance which can afford any rule for ex-
changing them for one another. If among a nation of hunters, for
example, it usually costs twice the labour to kill a beaver which it does
to kill a deer, one beaver should naturally exchange for, or be worth
two deer. It is natural that what is usually the produce of two days'
or two hours' labour, should be worth double of what is usually the
produce of one day's or one hour's labour.
If the one species of labour should be more severe than the other,
some allowance will naturally be made for this superior hardship ; and
the produce of one hour's labour in the one way may frequently ex-
change for that of two hours' labour in the other.
Or ifthe one species of labour requires an uncommon degree of dex-
'terity and ingenuity, the esteem which men have for such talents, will
naturally give a value to their produce, superior to what would be due
4 *
52 HOW PROFITS ON MANUFACTURED STOCK ARE TO BE RATED.

to the time employed about it. Such talents can seldom be acquired
but in consequence of long application, and the superior value of their
produce may frequently be more than a reasonable compensation for
the time and labour which must be spent in acquiring them. In the
advanced state of society, allowances of this kind, for superior hard-
ship and superior skill, are commonly made in the wages of labour ;
and something of the same kind must probably have taken place in its
earliest and rudest period.
In this state of things, the whole produce of labour belongs to the
labourer ; and the quantity of labour commonly employed in acquiring
or producing any commodity, is the only circumstance which can regu-
late the quantity of labour which it ought commonly to purchase, com-
mand, or exchange for.
As soon as stock has accumulated in the hands of particular persons,
some of them will naturally employ it in setting to work industrious
people, whom they will supply with materials and subsistence, in order
to make a profit by the sale of their work, or by what their labour adds
to the value of the materials. In exchanging the complete manufacture
either for money, for labour, or for other goods, over and above what
may be sufficient to pay the price of the materials, and the wages of the
workmen, something must be given for the profits of the undertaker of
the work who hazards his stock in this adventure. The value which
the workmen add to the materials, therefore, resolves itself in this case
into two parts, of which the one pays their wages, the other the profits
of their employer upon the whole stock of materials and wages which
he advanced. He could have no interest to employ them, unless he
expected from the sale of their work something more than what was
sufficient to replace his stock to him ; and he could have no interest to
employ a great stock rather than a small one, unless his profits were to
bear some proportion to the extent of his stock.
The profits of stock, it may perhaps be thought, are only a different
name for the wages of a particular sort of labour, the labour of inspec-
tion and direction. " They are, however, altogether different, are regu-
lated by quite different principles, and bear no proportion to the quan-
tity, the hardship, or the ingenuity of this supposed labour of inspection
and direction. They are regulated altogether by the value of the stock
employed, and are greater or smaller in proportion to the extent ofthis
stock. 18 Let ui; suppose, for example, that in some particular place,
▾ here the common annual profits of manufacturing stock are ten per
cent. there are two different manufactures, in each of which twenty
workmen are employed at the rate of fifteen pounds a year each, or at
the expense of three hundred a year in each manufactory. Let us sup、
pose too, that the coarse materials annually wrought up in the one cost
only seven hundred pounds, while the finer materials in the other cost
seven thousand. The capital annually employed in the one will in this
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 53

case amount only to one thousand pounds ; whereas that employed in

the other will amount to seven thousand three hundred pounds. At
the rate of ten per cent. therefore, the undertaker of the one will expect
a yearly profit of about one hundred pounds only ; while that of the
other will expect about seven hundred and thirty pounds. But
though their profits are so very different, their labour of inspection and
direction may be either altogether or very nearly the same. In many
great works, almost the whole labour of this kind is committed to some
principal clerk. His wages properly express the value of this labour of
inspection and direction. Though in settling them some regard is had
commonly, not only to his labour and skill, but to the trust which is re-
posed in him, yet they never bear any regular proportion to the capital
of which he oversees the management ; and the owner of this capital,
though he is thus discharged of almost all labour, still expects that his
profits should bear a regular proportion to his capital. In the price of
commodities, therefore, the profits of stock constitute a component
part altogether different from the wages of labour, and regulated by
quite different principles.
In this state of things, the whole produce of labour does not always
belong to the labourer. He must in most cases share it with the owner
of the stock which employs him. Neither is the quantity of labour
commonly employed in acquiring or producing any commodity, the
only circumstance which can regulate the quantity which it ought com-
monly to purchase, command, or exchange for. An additional quan-
tity, it is evident, must be due for the profits of the stock which ad-
vanced the wages and furnished the materials of that labour. 16
As soon as the land of any country has all become private property,
the landlords, like all other men, love to reap where they never sowed,
and demand a rent even for its natural produce. The wood of the
forest, the grass of the field, and all the natural fruits of the earth,
which, when land was in common, cost the labourer only the trouble of
gathering them, come, even to him, to have an additional price fixed
upon them. He must then pay for the licence to gather them ; and
must give up to the landlord a portion of what his labour either collects
or produces. This portion , or, what comes to the same thing, the
price of this portion, constitutes the rent of land , and in the price of
20
the greater part of commodities makes a third component part.
The real value of all the different component parts of price, it must
be observed, is measured by the quantity of labour which they can,
each of them, purchase or command. Labour measures the value
not only of that part of price which resolves itself into labour, but of
that which resolves itself into rent, and of that which resolves itself
into profit.
In every society the price of every commodity finally resolves itself
into some one or other, or all of those three parts ; and in every im-
 54 RENT, PRICE OF LABOUR, AND OF CAPITAL EMPLOYED.

proved society, all the three enter more or less, as component parts,
into the price of the far greater part of commodities.
In the price of corn, for example, one part pays the rent of the land.
lord, another pays the wages or maintenance of the labourers and
labouring cattle employed in producing it, and the third pays the pro-
fit of the farmer. These three parts seem either immediately or ulti-
mately to make up the whole price of corn. A fourth part, it may per-
haps be thought, is necessary for replacing the stock of the farmer, or
for compensating the wear and tear of his labouring cattle, and other
instruments of husbandry. But it must be considered that the price of
any instrument of husbandry, such as a labouring horse, is itself made :
up of the same three parts ; the rent of the land upon which he is
reared, the labour of tending and rearing him, and the profits of the
farmer who advances both the rent of this land, and the wages of this
labour. Though the price of the corn, therefore, may pay the price as
well as the maintenance of the horse, the whole price still resolves itself
either immediately or ultimately into the same three parts of rent,
labour, and profit .
In the price of flour or meal, we must add to the price of the corn,
the profits of the miller, and the wages of his servants ; in the price of
bread, the profits of the baker, and the wages of his servants ; and in
the price of both, the labour oftransporting the corn from the house of
the farmer to that of the miller, and from that of the miller to that of
the baker, together with the profits of those who advance the wages
of that labour.
The price of flax resolves itself into the same three parts as that of
corn. In the price of linen we must add to this price the wages of the
flax-dresser, of the spinner, of the weaver, of the bleacher, &c. together
with the profits of their respective employers.
As any particular commodity comes to be more manufactured, that
part of the price which resolves itself into wages and profit, comes to
· be greater in proportion to that which resolves itself into rent. In the
progress of the manufacture, not only the number of profits increase,
but every subsequent profit is greater than the foregoing ; because the
capital from which it is derived must always be greater. The
capital which employs the weavers, for example, must be greater than
that which employs the spinners ; because it not only replaces that capi-
tal with its profits, but pays, besides, the wages of the weavers ; and
the profits must always bear some proportion to the capital.
In the most improved societies, however, there are always a few
commodities of which the price resolves itself into two parts only, the
wages of labour, and the profits of stock ; and a still smaller number,
in which it consists altogether in the wages of labour. In the price of
sea-fish, for example, one part pays the labour of the fishermen, and
the other the profits of the capital employed in the fishery. Rent very
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 55

seldom makes any part in it, though it does sometimes, as I shall show
hereafter. It is otherwise, at least through the greater part of Europe,
in river fisheries. A salmon fishery pays a rent, and rent, though it
cannot well be called the rent of land , makes a part of the price of a
salmon as well as wages and profit. In some parts of Scotland a few
poor people make a trade of gathering, along the sea shore, those little
variegated stones commonly known by the name of Scotch Pebbles.
The price which is paid to them by the stone- cutter is altogether the
wages of their labour ; neither rent nor profit make any part of it.
But the whole price of any commodity must still finally resolve itself
into some one or other, or all of those three parts ; as whatever part of
it remains after paying the rent of the land, and the price of the whole
labour employed in raising, manufacturing, and bringing it to market,
must necessarily be profit to somebody.
As the price or exchangeable value of every particular commodity,
taken separately, resolves itself into some one or other, or all of those
three parts ; so that of all the commodities which compose the whole
annual produce of the labour of every country, taken complexly, must
resolve itself into the same three parts, and be parcelled out among
different inhabitants of the country, either as the wages of their labour,
the profits of their stock, or the rent of their land. The whole of what
is annually either collected or produced by the labour of every society,
or what comes to the same thing, the whole price of it, is in this man-
ner originally distributed among some of its different members. Wages,
profit, and rent, are the three original sources of all revenue as well as
of all exchangeable value. All other revenue is ultimately derived
from some one or other of these.
Whoever derives his revenue from a fund which is his own, must
draw it either from his labour, from his stock, or from his land. The
revenue derived from labour is called wages. That derived from stock,
by the person who manages or employs it, is called profit. That de-
rived from it by the person who does not employ it himself, but lends
it to another, is called the interest or the use of money. It is the com-
pensation which the borrower pays to the lender, for the profit which
he has an opportunity of making by the use of the money. Part of
that profit naturally belongs to the borrower, who runs the risk and
takes the trouble of employing it ; and part to the lender, who
affords him the opportunity of making this profit. The interest of
money is always a derivative revenue, which, if it is not paid from the
profit which is made by the use of the money, must be paid from some
other source of revenue, unless perhaps the borrower is a spendthrift,
who contracts a second debt in order to pay the interest of the first.
The revenue which proceeds altogether from land, is called rent, and
belongs to the landlord. The revenue of the farmer is derived partly
from his labour, and partly from his stock. To him, land is only the
56 WHEREIN WAGES ARE OFTEN CONFOUNDED WITH PROFITS.

instrument which enables him to earn the wages of this labour, and to
make the profits of this stock. All taxes, and all the revenue which is
founded upon them, all salaries, pensions, and annuities of every kind,
are ultimately derived from some one or other of those three original
sources of revenue, and are paid either immediately or mediately from
the wages of labour, the profits of stock, or the rent of land.
When those three different sorts of revenue belong to different per-
sons, they are readily distinguished ; but when they belong to the
same they are sometimes confounded with one another, at least in
common language.
A gentleman who farms a part of his own estate, after paying the
expense of cultivation, should gain both the rent of the landlord and
the profit of the farmer. He is apt to denominate, however, his whole
gain, profit, and thus confounds rent with profit, at least in common
language. The greater part of our North American and West Indian
planters are in this situation. They farm, the greater part of them,
their own estates, and accordingly we seldom hear of the rent of a
plantation, but frequently of its profit.
Common farmers seldom employ any overseer to direct the general
operations of the farm. They generally, too, work a good deal with
their own hands, as ploughmen, harrowers, &c. What remains of the
crop after paying the rent, therefore, should not only replace to them
their stock employed in cultivation, together with its ordinary profits,
but pay them the wages which are due to them, both as labourers and
overseers. Whatever remains, however, after paying the rent and
keeping up the stock, is called profit. But wages evidently make a
part of it. The farmer, by saving these wages, must necessarily gain
them. Wages, therefore, are in this case confounded with profit.
An independent manufacturer, who has stock enough both to pur-
chase materials, and to maintain himself till he can carry his work to
market, should gain both the wages of a journeyman who works under
a master, and the profits which that master makes by the sale of the
journeyman's work. His whole gains, however, are commonly called
profit, and wages are, in this case too, confounded with profit.
A gardener who cultivates his own garden with his own hands, unites
in his own person the three different characters, of landlord , farmer,
and labourer. His produce, therefore, should pay him the rent of the
first, the produce of the second, and the wages of the third. The
whole, however, is commonly considered as the earnings of his labour.
Both rent and profit are, in this case, confounded with wages.
As in a civilized country there are but few commodities of which the
exchangeable value arises from labour only, rent and profit contri-
buting largely to that of the far greater part of them," so the annual
produce of its labour will always be sufficient to purchase or command
◄ much greater quantity of labour than what was employed in raising,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS: 57

preparing, and bringing that produce to market. If the society were

annually to employ all the labour which it in annually purchase, as
the quantity of labour would increase greatly every year, so the pro-
luce of every succeeding year would be of vastly greater value that
that of the foregoing. But there is no country in which the whole
annual produce is employed in maintaining the industrious. The idle
everywhere consume a great part of it ; and according to the different
proportions in which it is annually divided between those two different
orders of people, its ordinary or average value must either annually
increase, or diminish, or continue the same from one year to another.

CHAP. VII. Ofthe Natural and Market Price of Commodities. 22

THERE is in every society or neighbourhood an ordinary or average
rate both of wages and profit in every different employment of labour
and stock. This rate is naturally regulated , as I shall show hereafter,
partly by the general circumstances of the society, their riches or
poverty, their advancing, stationary, or declining condition ; and partly
by the particular nature of each employment.
There is likewise in every society or neighbourhood an ordinary or
average rate of rent, which is regulated, too, as I shall show hereafter,
partly by the general circumstances of the society or neighbourhood in
which the land is situated, and partly by the natural or the improved
fertility ofthe land.
These ordinary or average rates may be called the natural rates
of wages, profit, and rent, at the time and place in which they may
commonly prevail.
When the price of any commodity is neither more nor less than
what is sufficient to pay the rent of the land, the wages of the labour,
and the profits of the stock employed in raising, preparing, and bring-
ing it to market, according to their natural rates, the commodity is
then sold for what may be called its natural price.
The commodity is then sold precisely for what it is worth, or for
what it really costs the person who brings it to market ; for though in
common language what is called the prime cost of any commodity
does not comprehend the profit of the person who is to sell it again,
yet if he sells it at a price which does not allow him the ordinary
rate of profit in his neighbourhood , he is evidently a loser by the
trade ; since by employing his stock in same other way he might have
made that profit. His profit, besides, is his revenue, the proper fund
of his subsistence. As, while he is preparing and bringing the goods
to market, he advances to his workmen their wages, or their sub
sistence ; so he advances to himself, in the same manner, his own sub-
sistence, which is generally suitable to the profit which he max reason-
58 MARKET PRICE AND EFFECTUAL DEMAND EXPLAINED.

ably expect from the sale of his goods. Unless they yield him this
profit, therefore, they do not repay him what they may very properly
be said to have really cost him.
Though the price, therefore, which leaves him this profit, is not
always the lowest at which a dealer may sometimes sell his goods , it is
the lowest at which he is likely to sell them for any considerable time ;
at least where there is perfect liberty, or where he may change his
trade as often as he pleases.
The actual price at which any commodity is commonly sold is called
its market price. It may either be above, or below, or exactly the
same with its natural price.
The market price of every particular commodity is regulated by the
proportion between the quantity which is actually brought to market,
and the demand of those who are willing to pay the natural price of
the commodity, or the whole value of the rent, labour, and profit,
which must be paid in order to bring it thither. Such people may be
called the effectual demanders, and their demand the effectual demand ;
since it may be sufficient to effectuate the bringing of the commodity
to market. It is different from the absolute demand. A very poor
man may be said in some sense to have a demand for a coach and six ;
he might like to have it ; but his demand is not an effectual demand,
as the commodity can never be brought to the market in order
to satisfy it.
When the quantity of any commodity which is brought to market
falls short of the effectual demand, all those who are willing to pay the
whole value of the rent, wages, and profit, which must be paid in order
to bring it thither, cannot be supplied with the quantity which they
want. Rather than want it altogether, some of them will be willing to
give more. A competition will immediately begin among them, and
the market price will rise more or less above the natural price, accord-
ing as either the greatness of the deficiency, or the wealth and wanton
luxury of the competitors, happens to animate more or less the eager-
ness of the competition. Among competitors of equal wealth and
luxury the same deficiency will generally occasion a more or less eager
competition, according as the acquisition of the commodity happens to
be of more or less importance to them. Hence the exorbitant price of
the necessaries of life during blockade of a town or in a famine.
When the quantity brought to market exceeds the effectual demand,
it cannot be all sold to those who are willing to pay the whole value of
the rent, wages and profit, which must be paid in order to bring it
thither. Some part must be sold to those who are willing to pay less,
and the low price which they give for it must reduce the price of the
whole. The market price will sink more or less below the natural
price, according as the greatness of the excess increases more or less
the competition of the sellers, or according as it happens to be more
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 59

or less important to them to get immediately rid of the commodity.

The same excess in the importation of perishable, will occasion a
much greater competition than in that of durable commodities ; in the
importation of oranges, for example, than in that of old iron.
When the quantity brought to market is just sufficient to supply the
effectual demand and no more, the market price naturally comes to be
either exactly, or as nearly as can be judged of, the same with the
natural price. The whole quantity upon hand can be disposed of for
this price, and cannot be disposed of for more. The competition of
the different dealers obliges them all to accept of this price, but does
not oblige them to accept of less.
The quantity of every commodity brought to market naturally suits
itself to the effectual demand. It is the interest of all those who
employ their land, labour, or stock, in bringing any commodity to
market, but the quantity never should exceed the effectual demand ; and
it is the interest of all other people that it never should fall short of
that demand.
If at any time it exceeds the effectual demand, some of the component
parts of its price must be paid below their natural rate. If it is rent,
the interest of the landlords will immediately prompt them to with-
draw a part of their land ; and if it is wages or profit, the interest of
the labourers in the one case, and of their employers in the other, will
prompt them to withdraw a part of their labour or stock from this
employment. The quantity brought to market will soon be no more
than sufficient to supply the effectual demand. All the different parts
of its price will rise to their natural rate, and the whole price to
its natural price.
If, on the contrary, the quantity brought to market should at any
time fall short of the effectual demand, some of the component parts
of its price must rise above their natural rate. If it is rent, the interest
of all other landlords will naturally prompt them to prepare more land
for the raising of this commodity ; if it is wages or profit, the interest
of all other labourers and dealers will soon prompt them to employ
more labour and stock in preparing and bringing it to market. The
quantity brought thither will soon be sufficient to supply the effectual
demand. All the different parts of its price will soon sink to their
natural rate, and the whole price to its natural price.
The natural price, therefore, is, as it were, the central price, to which
the prices of all commodities are continually gravitating. Different
accidents may sometimes keep them suspended a good deal above it.
and sometimes force them down even somewhat below it. But what-
ever may be the obstacles which hinder them from settling in this
centre of repose and its continuance, they are constantly tending
towards it.
The whole quantity of industry annually employed in order to bring
60 SUPPLY AND DEMAND RATE THE PRICES OF COMMODITIES

any commodity to market, naturally suits itself in this manner to the

effectual demand. It naturally aims at bringing always that precise
quantity thither which may be sufficient to supply, and no more than
supply, that demand.
But in some employments the same quantity of industry will in
different years produce very different quantities of commodities ; while in
others it will produce always the same, or very nearly the same. The
same number of labourers in husbandry will, in different years, produce
very different quantities of corn, wine, oil, hops, etc. But the same
number of spinners and weavers will every year produce the same or
very nearly the same quantity of linen and woollen cloth. It is only
the average produce of the one species of industry which can be suited
in any respect to the effectual demand ; and as its actual produce is
frequently much greater and frequently much less than its average
produce, the quantity of the commodities brought to market will some-
times exceed a good deal, and sometimes fall short a good deal, of the
effectual demand. Even though that demand therefore should con-
tinue always the same, their market price will be liable to great fluctua-
tions, will sometimes fall a good deal below, and sometimes rise a good
deal above, their natural price. In the other species of industry, the pro-
duce of equal quantities of labour being always the same, or very
nearly the same, it can be more exactly suited to the effectual demand.
While that demand continues the same, therefore, the market price of
the commodities is likely to do so too , and to be either altogether, or
as nearly as can be judged of, the same with the natural price. That
the price of linen and woollen cloth is liable neither to such frequent
nor to such great variations as the price of corn, every man's expe-
rience will inform him. The price of the one species of commodities
varies only with the variations in the demand : that of the other
varies not only with the variations in the demand, but with the much
greater and more frequent variations in the quantity of what is brought
to market in order to supply that demand.
The occasional and temporary fluctuations in the market price of
any commodity fall chiefly upon those parts of its price which resolve
themselves into wages and profit. That part which resolves itself into
rent is less affected by them. A rent certain in money is not in the
least affected by them either in its rate or in its value. A rent which
consists either in a certain proportion or in a certain quantity of the
rude produce, is no doubt affected in its yearly value by all the
occasional and temporary fluctuations in the market price of that rude
produce ; but it is seldom affected by them in its yearly rate. In
settling the terms of the lease, the landlord and farmer endeavour,
according to their best judgment, to adjust that rate, not to the tempo.
rary and occasional, but to the average and ordinary price of the
produce.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 61

Such fluctuations affect both the value and the rate either of wages
or of profit, according as the market happens to be either over-stocked
or under-stocked with commodities or with labour ; with work done, or
with work to be done. A public mourning raises the price of black
cloth (with which the market is almost always under-stocked upon such
occasions), and augments the profits of the merchants who possess
any considerable quantity of it. It has no effect upon the´wages of
the weavers. The market is under-stocked with commodities, not with
labour ; with work done, not with work to be done. It raises the
wages of journeymen tailors. The market is here under-stocked with
labour. There is an effectual demand for more labour, for more work
to be done than can be had. It sinks the price of coloured silks and
cloths, and thereby reduces the profits of the merchants who have
any considerable quantity of them upon hand. It sinks too the
wages of the workmen employed in preparing such commodities,
for which all demand is stopped for six months, perhaps for a twelve-
month. The market is here over-stocked both with commodities and
with labour.
But, though the market price of every particular commodity is in
this manner continually gravitating, if one may say so, towards the
natural price, yet sometimes particular accidents, sometimes natural
causes, and sometimes particular regulations of police, may, in many
commodities, keep up the market price, for a long time together, a
good deal above the natural price.
When by an increase in the effectual demand, the market price of
some particular commodity happens to rise a good deal above the
natural price, those who employ their stocks in supplying that market
are generally careful to conceal this change. If it was commonly
known, their great profit would tempt so many new rivals to employ
their stocks in the same way, that, the effectual demand being fully
supplied, the market price would soon be reduced to the natural
price, and perhaps for some time even below it. If the market is at a
great distance from the residence of those who supply it, they may
sometimes be able to keep the secret for several years together, and
may so long enjoy their extraordinary profits without any new rivals.
Secrets of this kind, however, it must be acknowledged , can seldom be
long kept ; and the extraordinary profit can last very little longer than
they are kept.
Secrets in manufactures are capable of being longer kept that.
secrets in trade. A dyer who has found the means of producing a
particular colour with materials which cost only half the price of
those commonly made use of, may, with good management, enjoy the
advantage of his discovery as long as he lives, and even leave it as a
legacy to his posterity. His extraordinary gains arise from the high
price which is paid for his private labour. " They properly consist in
62 MONOPOLY ; FREE COMPETITION ; CORPORATION PRIVILEGES.

the high wages of that labour. But as they are repeated upon every
part of his stock, and as their whole amount bears, upon that account,
a regular proportion to it, they are commonly considered as extra-
ordinary profits of stock.
Such enhancements of the market price are evidently the effects of
particular accidents, of which, however, the operation may sometimes
last for many years together.
Some natural productions require such a singularity of soil and
situation, that all the land in a great country, which is fit for producing
them, may not be sufficient to supply the effectual demand. The
whole quantity brought to market, therefore, may be disposed of to
those who are willing to give more than what is sufficient to pay the
rent of the land which produced them, together with the wages of the
labour, and the profits of the stock which were employed in preparing
and bringing them to market, according to their natural rates. Such
commodities may continue for whole centuries together to be sold at
this high price ; and that part of it which resolves itself into the rent
of land is in this case the part which is generally paid above its natural
rate. The rent of the land which affords such singular and esteemed
productions, like the rent of some vineyards in France of a peculiarly
happy soil and situation, bears no regular proportion to the rent
of other equally fertile and equally well- cultivated land in its neigh-
bourhood. The wages of the labour and the profits of the stock
employed in bringing such commodities to market, on the contrary,
are seldom out of their natural proportion to those of the other employ-
ments of labour and stock in their neighbourhood.
Such enhancements of the market price are evidently the effect of
natural causes which may hinder the effectual demand from ever
being fully supplied, and which may continue, therefore, to operate
for ever.
A monopoly granted either to an individual or to a trading company
has the same effect as a secret in trade or manufactures. The mono-
polists, by keeping the market constantly understocked, by never
fully supplying the effectual demand, sell their commodities much
above the natural price, and raise their emoluments, whether they
consist in wages or profit, greatly above their natural rate.
The price of monopoly is, upon every ocasion, the highest which
can be got. " The natural price, or the price of free competition, on the
contrary, is the lowest which can be taken, not upon every occasion
Indeed, but for any considerable time together. The one is upon
every occasion the highest which can be squeezed out of the buyers,
or which, it is supposed, they will consent to give : the other is the
lowest which the sellers can commonly afford to take, and at the same
time continue their business.
The exclusive privileges of corporations, statutes of apprenticeship
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 63

and all those laws which restrain, in particular employments, the com-
petition to a smaller number than might otherwise go into them, have
the same tendency, though in a less degree. They are a sort of en-
larged monopolies, and may frequently, for ages together, and in whole
classes of employments, keep up the market price of particular com-
modities above the natural price, and maintain both the wages of the
labour and the profits of the stock employed about them somewhat
above their natural rate.
Such enhancements of the market price may last as long as the
regulations of police which give occasion to them .
The market price of any particular commodity, though it may con-
tinue long above, can seldom continue long below, its natural price.
Whatever part of it was paid below the natural rate, the persons whose
interest it affected would immediately feel the loss, and would imme-
diately withdraw either so much land, or so much labour, or so much
stock, from being employed about it, that the quantity brought to
market would soon be no more than sufficient to supply the effectual
demand. Its market price, therefore, would soon rise to the natural
price. This at least would be the case where there was perfect liberty.
The same statutes of apprenticeship and other corporation laws
indeed, which, when a manufacture is in prosperity, enable the work-
man to raise his wages a good deal above their natural rate, sometimes
oblige him , when it decays, to let them down a good deal below it.
As in the one case they exclude many people from his employment, so
in the other they exclude him from many employments. The effect
of such regulations, however, is not near so durable in sinking the
workman's wages below, as in raising them above, their natural rate.
Their operation in the one way may endure for many centuries, but in
the other it can last no longer than the lives of some of the workmen
who were bred to the business in the time of its prosperity. When
they are gone, the number of those who are afterwards educated to the
trade will naturally suit itself to the effectual demand. The police
must be as violent as that of Hindostan or ancient Egypt (where every
man was bound by a principle of religion to follow the occupation of
his father, and was supposed to commit the most horrid sacrilege if
he changed it for another), which can in any particular employment
and for several generations together, sink either the wages of labour
or the profits of stock below their natural rate. 25
This is all that I think necessary to be observed at present concern-
ing the deviations, whether occasional or permanent, of the market
price of commodities from the natural price.
The natural price itself varies with the natural rate of each of its
component parts, of wages, profit, and rent ; and in every society this
rate varies according to their circumstances, according to their riches
or poverty, their advancing, stationary, or declining condition. I shall
64 OUTLINE OF THE SUBJECTS TO BE SERIATIM CONSIDERED

in the four following chapters, endeavour to explain, as fully and dis-

tinctly as I can, the causes of those different variations.
I. I shall endeavour to explain what are the circumstances which
naturally determine the rate of wages, and in what manner those cir-
cumstances are affected by the riches or poverty, by the advancing,
stationary, or declining state of the society.
II. I shall endeavour to show what are the circumstances which
: naturally determine the rate of profit, and in what manner too those
circumstances are affected by the like variations in the state of the
society.
III. Though pecuniary wages and profit are very different in the dif-
fferent employments of labour and stock ; yet a certain proportion seems
commonly to take place between both the pecuniary wages in all the
different employments of labour, and the pecuniary profits in all the
different employments of stock. This proportion, it will appear here-
after, depends partly upon the nature of the different employments, and
partly upon the different laws and policy of the society in which they
are carried on. But though in many respects dependent upon the laws
and policy, this proportion seems to be little affected by the riches or
poverty of that society ; by its advancing, stationary, or declining con-
dition ; but to remain the same or very nearly the same in all those
different states. I shall, therefore, endeavour to explain all the
different circumstances which regulate this proportion.
IV., and lastly, I shall endeavour to show what are the circumstances
which regulate the rent of land, and which either raise or lower the
real price ofall the different substances which it produces.

CHAP. VIII.— Of the Wages of Labour. "

THE produce of Labour constitutes the natural recompense or wages
of labour.
In that original state of things, which precedes both the appropriation
of land and the accumulation of stock, the whole produce of labour
belongs to the labourer. He has neither landlord nor master to share
with him.
Had this state continued, the wages of labour would have augmented
with all those improvements in its productive powers, to which the
division of labour gives occasion. All things would gradually have
become cheaper. They would have been produced by a smaller quan
tity of labour ; and as the commodities produced by equal quantities of
labour would naturally in this state of things be exchanged for one
another, they would have been purchased likewise with the produce of
a smaller quantity.
But though all things would have become cheaper in reality, in
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 6r

appearance many things might have become dearer than before, or have
been exchanged for a greater quantity of other goods. Let us suppose,
for example, that in the greater part of employments the productive
powers of labour had been improved to tenfold, or that a day's labour
could produce ten times the quantity of work which it had done origin-
ally ; but that in a particular employment they had been improved only
to double, or that a day's labour could produce only twice the quantity
of work which it had done before. In exchanging the produce of a
day's labour in the greater part of employments, for that of a day's
labour in this particular one, ten times the original quantity of work in
them would purchase only twice the original quantity in it. Any par-
ticular quantity in it, therefore, a pound weight, for example, would ap-
pear to be five times dearer than before. In reality, however, it would
be twice as cheap. Though it required five times the quantity of other
goods to purchase it, it would require only half the quantity of labour
either to purchase or to produce it. The acquisition, therefore, would
be twice as easy as before.
But this original state of things, in which the labourer enjoyed the
whole produce of his own labour, could not last beyond the first intro-
duction of the appropriation of land and the accumulation of stork.
It was at an end, therefore, long before the most considerable improve-
ments were made in the productive powers of labour, and it would be
to no purpose to trace further what might have been its effects upon
the recompense or wages of labour.
As soon as land becomes private property, the landlord demands a
share of almost all the produce which the labourer can either raise, or
collect from it. His rent makes the first deduction from the produce of
the labour which is employed upon land.
It seldom happens that the person who tills the ground has where-
withal to maintain himself till he reaps the harvest. His maintenance
is generally advanced to him from the stock of a master, the farmer
who employs him, and who would have no interest to employ him
unless he was to share in the produce of his labour, or unless his
stock was to be replaced to him with a profit. This profit makes a
second deduction from the produce of the labour which is employed
upon land.
The produce of almost all other labour is liable to the like deduction
of profit. In all arts and manufactures the greater part of the work-
men stand in need of a master to advance them the materials of their
work, and their wages and maintenance till it be completed. He shares
in the produce of their labour, or in the value which it adds to the mate-
rials upon which it is bestowed ; and in this consists his profit.
It sometimes happens, indeed, that a single independent workman
has stock sufficient both to purchase the materials of his work, and to
maintain himself till it be completed. He is both master and workman,
5
66 COMBINATIONS, HOW FORMED, AND THEIR EFFECTS.

and enjoys the whole produce of his own labour, or the whole value
which it adds to the materials upon which it is bestowed. It includes
what are usually two distinct revenues, belonging to two distinct per
sons, the profits of stock, and the wages of labour. 27
Such cases, however, are not very frequent, and in every part of
Europe, twenty workmen serve under a master for one that is indepen-
dent ; and the wages of labour are everywhere understood to be, what
they usually are, when the labourer is one person, and the owner of the
stock which employs him another.
What are the common wages of labour, depends everywhere upon
the contract usually made between those two parties, whose interests
are by no means the same. The workmen desire to get as much, the
masters to give as little, as possible. The former are disposed to
combine in order to raise, the latter in order to lower, the wages
of labour.
It is not, however, difficult to foresee which of the two parties must,
upon all ordinary occasions, have the advantage in the dispute, and force
the other into a compliance with their terms. The masters, being fewer
in number, can combine much more easily ; and the law, besides,
authorises or at least does not prohibit their combinations, while it
prohibits those of the workmen. * (Repealed, 1824). We have no acts
of parliament against combining to lower the price of work ; but many
against combining to raise it. In all such disputes the masters can hold
out much longer. A landlord , a farmer, a master manufacturer, or
merchant, though they did not employ a single workman, could gene-
rally live a year or two upon the stocks which they have already acquired.
Many workmen could not subsist a week, few could subsist a month ,
and scarce any a year without employment. In the long-run the work-
man may be as necessary to his master as his master is to him ; but
the necessity is not so immediate.
We rarely hear, it has been said, of the combinations of masters,
though frequently of those of workmen. But whoever imagines, upon
this account, that masters rarely combine, is as ignorant of the world
as of the subject. Masters are always and everywhere in a sort of
tacit, but constant and uniform, combination, not to raise the wages of
labour above their actual rate. To violate this combination is every-
where a most unpopular action, and a sort of reproach to a master
among his neighbours and equals. We seldom, indeed hear
of this combination, because it is the usual, and one may say, the
natural state of things which nobody ever hears of. Masters, too,
sometimes enter into particular combinations to sink the wages of
labour even below this rate. These are always conducted with the
utmost silence and secrecy, till the moment of execution, and when the
workmen yield, as they sometimes do, without resistance, though
severely felt by them, they are never heard of by other people. Such
See note on Combination Laws in Appen
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 67

combinations, however, are frequently resisted by a contrary defensive

combination of the workmen ; who sometimes, too, without any provo-
cation of this kind, combine of their own accord to raise the price of
their labour. Their usual pretences are, sometimes the high price of
provisions, sometimes the great profit which their masters make by
their work. But whether their combinations be offensive or defensive,
they are always abundantly heard of. In order to bring the point to a
speedy decision, they have always recourse to the loudest clamour, and
sometimes to the most shocking violence and outrage. They are des .
perate, and act with the folly and extravagance of desperate men, who
must either starve, or frighten their masters into an immediate com-
pliance with their demands. " The masters upon these occasions are
just as clamorous upon the other side, and never cease to call aloud for
the assistance of the civil magistrate, and the rigorous execution of
those laws which have been enacted with so much severity against the
combinations of servants, labourers, and journeymen. The workmen,
accordingly, very seldom derive any advantage from the violence of
those tumultuous combinations, which, partly from the interposition of
the civil magistrate, partly from the superior steadiness of the masters,
partly from the necessity which the greater part of the workmen are
under of submitting for the sake of present subsistence, generally end
in nothing but the punishment or ruin of the ringleaders. -
But though in disputes with their workmen, masters must generally
have the advantage, there is, however, a certain rate below which it
seems impossible to reduce, for any considerable time, the ordinary
wages even of the lowest species of labour.
A man must always live by his work, and his wages must at least be
sufficient to maintain him. They must even upon most occasions be
somewhat more ; otherwise it would be impossible for him to bring up
a family, and the race of such workmen could not last beyond the first
generation. Mr. Cantillon seems, upon this account, to suppose that
the lowest species of common labourers must everywhere earn at least
double their own maintenance, in order that one with another they
may be enabled to bring up two children ; the labour of the wife, on
account of her necessary attendance on the children , being supposed
no more than sufficient to provide for herself, But one half the chil-
dren born, it is computed, die before the age of manhood. The poorest
labourers, therefore, according to this account, must, one with another,
attempt to rear at least four children, in order that two may have an
equal chance of living to that age. But the necessary maintenance of
four children, it is supposed, may be nearly equal to that of one man.
The labour of an able-bodied slave, the same author adds, is computed
to be worth double his maintenance ; and that of the meanest labourer,
he thinks, cannot be worth less than that of an able-bodied slave.
Thus far at least seems certain, that in order to bring up a family, the
5 *
68 INCREASE OF REVENUE AND STOCK ADDS TO NATIONAL WEALTH.

labour of the husband and wife together must, even in the lowest
species of common labour, be able to earn something more than what
is precisely necessary for their own maintenance ; but in what pro-
portion, whether in that above mentioned, or in any other, I shall not
take upon me to determine.
There are certain circumstances, however, which sometimes give the
Dourers an advantage, and enable them to raise their wages consider-
ly above this rate ; evidently the lowest which is consistent with
mmon humanity.
When in any country the demand for those who live by wages ; la.
Sourers, journeymen, servants of every kind, is continually increasing ;
when every year furnishes employment for a greater number than had
been employed the year before, the workmen have no occasion to com-
bine in order to raise their wages. The scarcity of hands occasions a
competition among masters, who bid against one another, in order to
get workmen, and thus voluntarily break through the natural combina-
tion of masters not to raise wages.
The demand for those who live by wages, it is evident, cannot
increase but in proportion to the increase of the funds which are
destined for the payment of wages. These funds are of two kinds :
first, the revenue which is over and above what is necessary for the
maintenance ; and secondly, the stock which is over and above what
is necessary for the employment of their masters.
When the landlord, annuitant, or moneyed man, has a greater revenue
than what he judges sufficient to maintain his own family, he employs
either the whole or a part of the surplus in maintaining one or more
menial servants. Increase this surplus, and he will naturally increase
the number of those servants.
When an independent workman, such as a weaver or shoemaker,
has got more stock than what is sufficient to purchase the materials of
his own work, and to maintain himself till he can dispose of it, he
naturally employs one or more journeymen with the surplus, in order
to make a profit by their work. Increase this surplus, and he will
naturally increase the number of his journeymen.
The demand for those who live by wages, therefore, necessarily
increases with the increase of the revenue and stock of every country
and cannot possibly increase without it. The increase of revenue and
stock is the increase of national wealth. The demand for those who
live by wages , therefore, naturally increases with the increase of
national wealth, and cannot possibly increase without it.
It is not the actual greatness of national wealth, but its continual
not,
increase, which occasions a rise in the wages of labour. It is
accordingly, in the richest countries, but in the most thriving, or in
those which are growing rich the fastest, that the wages of labour are
highest. England is certainly in the present times, a much richer
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 69

country than any part of North America. The wages of labour, how-
ever, are much higher in North America than in any part of England.
In the province of New York, common labourers earn ( 1773) three
shillings and sixpence currency, equal to two shillings sterling, a day ;
ship carpenters, ten shillings and sixpence currency, with a pint of rum
worth sixpence sterling, equal in all to six shillings and sixpence ster-
ling ; house carpenters and bricklayers, eight shillings currency, equal
to four shillings and sixpence sterling ; journeymen tailors, five shil-
lings currency, equal to about two shillings and tenpence sterling.
These prices are all above the London price ; and wages are said to be
as high in the other colonies as in New York. The price of provisions
is everywhere in North America much lower than in England. A
dearth has never been known there. In the worst seasons, they have
always had a sufficiency for themselves, though less for exportation.
If the money price of labour, therefore, be higher than it is anywhere
in the mother country, its real price, the real command of the neces-
saries and conveniencies of life which it conveys to the labourer, must
be higher in a still greater proportion.
But though North America is not yet so rich as England, it is much
more thriving, and advancing with much greater rapidity to the further
acquisition of riches. The most decisive mark of the prosperity of any
country is the increase of the number of its inhabitants. In Great
Britain, and most other European countries, they are not supposed to
double in less than five hundred years. " In the British colonies in
North America, it has been found, that they double in twenty or five-
and-twenty years. Nor in the present times is this increase principally
owing to the continual importation of new inhabitants, but to the great
multiplication of the species. Those who live to old age, it is said,
frequently see there from fifty to a hundred, and .sometimes many
more, descendants from their own body. Labour is there so well
rewarded, that a numerous family of children, instead of being a
burden, is a source of opulence and prosperity to the parents. The
labour of each child, before it can leave their house, is computed to be
worth a hundred pounds clear gain to them. A young widow with four
or five young children, who, among the middling or inferior ranks of
people in Europe, would have so little chance for a second husband, is
there frequently courted as a sort of fortune. The value of children is
the greatest of all encouragements to marriage. We cannot, therefore,
wonder that the people in North America should generally marry very
young. Notwithstanding the great increase occasioned by such early
marriages, there is a continual complaint of the scarcity of hands in
North America. The demand for labourers, the funds destined for
maintaining them, increase, it seems, still faster than they can find
labourers to employ.
Though the wealth of a country should be very great, yet if it has
70 MISERABLE STATE OF THE LABOURING POPULATION OF CHINA.

been long stationary, we must not expect to find the wages of labour
very high in it. The funds destined for the payment of wages, the
revenue and stock of its inhabitants, may be of the greatest extent ;
but if they have continued for several centuries of the same, or very
nearly of the same extent, the number of labourers employed every
year could easily supply, and even more than supply, the number
wanted the following year. There could seldom be any scarcity of
hands, nor could the masters be obliged to bid against one another in
order to get them. The hands, on . the contrary, would in this case,
naturally multiply beyond their employment. There would be a con-
stant scarcity of employment, and the labourers would be obliged to
bid against one another in order to get it. If in such a country the
wages of labour had ever been more than sufficient to maintain the
labourer, and to enable him to bring up a family, the competition of
the labourers and the interest of the masters would soon reduce them
to this lowest rate which is consistent with common humanity. China
has been long one of the richest, that is, one of the most fertile, best
cultivated, most industrious, and most populous countries in the world.
It seems, however, to have been long stationary. Marco Polo, who
visited it more than five hundred years ago, describes its cultivation ,
industry, and populousness, almost in the same terms in which they
are described by travellers in the present times. It had perhaps, even
long before his time, acquired that full complement of riches which the
nature of its laws and institutions permits it to acquire. The accounts
of all travellers, inconsistent in many other respects, agree in the low
wages of labour, and in the difficulty which a labourer finds in bringing
up a family in China. If by digging the ground a whole day he
can get what will purchase a small quantity of rice in the evening,
he is contented. The condition of artificers is, if possible, still worse.
Instead of waiting indolently in their work-houses, for the calls of their
customers, as in Europe, they are continually running about the streets
with the tools of their respective trades, offering their service, as it
were begging employment. The poverty of the lower ranks of people
in China far surpasses that of the most beggarly nations in Europe.
In the neighbourhood of Canton many hundred, it is commonly said,
many thousand families have no habitation on the land, but live con
stantly in little fishing boats upon the rivers and canals. The subsist-
ence which they find there is so scanty that they are eager to fish up the
nastiest garbage thrown overboard from any European ship. Any
carrion, the carcase of a dead dog or cat, for example, though half
putrid and stinking, is as welcome to them as the most wholesome
food to the people of other countries. Marriage is encouraged in
China, not by the profitableness of children, but by the liberty of
destroying them. In all great towns several are every night exposed
in the streets, or drowned like puppies in the water. The performance
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. ΤΙ

of this horrid office is even said to be the avowed business by which

some people earn their subsistence.
China, however, though it may perhaps stand still, does not seem to
go backwards. Its towns are nowhere deserted by their inhabitants
The lands which had once been cultivated, are nowhere neglected.
The same, or very nearly the same annual labour must therefore con-
tinue to be performed, and the funds destined for maintaining it, must
not consequently be sensibly diminished. The lowest class of labour-
ers, therefore, notwithstanding their scanty subsistence, must some
way or another make shift to continue their race so far as to keep up
their usual numbers.
But it would be otherwise in a country where the funds destined for
the maintenance of labour were sensibly decaying. Every year the
demand of servants and labourers would, in all the different classes of
employments, be less than it had been the year before. Many who
had been bred in the superior classes, not being able to find employ
ment in their own business, would be glad to seek it in the lowest.
The lowest class being not only overstocked with its own workmen,
but with the overflowings of all the other classes, the competition for
employment would be so great in it, as to reduce the wages of labour
to the most miserable and scanty subsistence of the labourer. Many
would not be able to find employment even upon these hard terms, but
would either starve, or be driven to seek a subsistence, either by beg-
ging, or by the perpetration perhaps of the greatest enormities,
Want, famine, and mortality, would immediately prevail in that class,
and from thence extend themselves to all the superior classes, till the
number of inhabitants in the country was reduced to what could easily
be maintained by the revenue and stock which remained in it, and which
had escaped either the tyranny or calamity which had destroyed the
rest. This perhaps is nearly the present state of Bengal, and of some
other of the English settlements in the East Indies. In a fertile
country which had before been much depopulated , where subsistence,
consequently should not be very difficult, and where, notwithstanding
three or four hundred thousand people die of hunger in one year, we
i
may be assured that the funds destined for the maintenance of the
labouring poor are fast decaying. The difference between the genius
of the British constitution which protects and governs North America
and that of the mercantile company which oppresses and domineers
in the East Indies, cannot perhaps be better illustrated than by the
different state of those countries.
The liberal reward of labour, therefore, as it is the necessary effect,
so it is the natural symptom of increasing national wealth. The
scanty maintenance of the labouring poor, on the other hand, is the
natural symptom that things are at a stand, and their starving condition
that they are going fast backwards.
72 CAUSES OF VARIATIONS IN WAGES OF LABOUR.

In Great Britain the wages of labour seem, in the present times, to

be evidently more than what is precisely necessary to enable the
labourer to bring up a family. In order to satisfy ourselves upon this
point, it will not be necessary to enter into any tedious or doubtful cal-
culation of what may be the lowest sum upon which it is possible to do
this. There are many plain symptoms that the wages of labour are
nowhere in this country regulated by this lowest rate which is con-
sistent with common humanity.
I. In almost every part of Great Britain there is a distinction, even
in the lowest species of labour, between summer and winter wages.
Summer wages are always highest. But on account of the extraordi-
nary expense of fuel, the maintenance of a family is most expensive
in winter. Wages therefore being highest when this expense is lowest,
it seems evident that they are not regulated by what is necessary for
this expense ; but by the quantity and supposed value of the work. A
labourer, it may be said indeed, ought to save part of his summer
wages in order to defray his winter expense ; and that through the
whole year they do not exceed what is necessary to maintain his family
through the whole year. A slave, however, or one absolutely de-
pendent on us for immediate subsistence, would not be treated in this
manner. His daily subsistence would be proportioned to his daily
necessities.
II. The wages of labour do not in Great Britain fluctuate with the
price of provisions. These vary everywhere from year to year,
frequently from month to month. But in many places the money
price of labour remains uniformly the same sometimes for half a
century together. If in these places therefore the labouring poor can
maintain their families in dear years, they must be at their ease in
times of moderate plenty, and in affluence in those of extraordinary
cheapness. The high price of provisions during these ten years past
has not in many parts of the kingdom been accompanied with any
sensible rise in the money price of labour. It has, indeed, in some,
owing probably more to the increase of the demand for labour, than
to that of the price of provisions.
III. As the price of provisions varies more from year to year than the
wages of labour, so on the other hand, the wages of labour vary more
from place to place than the price of provisions. The prices of bread
and butcher's meat are generally the same, or very nearly the same,
through the greater part of the United Kingdom. These and most
other things which are sold by retail, the way in which the labouring
poor buy all things, are generally fully as cheap or cheaper in great
towns than in the remoter parts of the country, for reasons which I
shall have occasion to explain hereafter. But the wages of labour in
a great town and its neighbourhood are frequently a fourth or a fifth
part, twenty or five-and-twenty per cent. higher than at a few miles
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 73

distance. Eighteen pence a day may be reckoned the common price

of labour in London and its neighbourhood. At a few miles distance
it falls to fourteen and fifteen-pence. Tenpence may be reckoned its
price in Edinburgh and its neighbourhood. At a few miles distance it
falls to eightpence, the usual price of common labour through the
greater part of the low country of Scotland, where it varies a good
deal less than in England. " Such a difference of prices, which it seems
is not always sufficient to transport a man from one parish to another.
would necessarily occasion so great a transportation of the most bulky
commodities not only from one parish to another, but from one end of
the kingdom, almost from one end of the world, to the other, as would
soon reduce them more nearly to a level. After all that has been said
of the levity and inconstancy of human nature, it appears evidently
from experience that a man is of all sorts of luggage the most difficult
to be transported. If the labouring poor, therefore, can maintain their
families in those parts of the kingdom where the price of labour is
lowest, they must be in affluence where it is highest.
IV. The variations in the price of labour not only do not cor-
respond either in place or time with those in the price of provisions,
but they are frequently quite opposite.
Grain, the food of the common people is dearer in Scotland than in
England, whence Scotland receives almost every year very large sup-
plies. " But English corn must be sold dearer in Scotland, the country
to which it is brought, than in England , the country from which it
comes ; and in proportion to its quality it cannot be sold dearer in
Scotland than the Scotch corn that comes to the same market in com-
petition with it. The quality of grain depends chiefly upon the
quantity of flour or meal which it yields at the mill, and in this respect
English grain is so much superior to the Scotch , that, though often
dearer in appearance , or in proportion to the measure of its bulk, it is
generally cheaper in reality, or in proportion to its quality , or even to
the measure of its weight. The price of labour, on the contrary , is
dearer in England than in Scotland . If the labouring poor therefore
can maintain their families in the one part of the united kingdom , they
must be in affluence in the other. Oatmeal indeed supplies the com-
mon people in Scotland with the greatest and the best part of their
food, which is in general much inferior to that of their neighbours of
the same rank in England. This difference , however, in the mode of
their subsistence is not the cause, but the effect of the difference in
their wages ; though , by a strange misapprehension , I have frequently
heard it represented as the cause. It is not because one man keeps a
coach while his neighbour walks a-foot, that the one is rich and the
other poor ; but because the one is rich he keeps a coach, and because
the other is poor he walks a-foot.
During the course of the last century, taking one year with another,
74 ESTIMATE OF THE EARNINGS OF THE LABOURER.

grain was dearer in both parts of the United Kingdom than during that
32
of the present. This is a matter of fact which cannot now admit of
any reasonable doubt ; and the proof of it is, if possible, still more de-
cisive with regard to Scotland than with regard to England. It is in
Scotland supported by the evidence of the public fiars, annual valua-
tions made upon oath, according to the actual state of the markets, of
all the different sorts of grain in every different county of Scotland. If
such direct proof could require any collateral evidence to confirm it, I
would observe that this has likewise been the case in France, and pro
bably in most other parts of Europe. With regard to France there is
the clearest proof. But though it is certain that in both parts of the
United Kingdom grain was somewhat dearer in the last century than in
the present, it is equally certain that labour was much cheaper. Ifthe
labouring poor, therefore, could bring up their families then, they must
be much more at their ease now. In the last century, the most usual
day-wages of common labour through the greater part of Scotland
were sixpence in summer and fivepence in winter. Three shillings a
week, the same price very nearly, still continues to be paid in some
parts of the Highlands and Western Islands. Through the greater
part of the low country the most usual wages of common labour are
now eightpence a day ; tenpence, sometimes a shilling about Edin-
burgh, in the counties which border upon England , probably on account
of that neighbourhood, and in a few other places where there has
lately been a considerable rise in the demand for labour, about Glas-
gow, Carron, Ayrshire, etc. In England the improvements of agricul-
ture, manufactures and commerce began much earlier than in Scot-
land. The demand for labour, and consequently its price, must neces-
sarily have increased with those improvements. In the last century,
accordingly, as well as in the present, the wages of labour were higher
in England than in Scotland. They have risen too considerably since
that time, though, on account of the greater variety of wages paid there
in different places, it is more difficult to ascertain how much. In 1614,
the pay of a foot soldier was the same as in the present times, eight-
34
pence a day. When it was first established it would naturally be re-
gulated by the usual wages of common labourers, the rank of people
from which foot soldiers are commonly drawn. Lord Chief Justice
Hales, who wrote in the time of Charles II., computes the necessary
expense of a labourer's family, consisting of six persons, the father and
mother, two children able to do something, and two not able, at ten
shillings a week, or twenty-six pounds a year. If they cannot earn
this by their labour, they must make it up, he supposes, either by beg-
ging or stealing. He appears to have inquired very carefully into this
subject in Burn's Hist. of Poor-laws. In 1688 , Mr. Gregory King,
whose skill in political arithmetic is so much extolled by Doctor Da-
venant, computed the ordinary income of labourers and out- servants to
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 75

be fifteen pounds a year to a family, which he supposed to consist, one

with another, of three and a half persons. His calculation therefore,
though different in appearance, corresponds very nearly at bottom with
that of Judge Hales. Both suppose the weekly expense of such families
to be about twenty-pence a head. Both the pecuniary income and ex-
pense of such families have increased considerably since that time
through the greater part of the kingdom ; in some places more, and in
some less ; though perhaps scarce anywhere so much as some ex-
aggerated accounts of the present wages of labour have lately repre-
sented them to the public. The price of labour, it must be observed,
cannot be ascertained very accurately anywhere, different prices being
often paid at the same place and for the same sort of labour, not only
according to the different abilities ofthe workmen, but according to the
easiness or hardness of the masters. Where wages are not regulated
by law, all that we can pretend to determine is what are the most usual;
and experience seems to show that law can never regulate them pro-
perly, though it has often pretended to do so.
The real recompense of labour, the real quantity of the necessaries
and conveniences of life which it can procure to the labourer, has, dur-
ing the course of the present century, increased perhaps in a still greater
proportion than its money price. Not only grain has become some-
what cheaper, but many other things, from which the industrious poor
derive an agreeable and wholesome variety of food , have become a great
deal cheaper. Potatoes, for example, do not at present, through the
greater part of the kingdom, cost half the price which they used to do
thirty or forty years ago. The same thing may be said of turnips.
carrots, cabbages ; things which were formerly never raised but by the
spade, but which now are commonly raised by the plough. All sort of
garden stuff too has become cheaper. The greater part of the apples
and even of the onions consumed in Great Britain were in the last cen-
tury imported from Flanders. The great improvements in the coarser
manufactures of both linen and woollen cloth furnish the labourers with
cheaper and better clothing ; and those in the manufactures of the
coarser metals, with cheaper and better instruments of trade, as well as
with many agreeable and convenient pieces of household furniture.
Soap, salt, candles, leather, and fermented liquors, have, indeed, be-
come a good deal dearer ; chiefly from the taxes which have been laid
upon them. The quantity of these, however, which the labouring foor
are under any necessity of consuming, is so very small, that the increase
in their price does not compensate the diminution in that of so many
other things. The common complaint that luxury extends itself even
to the lowest ranks of the people, and that the labouring poor will not
now be contented with the same food , clothing, and lodging which
satisfied them in former times, may convince us that it is not the money
price of labour only, but its real recompense, which has augmented.
76 EFFECT OF SOCIAL COMFORT ON INCREASE OF POPULATION.

Is this improvement in the circumstances of the lower ranks of the

people to be regarded as an advantage or as an inconveniency to the
society? The answer seems at first sight abundantly plain. Servants,
labourers, and workmen of different kinds, make up the far greater
part of every great political society. But what improves the circum-
stances of the greater part can never be regarded as an inconveniency
to the whole. No society can surely be flourishing and happy, of which
the far greater part of the members are poor and miserable. It is but
equity, besides, that they who feed, clothe, and lodge the whole body
of the people, should have such a share of the produce of their own
labour as to be themselves tolerably well fed, clothed, and lodged.
Poverty, though it no doubt discourages, does not always prevent
marriage. It seems even to be favourable to generation. A half-starved
Highland woman frequently bears more than twenty children, while a
pampered fine lady is often incapable of bearing any, and is generally
exhausted by two or three. Barrenness, so frequent among women of
fashion, is very rare among those of inferior station. Luxury in the fair
sex, while it inflames perhaps the passion for enjoyment, seems almost
to weaken, and frequently to destroy, the powers of generation.
But poverty, though it does not prevent the generation, is extremely
unfavourable to the rearing of children. The tender plant is produced ,
but in so cold a soil, and so severe a climate, soon withers and dies. It
is not uncommon, I have been frequently told, in the Highlands of
Scotland for a mother who has borne twenty children not to have two
alive. Several officers of great experience have assured me, that
so far from recruiting their regiment, they have never been able to sup-
ply it with drums and fifes from all the soldiers children that were born
in it. A greater number of fine children, however, is seldom seen any-
where than about a barrack of soldiers. Very few of them, it seems,
arrive at the age of thirteen or fourteen. In some places one half the
children born, die before they are four years of age ; in many places
before they are seven ; and in almost all places before they are nine or
ten. This great mortality, however, will everywhere be found chiefly
among the children of the common people, who cannot afford to tend
them with the same care as those of better station. Though their
marriages are generally more fruitful than those of people of fashion, a
smaller proportion of their children arrive at maturity. In foundling
hospitals, and among the children brought up by parish charities, the
mortality is still greater than among those of the common people.
Every species of animals naturally multiplies in proportion to the
means of their subsistence, and no species can ever multiply beyond it.
But in civilized society it is only among the inferiar ranks of people that
the scantiness of subsistence can set limits to the further multiplicatior
of the human species ; and it can do so in no other way than by destroy
ing a great part of the children which their marriages produce. S
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 77

The liberal reward of labour, by enabling them to provide better for

their children, and consequently to bring up a greater number, naturally
tends to widen and extend those limits. It deserves to be remarked
too, that it necessarily does this as nearly as possible in the proportion
which the demand for labour requires. If this demand is continually
increasing, the reward of labour must necessarily encourage in such a
manner the marriage and multiplication of labourers, as may enable
them to supply that continually increasing demand by a continually in-
creasing population. If the reward should at any time be less than
what was requisite for this purpose, the deficiency of hands would soon
raise it ; and if it should at any time be more, their excessive multipli-
cation would soon lower it to this necessary rate. The market would
be so much under-stocked with labour in the one case, and so much
over-stocked in the other, as would soon force back its price to that
proper rate which the circumstances of the society required. It is in
this manner that the demand for men, like that for any other com-
modity, necessarily regulates the production of men ; quickens it when
it goes on too slowly, and stops it when it advances too fast. It is this
demand which regulates and determines the state of propagation in all
the different countries of the world, in North America, in Europe, and
in China ; which renders it rapidly progressive in the first, slow and
gradual in the second, and altogether stationary in the last. ³
The wear and tear of a slave, it has been said, is at the expense of
his master ; but that of a free servant is at his own expense. The
wear and tear of the latter, however, is, in reality, as much at the
expense of his master as that of the former. The wages paid to jour-
neymen and servants of every kind must be such as may enable them,
one with another, to continue the race of journeymen and servants, ac-
cording as the increasing, diminishing, or stationary demand of the
society may happen to require. But though the wear and tear of a free
servant be equally at the expense of his master, it generally costs him
much less than that of a slave. The fund destined for replacing or re-
pairing, if I may say so, the wear and tear of the slave, is commonly
managed by a negligent master or careless overseer. That destined
for performing the same office with regard to the free man, is managed
by the free man himself. The disorders which generally prevail in the
economy of the rich, naturally introduce themselves into the managc-
ment of the former : the strict frugality and parsimonious attention of
the poor as naturally establish themselves in that of the latter. Unde
such different management, the same purpose must require very dit
ferent degrees of expense to execute it. It appears, accordingly, from
the experience of all ages and nations, I believe , that the work done by
freemen comes cheaper in the end than that performed by slaves. It
is found to do so even at Boston, New York, and Philadelphia, where
the wages ofcommon labour are so very high,
78 EXCESSIVE LABOUR OF MIND OR BODY ENERVATES US.

The liberal reward of labour, therefore, as it is the effect of increas-

ing wealth, so it is the cause of increasing population. To complain
of it, is to lament over the necessary effect and cause of the greatest
public prosperity.
It deserves to be remarked, perhaps, that it is in the progressive
state, while the society is advancing to the further acquisition, rather
than when it has acquired its full complement of riches, that the con-
dition of the labouring poor, of the great body of the people, seems to
be the happiest and the most comfortable. It is hard in the stationary,
and miserable in the declining state. The progressive state is in
reality the cheerful and the hearty state to all the different orders of
he society. The stationary is dull ; the declining melancholy.
The liberal reward of labour, as it encourages the propagation, so it
increases the industry of the common people. The wages of labour
are the encouragement of industry, which, like every other human
quality, improves in proportion to the encouragement it receives. A
plentiful subsistence increases the bodily strength of the labourer, and
the comfortable hope of bettering his condition, and of ending his days
perhaps in ease and plenty, animates him to exert that strength to the
utmost. Where wages are high, accordingly, we shall always find the
workmen more active, diligent, and expeditious, than where they are
low ; in England, for example, than in Scotland ; in the neighbour-
hood of great towns, than in remote country places. Some workmen,
indeed, when they can earn in four days what will maintain them
through the week, will be idle the other three. This, however, is by no
means the case with the greater part. Workmen, on the contrary,
when they are liberally paid by the piece, are very apt to overwork
themselves, and to ruin their health and constitution in a few years.
A carpenter in London, and in some other places, is not supposed to
last in his utmost vigour above eight years. Something of the same
kind happens in many other trades, in which the workmen are paid by
the piece, as they generally are in manufactures, and even in country
labour, wherever wages are higher than ordinary. Almost every class
of artificers is subject to some peculiar infirmity occasioned by exces-
sive application to their peculiar species of work. Ramuzzini, an ¦
eminent Italian physician, has written a particular book concerning
such diseases. We do not reckon our soldiers the most industrious
set of people among us. Yet when soldiers have been employed in
some particular sorts of work, and liberally paid by the piece, their
officers have frequently been obliged to stipulate with the undertaker,
that they should not be allowed to earn above a certain sum every day,
according to the rate at which they were paid, Till this stipulation
was made, mutual emulation and the desire of greater gain, frequently
prompted them to overwork themselves, and to hurt their health by
excessive labour. Excessive application during four days of the week,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 79

is frequently the real cause of the idleness of the other three, so much
and so loudly complained of. Great labour, either of mind or body,
continued for several days together, is in most men naturally followed
by a great desire of relaxation, which, if not restrained by force or by
some strong necessity, is almost irresistible. It is the call of nature,
which requires to be relieved by some indulgence, sometimes of ease
only, but sometimes too of dissipation and diversion. If it is not
complied with, the consequences are often dangerous, and sometimes
fatal, and such as almost always, sooner or later, bring on the peculiar
infirmity of the trade. If masters would always listen to the dictates
ofreason and humanity, they have frequently occasion rather to mode-
rate, than to animate the application of many of their workmen. It
will be found, I believe, in every sort of trade, that the man who works
o moderately as to be able to work constantly, not only preserves his
health the longest, but, in the course of the year, executes the greatest
quantity of work.
In cheap years, it is pretended, workmen are generally more idle,
and in dear ones more industrious than ordinary. A plentiful subsist-
ence therefore, it has been concluded, relaxes, and a scanty one
quickens their industry. That a little more plenty than ordinary may
render some workmen idle, cannot well be doubted ; but that it should
have this effect upon the greater part, or that men in general should
work better when they are ill fed than when they are well fed, when
they are disheartened than when they are in good spirits, when they
are frequently sick than when they are generally in good health, seems
not very probable. Years of dearth, it is to be observed, are generally
among the common people years of sickness and mortality, which can-
not fail to diminish the produce of their industry.
In years of plenty, servants frequently leave their masters, and trust
their subsistence to what they can make by their own industry. But
the same cheapness of provisions, by increasing the fund which is
destined for the maintenance of servants, encourages masters, farmers
especially, to employ a greater number. Farmers upon such occasions
expect more profit from their corn by maintaining a few more labouring
servants, than by selling it at a low price in the market. The demand
for servants increases, while the number of those who offer to supply
that demand diminishes. The price of labour, therefore, frequently
rises in cheap years.
In years of scarcity, the difficulty and uncertainty of subsistence
make all such people eager to return to service. But the high price
of provisions, by diminishing the funds destined for the maintenance
of servants, disposes masters rather to diminish than to increase the
number of those they have. In dear years too, poor independent
workmen frequently consume the little stocks with which they had
used to supply themselves with the materials of their work, and are
80 CHEAP YEARS INCREASE INDEPENDENT WORKMEN.

obliged to become journeymen for subsistence. More people want

employment than can easily get it ; many are willing to take it upon
lower terms than ordinary, and the wages of both servants and journey-
men frequently sink in dear years.
Masters of all sorts, therefore, frequently make better bargains with
their servants in dear than in cheap years, and find them more humble
and dependent in the former than in the latter. They naturally, there-
ore, commend the former as more favourable to industry. Landlords
and farmers, besides, two of the largest classes of masters, have
another reason for being pleased with dear years. The rents of the
one and the profits of the other depend very much upon the price of
provisions. Nothing can be more absurd, however, than to imagine
that men in general should work less when they work for themselves,
than when they work for other people. A poor independent workman
will generally be more industrious than even a journeyman who works
by the piece. The one enjoys the whole produce of his own industry ;
the other shares it with his master. The one, in his separate inde-
pendent state, is less liable to the temptations of bad company, which
in large manufactories so frequently ruin the morals of the other. The
superiority of the independent workman over those servants who are
hired by the month or by the year, and whose wages and maintenance
are the same whether they do much or do little, is likely to be still
greater. Cheap years tend to increase the proportion of independent
workmen to journeymen and servants of all kinds, and dear years to
diminish it.
A French author of great knowledge and ingenuity, Mr. Messance,
receiver of the taillies in the election of St. Etienne, endeavours to
show that the poor do more work in cheap than in dear years, by
comparing the quantity and value of the goods made upon those
different occasions in three different manufactures : one of coarse
woollens carried on at Elbeuf ; one of linen, and another of silk, both
which extend through the whole generality of Rouen. It appears from
his account, which is copied from the registers of the public offices ,
that the quantity and value of the goods made in all those three manu-
factures has generally been greater in cheap than in dear years ; and
that it has always been greatest in the cheapest, and least in the
dearest years. All the three seem to be stationary manufactures, or
which, though their produce may vary somewhat from year to year, are
upon the whole neither going backwards nor forwards.
The manufacture of linen in Scotland, and that of coarse woollens
in the west riding of Yorkshire, are growing manufactures, of which
the produce is generally, though with some variations, increasing both
in quantity and value. Upon examining, however, the accounts which
have been published of their annual produce, I have not been able to
observe that its variations ave had any sensible connection with the
 SMITH ON THE CAUSES OF THE WEALTH

dearness or cheapness of the seasons. In 1740, a year of great scarcity,

both manufactures, indeed, appear to have declined very considerably,
But in 1756, another year of great scarcity, the Scotch manufacture
made more than ordinary advances. The Yorkshire manufacture,
indeed, declined, and its produce did not rise to what it had been in
1755 till 1766, after the repeal of the American stamp act. In that and
the following year it greatly exceeded what it had ever been before,
and it has continued to advance ever since.
The produce of all great manufactures for distant sale must neces-
sarily depend, not so much upon the dearness or cheapness of the
seasons in the countries where they are carried on, as upon the cir-
cumstances which affect the demand in the countries where they are
consumed ; upon peace or war, upon the prosperity or declension of
other rival manufactures, and upon the good or bad humour of their
principal customers. A great part of the extraordinary work, besides,
which is probably done in cheap years, never enters the public registers
of manufactures. The men servants who leave their masters become
independent labourers. The women return to their parents, and com-
monly spin in order to make clothes for themselves and their families.
Even the independent workmen do not always work for public sale,
but are employed by some of their neighbours in manufactures for
family use. The produce of their labour, therefore, frequently makes
no figure in those public registers of which the records are sometimes
published with so much parade, and from which our merchants and
manufacturers would often vainly pretend to announce the prosperity
or declension of the greatest empires.
Though the variations in the price of labour, not only do not always
correspond with those in the price of provisions, but are frequently
quite opposite, we must not, upon this account, imagine that the price
of provisions has no influence upon that of labour. The money price
of labour is necessarily regulated by two circumstances ; the demand
for labour, and the price of the necessaries and conveniencies of life.
The demand for labour, according as it happens to be increasing,
stationary, or declining, or to require an increasing, stationary, or
declining population, determines the quantity of the necessaries and
conveniencies of life which must be given to the labourer ; and the
money price of labour is determined by what is requisite for purchasing
this quantity. Though the money price of labour, therefore, is some-
times high where the price of provisions is low, it would be higher, the
demand continuing the same, if the price of provisions was high.
It is because the demand for labour increases in years of sudden
and extraordinary plenty and diminishes in those of sudden and extra-
ordinary scarcity, that the money price of labour sometimes rises in
the one, and sinks in the other.
In a year of sudden and extraordinary plenty, there are funds in the
6
82 INFLUENCE OF CHEAP AND DEAR YEARS ON PRICE OF LABOUR.

hands of many of the employers of industry, sufficient to maintain and

employ a greater number of industrious people than had been em-
ployed the year before ; and this extraordinary number cannot always
be had. Those masters, therefore, who want more workmen, bid
against one another, in order to get them, which sometimes raises
both the real and the money price of their labour.
The contrary of this happens in a year of sudden and extraordinary
scarcity. The funds destined for employing industry are less than
they had been the year before. A considerable number of people are
thrown out of employment, who bid against one another in order to
get it, which sometimes lowers both the real and the money price of
labour. In 1740, a year of extraordinary scarcity, many people were
willing to work for bare subsistence. In the succeeding years of
plenty, it was more difficult to get labourers and servants.
The scarcity of a dear year, by diminishing the demand for labour,
tends to lower its price, as the high price of provisions tends to raise it.
The plenty of a cheap year, on the contrary, by increasing the demand,
tends to raise the price of labour, as the cheapness of provisions tends
to lower it. In the ordinary variations of the price of provisions, those
two opposite causes seem to counterbalance one another ; which is
probably in part the reason why the wages of labour are everywhere so
much more steady and permanent than the price of provisions.
The increase in the wages of labour necessarily increases the price
ofmany commodities, by increasing that part of it which resolves itself
into wages, and so far tends to diminish their consumption both at
home and abroad. The same cause, however, which raises the wages
of labour, the increase of stock, tends to increase its productive powers,
and to make a smaller quantity of labour produce a greater quantity of
work. The owner of the stock which employs a great number of
labourers, necessarily endeavours for his own advantage, to make such
a proper division and distribution of employment, that they may be
enabled to produce the greatest quantity of work possible. For the
same reason he endeavours to supply them with the best machinery
which either he or they can think of. What takes place among the
labourers in a particular workhouse, takes place, for the same reason,
among those of a great society. The greater their number, the more
they naturally divide themselves into different classes and subdivisions
of employment. More heads are occupied in inventing the most pro-
per machinery for executing the work of each, and it is, therefore, more
likely to be invented. There are many commodities, therefore, which,
in consequence of these improvements, come to be produced by so
much less labour than before, that the increase of its price is more than
compensated by the diminution of its quantity.

808
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 83

CHAP. IX. Ofthe Profits ofStock.

THE rise and fall in the profits of stock depend upon the same causes
with the rise and fall in the wages of labour, the increasing or declining
state of the wealth of the society ; but those causes affect the one and
the other very differently.
The increase of stock, which raises wages, tends to lower profit.
When the stocks of many rich merchants are turned into the same
trade, their mutual competition naturally tends to lower its profit ; and
when there is a like increase of stock in all the different trades carried
on in the same society, the same competition must produce the same
effect in them all. 88
It is not easy, it has already been observed, to ascertain what are the
average wages of labour even in a particular place and at a particular
time. We can, even in this case, seldom determine more than what
are the most usual wages. But even this can seldom be done with
regard to the profits of stock. Profit is so very fluctuating, that the
person who carries on a particular trade cannot always tell you himself
what is the average of his annual profit. It is affected, not only by
every variation of price in the commodities which he deals in, but by
the good or bad fortune both of his rivals and of his customers, and
by a thousand other accidents to which goods when carried either by
sea or by land, or even when stored in a warehouse, are liable. It
varies, therefore, not only from year to year, but from day to day, and
almost from hour to hour. To ascertain what is the average profit of
all the different trades carried on in a great kingdom must be much
more difficult ; and to judge of what it may have been formerly, or in
remote periods of time, with any degree of precision, must be alto-
gether impossible.
But though it may be impossible to determine with any degree of
precision, what are or were the average profits of stock, either in the
present, or in ancient times, some notion may be formed of them from
the interest of money. It may be laid down as a maxim, that wherever
a great deal can be made by the use of money, a great deal will com-
monly be given for the use of it ; and that wherever little can be made
by it, less will commonly be given for it. Accordingly, therefore, as
the usual market rate of interest varies in any country, we may be
assured that the ordinary profits of stock must vary with it, must sink
as it sinks and rise as it rises. The progress of interest, therefore,
may lead us to form some notion of the progress of profit.
By the 37th of Henry VIII. all interest above ten per cent. was
declared unlawful. More, it seems, had sometimes been taken before
that. In the reign of Edward VI. religious zeal prohibited all interest.
This prohibition, however, like others of the same kind, is said to have
produced no effect. and probably rather increased than diminished the
6
84 INFLUENCE OF PRICE OF MONEY ON THE STATE OF TRADE.

evils of usury. The statute of Henry VIII. , was revived by the 13th
of Elizabeth, cap. 8, and ten per cent. continued to be the legal rate of
interest till the 21st of James I., when it was restricted to eight per
cent. It was reduced to six per cent. soon after the restoration, and by
the 12th of Queen Anne, to five per cent. All these different statutory
regulations seem to have been made with great propriety. They seem
to have followed, and not to have gone before, the market rate of
interest, or the rate at which the people of good credit usually bor-
rowed. Since the time of Queen Anne, five per cent. seems to have
been rather above than below the market rate. Before the late war,
the government borrowed at three per cent.; and people of good credit
in the capital, and in many other parts of the kingdom, at three and a
half, four, and four and a half per cent.
Since the time of Henry VIII. the wealth and revenue of the country
have been continually advancing, and, in the course of their progress,
their pace seems rather to have been gradually accelerated than
retarded. They seem not only to have been going on, but to have been
going on faster and faster. The wages of labour have been continually
increasing during the same period , and in the greater part of the
different branches of trade and manufactures the profits of stock have
been diminishing.
It generally requires a greater stock to carry on any sort of trade in
a town than in a country village. The great stocks employed in every
branch of trade, and the number of rich competitors, generally reduce
the rate of profit in the former below what it is in the latter. But the
wages of labour are generally higher in a great town than in a country
village. In a thriving town the people who have great stocks to
employ, frequently cannot get the number of workmen they want,
and therefore bid against one another in order to get as many as they
can, which raises the wages of labour, and lowers the profits of stock.
In the remote parts of the country there is frequently not stock suffi-
cient to employ all the people, who therefore bid against one another
in order to get employment, which lowers the wages of labour, and
raises the profits of stock.
In Scotland, though the legal rate of interest is the same as in
England, the market rate is rather higher. People of the best credit there
seldom borrow under five per cent. Even private bankers in Edin-
burgh give four per cent. upon their promissory notes, of which pay-
ment either in whole or in part may be demanded at pleasure. Private
bankers in London give no interest for the money which is deposited
with them. There are few trades which cannot be carried on with
a smaller stock in Scotland than in England. The common rate of
profit, therefore, must be somewhat greater. The wages of labour, it
has been already observed, are lower in Scotland than in England.
The country too is not only much poorer, lut the steps by which i
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 85

advances to a better condition, for it is evidently advancing, seem to

be much slower and more tardy. 89
The legal rate of interest in France has not, during the course of the
present century, been always regulated by the market rate. " In 1720
interest was reduced from the twentieth to the fiftieth penny, or from
five to two per cent. In 1724 it was raised to the thirtieth penny, or to
3 per cent. In 1725 it was again raised to the twentieth penny, or to
five per cent. In 1766, during the administration of Mr. Laverdy, it
was reduced to the twenty-fifth penny, or to four per cent. The
Abbé Terray raised it afterwards to the old rate of five per cent. The
supposed purpose of many of those violent reductions of interest was
to prepare the way for reducing that of the public debts, a purpose
which has sometimes been executed. France is perhaps in the present
times not so rich a country as England ; and though the legal rate of
interest has in France frequently been lower than in England, the market
rate has generally been higher ; for there, as in other countries, they have
several very safe and easy methods of evading the law. The profits of
trade, I have been assured by British merchants who have traded in both
countries, are higher in France than in England ; and it is no doubt upon
this account that many British subjects choose rather to employ their
capitals in a country where trade is in disgrace, than in one where it is
highly respected. The wages of labour are lower in France than in
England. When you go from Scotland to England, the difference
which you may remark between the dress and countenance of the
common people in the one country and in the other, sufficiently indicates
the difference in their condition. The contrast is still greater when you
return from France. France, though no doubt a richer country than
Scotland, seems not to be going forward so fast. It is a common and even
a popular opinion in the country, that it is going backwards ; an opinion
which, I apprehend, is ill-founded even with regard to France, but which
nobody can possibly entertain with regard to Scotland, who sees the
country now, and who may have seen it twenty or thirty years ago.
The province of Holland, on the other hand, in proportion to the
extent of its territory and the number of its people, is a richer country
than England. The government there borrow at two per cent., and
private people of good credit at three. The wages of labour are said
to be higher in Holland than in England, and the Dutch, it is well
known, trade upon lower profits than any people in Europe. The trade
of Holland, it has been pretended by some people, is decaying, and it
may perhaps be true that some particular branches of it are so. But
these symptoms seem to indicate sufficiently that there is no general
decay. When profit diminishes, merchants are very apt to complain
that trade decays ; though the diminution of profit is the natural effect
of its prosperity, or of a greater stock being employed in it than before.
During the late war the Dutch gained the whole carrving trade of
 86 DEMAND FOR LABOUR INCREASES WITH INCREASE OF STOCK.

France, of which they still retain a very large share. The great pro-
perty which they possess both in the French and English funds, about
forty millions, it is said, in the latter
42 (in which I suspect, however,
there is a considerable exaggeration the great sums which they lend to
private people in countries where the rate of interest is higher than in
their own, are circumstances which no doubt demonstrate the redun-
dancy of their stock, or that it has increased beyond what they can
mploy with tolerable profit in the proper business of their own
country: but they do not demonstrate that that business has decreased.
As the capital of a private man, though acquired by a particular trade,
may increase beyond what he can employ in it, and yet that trade con-
tinue to increase ; so may likewise the capital of a great nation.
In our North American and West Indian colonies, not only the wages
of labour, but the interest of money, and consequently the profits of
stock, are higher than in England. In the different colonies both the
legal and the market rate of interest run from six to eight per cent.
High wages of labour and high profits of stock, however, are things,
perhaps, which scarce ever go together, except in the peculiar circum-
stances of new colonies. A new colony must always for some time
be more under-stocked in proportion to the extent of its territory, and
more under-peopled in proportion to the extent of its stock, than the
greater part of other countries. They have more land than they have
stock to cultivate. What they have, therefore, is applied to the cultiva-
tion only of what is most fertile and most favourably situated, the land
near the sea shore, and along the banks of navigable rivers. Such
land too is frequently purchased at a price below the value even of its
natural produce. Stock employed in the purchase and improvement
of such lands must yield a very large profit, and consequently afford to
pay a very large interest. Its repaid accumulation in so profitable an
employment enables the planter to increase the number of his hands
faster than he can find them in a new settlement. Those whom he can
find, therefore, are very liberally rewarded. As the colony increases,
the profits of stock gradually diminish. When the most fertile and
best situated lands have been all occupied, less profit can be made by
the cultivation of what is inferior both in soil and situation, and less
interest can be afforded for the stock which is so employed. In the
greater part of our colonies, accordingly, both the legal and the market
rate of interest have been considerably reduced during the course of
•
the present century. As riches, improvement, and population have
43
increased, interest has declined. The wages of labour do not sink with
the profits of stock
. The demand for labour increases with the increase
of stock, whatever be its profits ; and after these are diminished, stock
may not only continue to increase, but to increase much faster than
before. It is with industrious nations who are advancing in the acqui-
sition ofriches, as with industrious individuals. A great stock, though
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 87

with small profits, generally increases faster than a small stock wit
great profits. Money, says the proverb, makes money. When you
have got a little, it is often easy to get more. The great difficulty is
to get that little. The connection between the increase of stock and
that of industry, or of the demand for useful labour, has partly bee
explained already, but will be explained more fully hereafter in treating
of the accumulation of stock. glong Daoul to
The acquisition of new territory, or of new branches of trade, may
sometimes raise the profits of stock, and with them the interest of
money, even in a country which is fast advancing in the acquisition of
44
riches. The stock of the country not being sufficient for the whole
accession of business, which such acquisitions present to the different
people among whom it is divided, is applied to those particular
branches only which afford the greatest profit. Part of what had be-
fore been employed in other trades, is necessarily withdrawn from
them, and turned into some of the new and more profitable ones. In
all those old trades, therefore, the competition comes to be less than
before. The market comes to be less fully supplied with many dif-
ferent sorts of goods. Their price necessarily rises more or less, and
yields a greater profit to those who deal in them, who can, therefore,
afford to borrow at a higher interest. For some time after the conclu-
sion of the late war, not only private people of the best credit, but some
of the greatest companies in London, commonly borrowed at five per
cent. who before that had not been used to pay more than four, and
four and a half per cent. The great accession both of territory and
trade, by our acquisitions in North America and the West Indies, will
sufficiently account for this, without supposing any diminution in the
capital stock of the society. So great an accession of new business to
be carried on by the old stock, must necessarily have diminished the
quantity employed in a great number of particular branches, in which
the competition being less, the profits must have been greater. I shall
hereafter have occasion to mention the reasons which dispose me to
believe that the capital stock of Great Britain was not diminished even
by the enormous expense of the late war.
The diminution of the capital stock of the society, or of the funds
destined for the maintenance of industry, however, as it lowers the
wages of labour, so it raises the profits of stock, and consequently the
interest of money. By the wages of labour being lowered, the owners
of what stock remains in the society can bring their goods at less ex-
pense to market than before, and less stock being employed in supply-
ing the market than before, they can sell them dearer. Their goods
cost them less, and they get more for them. Their profits, therefore,
being augmented at both ends, can well afford a large interest. The
great fortunes so suddenly and so easily acquired in Bengal and the
other British settlements in the East Indies, may satisfy us hat, as the
ན་ ཟ
 88 STATE OF TRADE, AND SOCIAL RELATIONS IN CHINA.

wages of labour are very low, so the profits of stock are very high in
those ruined countries. The interest of money is proportionably so.
In Bengal, money is frequently lent to the farmers at forty, fifty, and
sixty per cent., and the succeeding crop is mortgaged for the payment.
As the profits which can afford such an interest must eat up almost the
whole rent of the landlord, so such enormous usury must in its turn
eat up the greater part of those profits. Before the fall of the Roman
! republic, a usury of the same kind seems to have been common in the
provinces, under the ruinous administration of their proconsuls. The
virtuous Brutus lent money in Cyprus at eight-and-forty per cent., as
we learn from the letters of Cicero.
In a country which had acquired that full complement of riches
which the nature of its soil and climate, and its situation with respect
to other countries, allowed it to acquire ; which could, therefore, ad-
vance no further, and which was not going backwards, both the wages
of labour and the profits of stock would probably be very low. In a
country fully peopled in proportion to what either its territory could
maintain or its stock employ, the competition for employment would
necessarily be so great as to reduce the wages of labour to what was
barely sufficient to keep up the number of labourers, and, the country
being already fully peopled, that number could never be augmented.
In a country fully stocked in proportion to all the business it had to
transact, as great a quantity of stock would be employed in every par-
ticular branch as the nature and extent of the trade would admit. The
competition, therefore, would everywhere be as great, and consequently
the ordinary profit as low as possible.
But perhaps no country has ever yet arrived at this degree of opu-
lence. China seems to have been long stationary, and had probably
long ago acquired that full complement of riches which is consistent
with the nature of its laws and institutions. But this complement may
be much inferior to what, with other laws and institutions, the nature
of its soil, climate, and situation might admit of. A country which
neglects or despises foreign commerce, and which admits the vessels
of foreign nations into one or two of its ports only, cannot transact the
same quantity of business which it might do with different laws and
institutions. In a country too, where, though the rich or the owners
- of large capitals enjoy a good deal of security, the poor or the owners
of small capitals enjoy scarce any, but are liable, under the pretence
of justice, to be pillaged and plundered at any time by the inferior
mandarins, the quantity of stock employed in all the different branches
of business transacted within it, can never be equal to what the nature
and extent of that business might admit. In every different branch,
the oppression of the poor must establish the monopoly of the rich,
who, by engrossing the whole trade to themselves, will be able to make
very large profits. Twelve per cent. accordingly is said to be the com-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. ୪୨

mon interest of money in China, and the ordinary profits of stock must
be sufficient to afford this large interest.
A defect in the law may sometimes raise the rate of interest con
siderably above what the condition of the country, as to wealth or
poverty, would require. When the law does not enforce the perform-
ance of contracts, it puts all borrowers nearly upon the same footing
with bankrupts or people of doubtful credit in better regulated countries.
The uncertainty of recovering his money makes the lender exact the
same usurious interest which is usually required from bankrupts.
Among the barbarous nations who overran the western provinces of
the Roman empire, the performance of contracts was left for many
ages to the faith of the contracting parties. The courts of justice of
their kings seldom intermeddled in it. The high rate of interest
which took place in those ancient times may perhaps be partly ac-
counted for from this cause.
When the law prohibits interest altogether, it does not prevent it.
Many people must borrow, and nobody will lend without such a con-
sideration for the use of their money as is suitable, not only to what
can be made by the use of it, but to the difficulty and danger of evading
the law. The high rate of interest among all Mahometan nations is
accounted for by Mr. Montesquieu, not from their poverty, but partly
from this, and partly from the difficulty of recovering the money.
The lowest ordinary rate of profit must always be something more
than what is sufficient to compensate the occasional losses to which
every employment of stock is exposed. It is this surplus only which is
nett or clear profit. What is called gross profit comprehends fre-
quently, not only this surplus, but what is retained for compensating
such extraordinary losses. The interest which the borrower can afford
to pay is in proportion to the clear profit only.
The lowest ordinary rate of interest must, in the same manner, be
something more than sufficient to compensate the occasional losses to
which lending, even with tolerable prudence, is exposed. Were it not
more, charity or friendship could be the only motives for lending.
In a country which had acquired its full complement of riches, where
in every particular branch of business there was the greatest quantity
of stock that could be employed in it, as the ordinary rate of clear profit
would be very small, so the usual market rate of interest which could
be afforded out of it, would be so low as to render it impossible for any
but the very wealthiest people to live upon the interest of their money.
All people of small or middling fortunes would be obliged to superintend
themselves the employment of their own stocks. It would be necessary
that almost every man should be a man of business, or engage in some
sort of trade. The province of Holland seems to be approaching near
to this state. It is there unfashionable not to be a man of business.
Necessity makes it usual for almost every man to be so, and custom
90 HIGH PROFITS TEND TO RAISE THE PRICE OF WORK.

everywhere regulates fashion. As it is ridiculous not to dress, so is it,

in some measure, not to be employed, like other people. As a man of
a civil profession seems awkward in a camp or a garrison, and is even
in some danger of being despised there, so does an idle man among
men of business.
The highest ordinary rate of profit may be such as, in the price of
the greater part of commodities, eats up the whole of what should go
to the rent of the land, and leaves only what is sufficient to pay the
labour of preparing and bringing them to market, according to the
lowest rate at which labour can anywhere be paid, the bare subsistence
of the labourer. The workman must always have been fed in some
way or other while he was about the work; but the landlord may not
always have been paid. The profits ofthe trade which the servants of
the East India Company carry on in Bengal may not perhaps be very
far from this rate.
The proportion which the usual market rate of interest ought to bear
to the ordinary rate of clear profit, necessarily varies as profit rises or
falls. Double interest is in Great Britain reckoned, what the merchants
call, a good, moderate, reasonable profit ; terms which I apprehend
mean no more than a common and usual profit. In a country where
the ordinary rate of clear profit is eight or ten per cent., it may be
reasonable that one half of it should go to interest, wherever business
is carried on with borrowed money. The stock is at the risk of the
borrower, who, as it were, insures it to the lender ; and four or five per
cent. may, in the greater part oftrades, be both a sufficient profit upon
the risk of this insurance, and a sufficient recompense for the trouble
of employing the stock. But the proportion between interest and clear
profit might not be the same in countries where the ordinary rate of
profit was either a good deal lower, or a good deal higher. If it were
a good deal lower, one half of it perhaps could not be afforded for
interest ; and more might be afforded if it were a good deal higher.
In countries which are fast advancing to riches, the low rate of
profit may, in the price of many commodities, compensate the high
wages of labour, and enable those countries to sell as cheap as their
less thriving neighbours, among whom the wages paid for labour
may be lower.
In reality high profits tend much more to raise the price of work
than high wages. " If in the linen manufacture, for example, the wages
of the different working people, the flax-dressers, the spinners, the
weavers, etc., should, all of them, be advanced twopence a day ; it
would be necessary to heighten the price of a piece of linen only by a
number of two pences equal to the number of people that had been
employed about it, multiplied by the number of days during which
they had been so employed. That part of the price of the commodity
which resolved itself into wages would, through all the different stages
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 91

of the manufacture, rise only in arithmetical proportion to this rise of

wages. But if the profits of all the different employers of those work-
ing people should be raised five per cent., that part of the price of th
commodity which resolved itself into profit would, through all th
different stages of the manufacture, rise in geometrical proportion to
this rise of profit. The employer of the flax-dressers would in sell-
ing his flax require an additional five per cent. upon the whole value of
the materials and wages which he advanced to his workmen. The
employer of the spinners would require an additional five per cent.
both upon the advanced price of the flax and upon the wages of the
spinners. And the employer of the weavers would require a like five
per cent. both upon the advanced price of the linen yarn and upon the
wages of the weavers. In raising the price of commodities the rise of
wages operates in the same manner as simple interest does in the
accumulation of debt. The rise of profit operates like compound
interest. Our merchants and master-manufacturers complain much of
the bad effects of high wages in raising the price, and thereby lessen-
ing the sale of their goods both at home and abroad. They say
nothing concerning the bad effects of high profits. They are silent
with regard to the pernicious effects of their own gains. They com-
plain only of those of other people.

CHAP. X.- Of Wages and Profits in the different Employments of

Labour and Stock. 47
THE whole of the advantages and disadvantages of the different
employments of labour and stock must, in the same neighbourhood, be
either perfectly equal or continually tending to equality. If in the
same neighbourhood, there was any employment evidently either more
or less advantageous than the rest, só many people would crowd into
it in the one case, and so many would desert it in the other, that its
advantages would soon return to the level of other employments. This
at least would be the case in a society where things were left to follow
their natural course, where there was perfect liberty, and where every
man was perfectly free both to choose what occupation he thought
proper, and to change it as often as he thought proper. Every man's
interest would prompt him to seek the advantageous, and to shun the
disadvantageous employment.
Pecuniary wages and profit, indeed, are everywhere in Europe
extremely different according to the different employments of labour
and stock. But this difference arises partly from certain circumstances
in the employments themselves, which, either really, or at least in the
imaginations of men, make up for a small pecuniary gain in some, and
92 HONOUR IS PART REWARD OF HONOURABLE PROFESSIONS.

counter-balance a great one in others ; and partly from the policy of

Europe, which nowhere leaves things at perfect liberty.
The particular consideration of those circumstances and of that
policy will divide this chapter into two parts.

PART I.-Inequalities arising from the Nature of the Employments

themselves.
THE five following are the principal circumstances which, so far as I
have been able to observe, make up for a small pecuniary gain in some
employments, and counterbalance a great one in others : first, the
agreeableness or disagreeableness of the employments themselves ;
secondly, the easiness and cheapness, or the difficulty and expense of
learning them ; thirdly, the constancy or inconstancy of employment
in them ; fourthly, the small or great trust which must be reposed in
those who exercise them ; and fifthly, the probability or improbability
of success in them.
I. The wages of labour vary with the ease or hardship, the cleanli-
ness or dirtiness, the honourableness or dishonourableness of the
employment. Thus in most places, take the year round, a journeyman
tailor earns less than a journeyman weaver. His work is much easier.
Ajourneyman weaver earns less than a journeyman smith. His work
is not always easier, but it is much cleaner. A journeyman blacksmith,
though an artificer, seldom earns so much in twelve hours as a collier,
who is only a labourer, does in eight. His work is not quite so dirty,
is less dangerous, and is carried on in daylight and above ground.
Honour makes a great part of the reward of all honourable professions.
In point of pecuniary gain, all things considered, they are generally
under-recompensed, as I shall endeavour to show by-and-by. Disgrace
has the contrary effect. The trade of a butcher is a brutal and an
odious business ; but it is in most places more profitable than the
greater part of common trades. The most detestable of all employ-
ments, that of public executioner, is, in proportion to the quantity of
work done, better paid than any common trade whatever.
Hunting and fishing, the most important employments of mankind
in the rude state of society, become in its advanced state their most
agreeable amusements, and they pursue for pleasure what they once
followed from necessity. In the advanced state of society, therefore,
they are all very poor people who follow as a trade what other people
pursue as a pastime. Fishermen have been so since the time of
Theocritus (Idyllium xxi.). A poacher is everywhere a very poor man
in Great Britain. In countries where the rigour of the law suffers no
poachers, the licensed hunter is not in a much better condition. The
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 93

natural taste for those employments makes more people follow them
than can live comfortably by them, and the produce of their labour, in
proportion to its quantity, comes always too cheap to market to afford
anything but the most scanty subsistence to the labourers.
Disagreeableness and disgrace affect the profits of stock in the same
manner as the wages of labour. The keeper of an inn or tavern, who
is never master of his own house, and who is exposed to the brutality
of every drunkard, exercises neither a very agreeable nor a very credit-
able business. But there is scarce any common trade in which a small
stock yields so great a profit.
II. The wages of labour vary with the easiness and cheapness, or
the difficulty and expense of learning the business.
When an expensive machine is erected, the extraordinary work to be
performed by it before it is worn out, it must be expected, will replace
the capital laid out upon it, with at least the ordinary profits. A man
educated at the expense of much labour and time to any of those
employments which require extraordinary dexterity and skill, may be
compared to one of those expensive machines. The work which he
learns to perform, it must be expected, over and above the usual wages
of common labour, will replace to him the whole expense of his educa-
tion, with at least the ordinary profits of an equally valuable capital.
It must do this too in a reasonable time, regard being had to the very
uncertain duration of human life, in the same manner as to the more
certain duration of the machine.
The difference between the wages of skilled labour and those of com-
mon labour, is founded upon this principle.
The policy of Europe considers the labour of all mechanics, artificers,
and manufacturers, as skilled labour ; and that of all country labourers
as common labour. It seems to suppose that of the former to be of a
more nice and delicate nature than that of the latter. It is so perhaps
in some cases ; but in the greater part it is quite otherwise, as I shall
endeavour to show by-and-by. The laws and customs of Europe, there-
fore, in order to qualify any person for exercising the one species of
labour, impose the necessity of an apprenticeship, though with
different degrees of rigour in different places. They leave the other
free and open to every body. During the continuance of the appren-
ticeship, the whole labour of the apprentice belongs to his master. In
the meantime he must, in many cases, be maintained by his parents
or relations, and in almost all cases must be clothed by them. Some
money too is commonly given to the master for teaching him his trade.
They who cannot give money, give time, or become bound for more
than the usual number of years ; a consideration which, though it is not
always advantageous to the master, on account of the usual idleness of
apprentices, is always disadvantageous to the apprentice. In country
labour, on the contrary, the labourer, while he is employed about th
94 WAGES OF LABOUR DEPEND ON REGULARITY OF EMPLOYMENT.

easier, learns the more difficult parts of his business, and his own labou
maintains him through all the different stages of his employment. It
is reasonable, therefore, that in Europe the wages of mechanics, artifi-
cers, and manufacturers, should be somewhat higher than those of com-
mon labourers. They are so accordingly, and their superior gains
make them in most places be considered as a superior rank of people.
This superiority, however, is generally very small ; the daily or weekly
earnings ofjourneymen in the more common sorts of manufacturers,
such as those of plain linen and woollen cloth, computed at an average
are, in most places, very little more than the day wages of common
labourers. Their employment, indeed, is more steady and uniform,
and the superiority of their earnings, taking the whole year together,
may be somewhat greater. It seems evidently, however, to be no
greater than what is sufficient to compensate the superior expense
of their education.
Education in the ingenious arts and in the liberal professions, is still
more tedious and expensive. The pecuniary recompense, therefore of
painters and sculptors, of lawyers and physicians, ought to be much
more liberal : and it is so accordingly.
The profits of stock seem to be very little affected by the easiness or
difficulty of learning the trade in which it is employed. All the different
ways in which stock is commonly employed in great towns seem, in
reality, to be almost equally easy and equally difficult to learn. One
branch either of foreign or domestic trade, cannot well be a much more
intricate business than another.
III. The wages of labour in different occupations vary with the con-
stancy or inconstancy of employment.
Employment is much more constant in some trades than in others.
In the greater part of manufactures, a journeyman may be pretty sure
of employment almost every day in the year that he is able to work. A
mason or bricklayer, on the contrary, can work neither in hard frost
nor in foul weather, and his employment at all other times depends
upon the occasional calls of his customers. He is liable, in conse-
quence, to be frequently without any. What he earns, therefore, while
he is employed, must not only maintain him while he is idle, but make
him some compensation for those anxious and desponding moments
which the thought of so precarious a situation must sometimes occa-
sion. Where the computed earnings of the greater part of manufac-
turers, accordingly, are nearly upon a level with the day wages ofcom-
mon labourers, those of masons and bricklayers are generally from
one half more to double those wages. Where common labourers earn
four and five shillings a week, masons and bricklayers frequently earn
seven and eight ; where the former earn six, the latter often earn nine
and ten, and where the former earn nine or ten, as in London, the latter
commonly earn fifteen and eighteen: No species of skilled labour, how
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS, 95

ever, seems more easy to learn than that of masons and bricklayers.
Chairmen in London, during the summer season, are said sometimes to
be employed as bricklayers. The high wages of those workmen, there-
fore, are not so much the recompense of their skill, as the compensation
for the inconstancy of their employment.
A house carpenter seems to exercise rather a nicer and more in-
genious trade than a mason. In most places, however, for it is not
universally so, his day-wages are somewhat lower. His employment,
though it depends much, does not depend so entirely upon the occa-
sional calls of his customers ; and it is not so liable to be interrupted
by the weather.
When the trades which generally afford constant employment, hap-
pen in a particular place not to do so, the wages of the workmen always
rise a good deal above their ordinary proportion to those of common
labour. In London almost all journeymen artificers are liable to be
called upon and dismissed by their masters from day to day, and from
week to week, in the same manner as day-labourers in other places.
The lowest order of artificers, journeymen tailors, accordingly, earn
there half a crown a day, though eighteenpence may be reckoned the
wages of common labour. " In small towns and country villages, the
wages of journeymen tailors frequently scarce equal those of common
labour ; but in London they are often many weeks without employ-
ment, particularly during the summer.
When the inconstancy of employment is combined with the hardship,
disagreeableness, and dirtiness of the work, it sometimes raises the
wages ofthe most common labour above those of the most skilful arti-
ficers. A collier working by the piece is supposed, at Newcastle, to
earn commonly about double, and in many parts of Scotland about
three times, the wages of common labour. His high wages arise alto-
gether from the hardship, disagreeableness, and dirtiness of his work.
His employment may, upon most occasions, be as constant as he
pleases. The coalheavers in London exercise a trade which in hard-
ship, dirtiness, and disagreeableness, almost equals that of colliers ; and
from the unavoidable irregularity in the arrivals of coalships, the em-
ployment of the greater part of them is necessarily very inconstant. If
colliers, therefore, commonly earn double and triple the wages of com-
mon labour, it ought not to seem unreasonable that coalheavers should
sometimes earn four and five times those wages. In the inquiry made
into their condition a few years ago, it was found that at the rate at
which they were then paid, they could earn from six to ten shillings a
day. Six shillings are about four times the wages of common labour in
London, and in every particular trade, the lowest common earnings
may always be considered as those of the far greater number. How
extravagant soever those earnings may appear, if they were more than
sufficient to compensate all the disagreeable circumstances of the busi-
M
96 PROFESSIONAL EARNINGS DEPEND ON CHANCE OF SUCCESS.

ness, there would soon be so great a number of competitors as, in a

trade which has no exclusive privilege, would quickly reduce them to a
lower rate.
The constancy or inconstancy of employment cannot affect the or-
dinary profits of stock in any trade. Whether the stock is or is not
B constantly employed depends, not upon the trade, but the trader.
IV. The wages of labour vary according to the small or great trust
which must be reposed in the workmen.
1
The wages of goldsmiths and jewellers are everywhere superior to
those of many other workmen, not only of equal, but of much superior
ingenuity, on account of the precious materials with which they are
necessarily intrusted.
We trust our health to the physician ; our fortune and sometimes
our life and reputation to the lawyer and attorney. Such confidence
could not safely be reposed in people of a very mean or low condition.
Their reward must be such, therefore, as may give them that rank in
the society which so important a trust requires. The long time and
the great expense which must be laid out in their education, when com-
bined with this circumstance, will necessarily enhance still further the
price of their labour.
When a person employs only his own stock in trade, there is no
trust ; and the credit which he may get from other people depends,
not upon the nature of his trade, but upon their opinion of his fortune,
probity, and prudence. The different rates of profit, therefore, in the
different branches of trade, cannot arise from the different degrees of
trust reposed in the traders.
V. The wages of labour in different employments vary according to
the probability or improbability of success in them.
The probability that any particular person shall ever be qualified for
the employment to which he is educated , is very different in different
occupations. In the greater part of mechanic trades success is almost
certain, but very uncertain in the liberal professions. Put your son
apprentice to a shoemaker, there is little doubt of his learning to make
a pair of shoes : but send him to study the law, it is at least twenty to
one if ever he makes such a proficiency as will enable him to live by
the business. In a perfectly fair lottery, those who draw the prizes
ought to gain all that is lost by those who draw the blanks. In a
profession where twenty fail for one that succeeds, that one ought to
gain all that should have been gained by the unsuccessful twenty. The
counsellor at law who, perhaps, at near forty years of age, begins to
make something by his profession, ought to receive the retribution, not
only of his own so tedious and expensive education, but of that of more
than twenty others who are never likely to make anything by it. How
extravagant soever the fees of counsellors at law may sometimes ap-
pear, their real retribution is never equal to this. Compute in any
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 97

particular place, what is likely to be annually gained, and what is

likely to be annually spent, by all the different workmen in any
common trade, such as that of shoemakers or weavers, and you will
find that the former sum will generally exceed the latter. But make
the same computation with regard to all the counsellors and students
of law, in all the different inns of court, and you will find that their
annual gains bear but a very small proportion to their annual expense,
even though you rate the former as high, and the latter as low, as can
well be done. The lottery of the law, therefore, is very far from being
a perfectly fair lottery ; and that, as well as many other liberal and
honourable professions is, in point of pecuniary gain, evidently under-
recompensed.
Those professions keep their level, however, with other occupations,
and, notwithstanding these discouragements, all the most generous and
liberal spirits are eager to crowd into them. Two different causes
contribute to recommend them. First, the desire of the reputation
which attends upon superior excellence in any of them ; and, secondly,
the natural confidence which every man has more or less, not only in
his own abilities, but in his own good fortune.
To excel in any profession, in which but few arrive at mediocrity, is
the most decisive mark of what is called genius or superior talents.
The public admiration which attends upon such distinguished abilities,
makes always a part oftheir reward ; a greater or smaller in proportion
as it is higher or lower in degree. It makes a considerable part of
that reward in the profession of physic ; a still greater perhaps in that
of law ; in poetry and philosophy it makes almost the whole.
There are some very agreeable and beautiful talents of which the
possession commands a certain sort of admiration ; but of which the
exercise for the sake of gain is considered, whether from reason or
prejudice, as a sort of public prostitution. The pecuniary recompense,
therefore, of those who exercise them in this manner, must be sufficient,
not only to pay for the time, labour, and expense of acquiring the
talents, but for the discredit which attends the employment of them as
the means of subsistence. The exorbitant rewards of players, opera.
singers, opera-dancers, etc., are founded upon those two principles ; the
rarity and beauty of the talents, and the discredit of employing them
in this manner. It seems absurd at first sight that we should despise
their persons, and yet reward their talents with the most profuse
liberality. While we do the one, however, we must of necessity do the
other. Should the public opinion or prejudice ever alter with regard
to such occupations, their pecuniary recompense would quickly
diminish. More people would apply to them, and the competition
would quickly reduce the price of their labour. Such talents, though
far from being common, are by no means so rare as is imagined.
Many people possess them in great perfection, who disdain to make
7
 98 THEORY OF GAIN IN LOTTERIES. FIRE AND SEA RISKS.

this use of them ; and many more are capable of acquiring them, if
anything could be made honourably by them. dor
The over-weening conceit which the greater part of men have of
their own abilities, is an ancient evil remarked by the philosophers and
moralists of all ages. Their absurd presumption in their own good
P fortune, has been less taken notice of. It is, however, if possible, still
more universal. There is no man living who, when in tolerable health
and spirits, has not some share of it. The chance of gain is by every
man more or less overvalued, and the chance of loss is by most men
undervalued, and by scarce any man, who is in tolerable health and
spirits, valued more than it is worth.
That the chance of gain is naturally overvalued, we may learn from
the universal success of lotteries. The world neither ever saw, nor
ever will see, a perfectly fair lottery ; or one in which the whole gain
compensated the whole loss ; because the undertaker could make no-
thing by it. In the state lotteries the tickets are really not worth the
price which is paid by the original subscribers, and yet commonly sell
in the market for twenty, thirty, and sometimes forty per cent. advance.
The vain hope of gaining some of the great prizes is the sole cause of
this demand. The soberest people scarce look upon it as a folly to
pay a small sum for the chance of gaining ten or twenty thousand
pounds, though they know that even that small sum is perhaps twenty
or thirty per cent. more than the chance is worth. In a lottery ir.
which no prize exceeded twenty pounds, though in other respects it
approached much nearer to a perfectly fair one than the common state
lotteries, there would not be the same demand for tickets. In order tc
have a better chance for some ofthe great prizes, some people purchase
several tickets, and others, small shares in a still greater number.
There is not, however, a more certain proposition in mathematics, than
that the more tickets you adventure upon, the more likely you are to
be a loser. Adventure upon all the tickets in the lottery, and you lose
for certain , and the greater the number of your tickets the nearer you
approach to this certainty.
That the chance of loss is frequently undervalued, and scarce ever
valued more than it is worth, we may learn from the very moderate
profit of insurers. In order to make insurance either from fire or sea-
risk, a trade at all, the common premium must be sufficient to compen-
sate the common losses, to pay the expense of management, and to
afford such a profit as might have been drawn from an equal capital
employed in any common trade. The person who pays no more than
this, evidently pays no more than the real value of the risk, or the
lowest price at which he can reasonably expect to insure it. But
though many people have made a little money by insurance, very few
have made a great fortune ; and from this consideration alone, it seems
evident enough, that the ordinary balance of profit and loss is not more
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 99

advantageous in this, than in other common trades by which so many

people make fortunes. Moderate, however, as the premium of insur-
ance commonly is, many people despise the risk too much to care to
pay it. Taking the whole kingdom at an average, nineteen houses in
twenty, or rather, perhaps, ninety-nine in a hundred, are not insured
from fire. 50 Sea risk is more alarming to the greater part of people, and
the proportion of ships insured to those not insured is much greater.
Many sail, however, at all seasons, and even in time of war, without
any insurance. This may sometimes perhaps be done without any
imprudence. When a great company, or even a great merchant, has
twenty or thirty ships at sea, they may, as it were, insure one another
The premium saved upon them all, may more than compensate such
losses as they are likely to meet with in the common course of chances.
The neglect of insurance upon shipping, however, in the same man-
ner as upon houses, is, in most cases, the effect of no such nice calcu-
lation, but of mere thoughtless rashness and presumptuous contempt
of the risk run.
The contempt of risk and the presumptuous hope of success, are in
no period of life more active than at the age at which young people
choose their professions. How little the fear of misfortune is then
capable of balancing the hope ofgood luck, appears still more evidently
in the readiness of the common people to enlist as soldiers, or to go to
sea, than in the eagerness of those of better fashion to enter into what
are called the liberal professions.
What a common soldier may lose is obvious enough. Without
regarding the danger, however, young volunteers never enlist so readily
as at the beginning of a new war ; and though they have scarce any
chancesof preferment, they figure to themselves, in their youthful
fancies, a thousand occasions of acquiring honour and distinction
which never occur. These romantic hopes make the whole price of
their blood. Their pay is less than that of common labourers, and in
actual service their fatigues are much greater. gems
The lottery of the sea is not altogether so disadvantageous as that of
the army. The son of a creditable labourer or artificer may frequently
go to sea with his father's consent ; but if he enlists as a soldier it is
always without it. Other people see some chance of his making some-
thing by the one trade : nobody but himself sees any of his making
anything by the other. The great admiral is less the object of public
admiration than the great general, and the highest success in the sea
service promises a less brilliant fortune and reputation than equal
success in the land. The same difference runs through all the inferior
degress of preferment in both. By the rules of precedency a captain
in the navy ranks with a colonel in the army: but he does not rank
with him in the common estimation. As the great prizes in the lottery
are less, the smaller ones must be more numerous. Common sailors,*
100 HAZARDS AND CHANCES OF MILITARY AND NAVAL LIFE.

therefore, more frequently get some fortune and preferment than

common soldiers ; and the hope of those prizes is what principally
recommends the trade. Though their skill and dexterity are much
superior to that of almost any artificers, and though their whole life is
one continual scene of hardship and danger, yet for all this dexterity
and skill, for all those hardships and dangers, while they remain in the
condition of common sailors, they receive scarce any other recompense
but the pleasure of exercising the one and of surmounting the other.
Their wages are not greater than those of common labourers at the
port which regulates the rate of seamen's wages. As they are continu-
ally going from port to port, the monthly pay of those who sail from
all the different port of Great Britain, is more nearly upon a level than
that of any other workmen in those different places ; and the rate of
the port to and from which the greatest number sail, that is the port of
London, regulates that of all the rest. At London the wages of the
greater part of the different classes of workmen are about double those
of the same classes at Edinburgh. " But the sailors who sail from the
port of London seldom earn above three or four shillings a month
more than those who sail from the port of Leith, and the difference is
frequently not so great. In time of peace, and in the merchant service,
the London price is from a guinea to about seven- and-twenty shillings
the calendar month (in 1869, 50s. to 60s.). A common labourer in
London, at the rate of nine or ten shillings a week, may earn in the
calendar month from forty to five-and-forty shillings. The sailor,
indeed, over and above his pay, is supplied with provisions. Their
value, however, may not perhaps always exceed the difference between
his pay and that of the common labourer : and though it sometimes
should, the excess will not be clear gain to the sailor, because he cannot
share it with his wife and family, whom he must maintain out of his
wages at home. “
The dangers and hair-breadth escapes of a life of adventures,
instead of disheartening young people, seem frequently to recommend
a trade to them. A tender mother, among the inferior ranks of people,
is often afraid to send her son to school at a seaport town, lest the
sight of the ships and the conversation and adventures of the sailors
should entice him to go to sea. The distant prospect of hazards, from
which we can hope to extricate ourselves by courage and address, is
not disagreeable to us, and does not raise the wages of labour in any
employment. It is otherwise with those in which courage and address
can be of no avail. In trades which are known to be very unwhole-
some, the wages of labour are always remarkably high. Unwhole-
someness is a species of disagreeableness, and its effects upon the
wages of labour are to be ranked under that general head.
In all the different employments of stock, the ordinary rate of profit
varies more or less with the certainty or uncertainty of the returns.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 101

These are in general less uncertain in the inland than in the foreign
trade, and in some branches of foreign trade than in others ; in the
trade to North America, for example, than in that to Jamaica. The
ordinary rate of profit always rises more or less with the risk. It does
not, however, seem to rise in proportion to it, or so as to compensate
it completely. Bankruptcies are most frequent in the most hazardous
trades. The most hazardous of all trades, that of a smuggler, though
when the adventure succeeds it is likewise the most profitable, is the
infallible road to bankruptcy. The presumptuous hope of success
seems to act here as upon all other occasions, and to entice so many
adventurers into those hazardous trades, that their competition reduces
their profit below what is sufficient to compensate the risk. To com-
pensate it completely, the common returns ought, over and above the
ordinary profits of stock, not only to make up for all occasional losses,
but to afford a surplus profit to the adventurers of the same nature
with the profit of insurers. But if the common returns were sufficient
for all this, bankruptcies would not be more frequent in these than in
other trades.
Of the five circumstances, therefore, which vary the wages of labour,
two only affect the profits of stock ; the agreeableness or disagreeable-
ness of the business, and the risk or security with which it is attended.
In point of agreeableness or disagreeableness, there is little or no
difference in the far greater part of the different employments of stock ;
but a great deal in those of labour ; and the ordinary profit of stock
though it rises with the risk, does not always seem to rise in propor-
tion to it. It should follow from all this, that, in the same society or
neighbourhood, the average and ordinary rates of profit in the different
employments of stock should be more nearly upon a level than the
pecuniary wages of the different sorts of labour. They are so accord-
ingly. The difference between the earnings of a common labourer
and those of a well employed lawyer or physician, is evidently much
greater than that between the ordinary profits in any two different
branches of trade. The apparent difference, besides, in the profits of
different trades, is generally a deception arising from our not always
distinguishing what ought to be considered as wages, from what ought '
to be considered as profit.
Apothecaries' profit is become a bye-word, denoting something
uncommonly extravagant. This great apparent profit, however, is
frequently no more than the reasonable wages of labour. The skill of
an apothecary is a much nicer and more delicate matter than that of
any artificer whatever ; and the t.ust which is reposed in him is of
much greater importance. He is the physician of the poor in all cases,
and of the rich when the distress or danger is not very great. His
reward, therefore, ought to be suitable to his skill and his trust, and it
arises generally from the price at which he sells his drugs. But the
 [02 CAUSES AFFECTING PROFITS IN SMALL AND LARGE TOWNS.

whole drugs which the best employed apothecary, in a large market

town, will sell in a year, may not perhaps cost him above thirty or
forty pounds. Though he should sell them, therefore, for three or four
hundred, or at a thousand per cent. profit, this may frequently be no
more than the reasonable wages of his labour charged, in the only way
in which he can charge them, upon the price of his drugs. The greater
part of the apparent profit is wages disguised in the garb of profit.
In a small seaport town, a little grocer will make forty or fifty per
cent. upon a stock of a single hundred pounds, while a considerable
wholesale merchant in the same place will scarce make eight or ten
per cent. upon a stock of ten thousand. The trade of the grocer may
be necessary for the conveniency of the inhabitants, and the narrow-
ness of the market may not admit the employment of a larger capital
in the business. The man, however, must not only live by his trade,
but live by it suitably to the qualifications which it requires. Besides
possessing a little capital, he must be able to read, write, and account,
and must be a tolerable judge too of perhaps fifty or sixty different
sorts of goods, their prices, qualities, and the markets where they are
to be had cheapest. He must have all the knowledge, in short, that is
necessary for a great merchant, which nothing hinders him from
becoming but the want of a sufficient capital. Thirty or forty pounds
a year cannot be considered as too great a recompense for the labour
of a person so accomplished. Deduct this from the seemingly great
profits of his capital, and little more will remain, perhaps, than the
ordinary profits of stock. The greater part of the apparent profit is,
in this case too, real wages.
The difference between the apparent profit of the retail and that of
the wholesale trade, is much less in the capital than in small towns and
country villages. Where ten thousand pounds can be employed in the
grocery trade, the wages of the grocer's labour make but a very trifling
addition to the real profits of the weal hy stock. The apparent profits of
the wealthy retailer, therefore, are there more nearly upon a level with
those of the wholesale merchant. It is upon this account that goods
sold by retail are generally as cheap and frequently much cheaper in
the capital than in small towns and country villages. Grocery goods,
for example, are generally much cheaper ; bread and butcher's-meat
frequently as cheap. It costs no more to bring grocery goods to the
great town than to the country village ; but it costs a great deal more
to bring corn and cattle, as the greater part of them must be brought
from a much greater distance. The prime cost of grocery goods,
therefore, being the same in both places, they are cheapest where the
least profit is charged upon them. The prime cost of bread and
butcher's-meat is greater in the great town than in the country village ;
and though the profit is less, therefore they are not always cheaper
there, but often equally cheap. In such articles as bread and butcher's
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 103

meat, the same cause which diminishes apparent profit, increases

prime cost. The extent of the market, by giving employment to
greater stocks, diminishes apparent profit ; but by requiring supplies
from a greater distance, it increases prime cost. This diminution of
the one and increase of the other seem, in most cases, nearly to
counterbalance one another ; which is probably the reason that,
though the prices of corn and cattle are commonly very different in
different parts of the kingdom, those of bread and butcher's-meat are
generally very nearly the same through the greater part of it.
Though the profits of stock both in the wholesale and retail trade
are generally less in the capital than in small towns and country
villages, yet great fortunes are frequently acquired from small begin-
nings in the former, and scarce ever in the latter. In small towns and
country villages, on account of the narrowness of the market, trade
cannot always be extended as stock extends. In such places, there-
fore, though the rate of a particular person's profits may be very high,
the sum or amount of them can never be very great, nor consequently
that of his annual accumulation. In great towns, on the contrary,
trade can be extended as stock increases, and the credit of a frugal
and thriving man increases much faster than his stock. His trade is
extended in proportion to the amount of both, and the sum or amount
of his profits is in proportion to the extent of his trade, and his annual
accumulation in proportion to the amount of his profits. It seldom
happens, however, that great fortunes are made even in great towns
by any one regular established and well-known branch of business,
but in consequence of a long life of industry, frugality, and attention.
Sudden fortunes, indeed, are sometimes made in such places by what is
called the trade of speculation. The speculative merchant exercises
no one regular, established, or well-known branch of business. He is
a corn merchant this year, and a wine merchant the next, and a sugar
tobacco, or tea merchant the year after. He enters into every trad
when he foresees that it is likely to be more than commonly profitable,
and he quits it when he foresees that its profits are likely to return to
the level of other trades. His profits and losses, therefore, can bear
no regular proportion to those of any one established and well-known
branch of business. A bold adventurer may sometimes acquire a con
siderable fortune by two or three successful speculations ; but is just as
likely to lose one by two or three unsuccessful ones. This trade can be
carried on nowhere but in great towns. It is only in places of the
most extensive commerce and correspondence that the intelligence
requisite for it can be had.
The five circumstances above mentioned, though they occasion con-
siderable inequalities in the wages of labour and profits of stock,
occasion none in the whole of the advantages and disadvantages, real
or imaginary, of the different employments of either. The nature of

4
104 THE CAUSES WHICH RULE THE DEMAND FOR LABOUR.

those circumstances is such, that they make up for a small pecuniary

gain in some, and counterbalance a great one in others.
In order, however, that this equality may take place in the whole of
their advantages or disadvantages, three things are requisite even
where there is the most perfect freedom. First, the employments
must be well known and long established in the neighbourhood ;
secondly, they must be in their ordinary, or what may be called their
natural state ; and, thirdly, they must be the sole or principal employ-
ments of those who occupy them.
I. This equality can take place only in those employments which
are well known, and have been long established in the neighbourhood.
Where all other circumstances are equal, wages are generally higher
in new than in old trades. When a projector attempts to establish a
new manufacture, he must at first entice his workmen from other
employments by higher wages than they can either earn in their own
trades, or than the nature of his work would otherwise require, and a
considerable time must pass away before he can venture to reduce
them to the common level. Manufactures for which the demand arises
altogether from fashion and fancy, are continually changing, and seldom
last long enough to be considered as old established manufactures.
Those, on the contrary, for which the demand arises chiefly from use
or necessity, are less liable to change, and the same form or fabric
may continue in demand for whole centuries together. The wages of
labour, therefore, are likely to be higher in manufactures of the for-
mer, than in those of the latter kind. Birmingham deals chiefly in
manufactures of the former kind ; Sheffield in those of the latter ; and
the wages of labour in those two different places, are said to be
suitable to this difference in the nature of their manufactures.
The establishment of any new manufacture, of any new branch of
commerce, or of any new practice in agriculture, is always a specula-
tion, from which the projector promises himself extraordinary profits.
These profits sometimes are very great, and sometimes, more fre-
quently perhaps, they are quite otherwise ; but in general they bear
no regular proportion to those of other old trades in the neighbour-
hood. If the project succeeds, they are commonly at first very high.
When the trade or practice becomes thoroughly established and well
known, the competition reduces them to the level of other trades.
II. This equality in the whole of the advantages and disadvantages
of the different employments of labour and stock, can take place only
n the ordinary, or what may be called the natural, state of those
employments.
The demand for almost every different species of labour is sometimes
greater and sometimes less than usual. In the one case the advantages of
the employment rise above, in the other they fall below,the common level.
The demand for country labour is greater at hay-time and harvest, ‘han
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 105

during the greater part of the year ; and wages rise with the demand.
In time of war, when forty or fifty thousand sailors are forced from the
merchant service into that of the king, the demand for sailors to
merchant ships necessarily rises with their scarcity, and their wages
upon such occasions commonly rise from a guinea and seven-and-
twenty shillings, to forty shillings and three pounds a month. In a
decaying manufacture, on the contrary, many workmen, rather than
quit their old trade, are contented with smaller wages than would
otherwise be suitable to the nature of their employment.
The profits of stock vary with the price of the commodities in which
it is employed. As the price of any commodity rises above the ordi-
nary or average rate, the profits of at least some part of the stock that
is employed in bringing it to market, rise above their proper level, and
as it falls they sink below it. All commodities are more or less liable
to variations of price, but some are much more so than others. In all
commodities which are produced by human industry, the quantity of
industry annually employed is necessarily regulated by the annual de-
mand, in such a manner that the average annual produce may, as
nearly as possible, be equal to the average annual consumption. In
some employments, it has already been observed, the same quantity of
industry will always produce the same, or very nearly the same quantity
of commodities. In the linen or woollen manufactures, for example,
the same number of hands will annually work up very nearly the same
quantity of linen and woollen cloth. The variations in the market
price of such commodities, therefore, can arise only from some ac-
cidental variation in the demand. A public mourning raises the price
of black cloth. But as the demand for most sorts of plain linen and
woollen cloth is pretty uniform, so is likewise the price. But there are
other employments in which the same quantity of industry will not
always produce the same quantity of commodities. The same
quantity of industry, for example, will, in different years, produce very
different quantities of corn, wine, hops, sugar, tobacco, etc. The
price of such commodities, therefore, varies not only with the varia-
tions of demand, but with the much greater and more frequent varia-
tions of quantity, and is consequently extremely fluctuating. But the
profit of some of the dealers must necessarily fluctuate with the price of
the commodities. The operations of the speculative merchant are
principally employed about such commodities. He endeavours to buy
them up when he foresees that their price is likely to rise, and to sell
them when it is likely to fall.
III. This equality in the whole of the advantages and disadvantages
ofdifferent employments oflabour and stock, can take place only in such
as are the sole or principal employments of those who occupy them.
When a person derives his substance from one employment, which
does not occupy the greater part of his time ; in the intervals of his lei-
106 COTTERS IN SCOTLAND. STOCKING KNITTING, LINEN,

sure he is often willing to work at another for less wages than would
otherwise suit the nature of the employment.
There still subsists in many parts of Scotland a set of people called
cotters or cottagers, though they were more frequent some years ago
than they are now. (Few such exist in 1869.) They are a sort of out-
servants of the landlords and farmers. The usual reward which they
receive from their masters is a house, a small garden for pot herbs, as
much grass as will feed a cow, and, perhaps, an acre or two of bad
arable land. When their master has occasion for their labour, he gives
them, besides, two pecks of oatmeal a week, worth about fifteen-pence
sterling. During a great part of the year he has little or no occasion
for their labour, and the cultivation of their own little possession is not
sufficient to occupy the time which is left at their own disposal. When
such occupiers were more numerous than they are at present, they are
said to have been willing to give their spare time for a very small re-
compense to any body, and to have wrought for less wages than other
labourers. In ancient times they seem to have been common all
over Europe. In countries ill cultivated and worse inhabited, the
greater part of landlords and farmers could not otherwise provide them-
selves with the extraordinary number of hands, which country labour
requires at certain seasons. The daily or weekly recompense which
such labourers occasionally received from their masters, was evidently
not the whole price of their labour. Their small tenement made a con-
siderable part of it. This daily or weekly recompense, however, seems
to have been considered as the whole of it, by many writers who have
collected the prices of labour and provisions in ancient times, and
who have taken pleasure in representing both as wonderfully low.
The produce of such labour comes frequently cheaper to market than
would otherwise be suitable to its nature. Stockings in many parts of
Scotland are knit much cheaper than they can anywhere be wrought
upon the loom. They are the work of servants and labourers, who
derive the principal part of their subsistence from some other employ-
ment. More than a thousand pair of Shetland stockings are annually
imported into Leith, of which the price is from fivepence to sevenpence
a pair. At Lerwick, the small capital of the Shetland islands, ten-
pence a day, I have been assured, is a common price of common labour.
In the same islands they knit worsted stockings to the value of a guinea
a pair and upwards.
The spinning of linen yarn is carried on in Scotland nearly in the
same way as the knitting of stockings by servants who are chiefly hired
for other purposes. They earn but a very scanty subsistence, who
endeavour to get their whole livelihood by either of those trades. In
most parts of Scotland she is a good spinner who can earn twenty-
pence a week. (Linen mills are numerous in 1869.)
In opulent countries the market is generally so extensive, that any
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 107
one trade is sufficient to emo oy the whole labour and stock of those
to empl
who occupy it. Instances of people's living by one employment, and
at the same time deriving some little advantage from another, occur
chiefly in poor countries. The following instance , however, of some-
thing of the same kind is to be found in the capital of a very rich one.
There is no city in Europe , I believe, in which house rent is dearer
than in London , and yet I know no capital in which a furnished apart-
ment can be hired so cheap. Lodging is not only much cheaper in
London than in Paris ; it is much cheaper than in Edinburgh of the
same degree of goodness ; and what may seem extraordinary, the
dearness of house rent is the cause of the cheapness of lodging.
The dearness of house rent in London arises not only from those
causes which render it dear in all great capitals , the dearness of
labour, the dearness of all the materials of building, which must
generally be brought from a great distance , and above all the dearness
of ground rent, every landlord acting the part of a monopolist , and fre
quently exacting a higher rent for a single acre of bad land in a town,
than can be had for a hundred of the best in the country ; but it arises
in part from the peculiar manners and customs of the people , which
oblige every master of a family to hire a whole house from top to bot-
tom. A dwelling house in England means everything that is contained
under the same roof. In France , Scotland , and many other parts of
Europe, it frequently means no more than a single story. A tradesman
in London is obliged to hire a whole house in that part of the town
where his customers live. His shop is upon the ground floor, and he
and his family sleep in the garret ; and he endeavours to pay a part of
his house rent by letting the two middle stories to lodgers . He expects
to maintain his family by his trade, and not by his lodgers . Whereas,
at Paris and Edinburgh, the people who let lodgings have commonly no
other means of subsistence ; and the price of the lodging must pay, not
only the rent of the house , but the whole expense of the family.

PART II.-Inequalities occasioned by the Policy of Europe.

SUCH are the inequalities in the whole of the advantages and dis-
advantages of the different employments of labour and stock, which the
defect of any of the three requisites above mentioned must occasion,
even where there is the most perfect liberty. But the policy of Europe,
by not leaving things at perfect liberty, occasions other inequalities of
much greater importance.
It does this chiefly in the three following ways. First, by restrain
ing the competition in some employments to a smaller number than
would otherwise be disposed to enter into them ; secondly, by increas-
ing it in others beyond what it naturally would be ; and, thirdly, by
108 INFLUENCE OF CORPORATIONS AND APPRENTICESHIP.

obstructing the free circulation of labour and stock, both from employ
ment to employment and from place to place.
I. The policy of Europe occasions a very important inequality in the
whole of the advantages and disadvantages of the different employ-
ments of labour and stock, by restraining the competition in some em-
ployments to a smaller number than might otherwise be disposed to
enter into them.
The exclusive privileges of corporations are the principal means it
makes use of for this purpose.
The exclusive privilege of an incorporated trade necessarily restrains
the competition, in the town where it is established, to those who are
free of the trade. " To have served an apprenticeship in the town, under
a master properly qualified, is commonly the necessary requisite for
obtaining this freedom. The bye-laws of the corporation regulate some-
times the number of apprentices which any master is allowed to have,
and almost always the number of years which each apprentice is
obliged to serve. The intention of both regulations is to restrain the
competition to a much smaller number than might otherwise be dis-
posed to enter into the trade. The limitation of the number of ap-
prentices restrains it directly. A long term of apprenticeship restrains it
indirectly, but as effectually, by increasing the expense of education.
In Sheffield no master cutler can have more than one apprentice at
a time, by a bye-law of the corporation. In Norfolk and Norwich no
master weaver can have more than two apprentices under pain of for-
feiting five pounds a month to the king. No master hatter can have
more than two apprentices anywhere in England, or in the English
plantations, under pain of forfeiting five pounds a month, half to the
king, and half to him who shall sue in any court of record. Both these
regulations, though they have been confirmed by a public law of the
kingdom, are evidently dictated by the same corporation spirit which
enacted the bye-law of Sheffield. The silk weavers in London had
scarce been incorporated a year, when they enacted a bye-law, restrain-
ing any master from having more than two apprentices at a time. It
required a particular act of parliament to rescind this bye-law.
Seven years seem anciently to have been, all over Europe, the usual
term established for the duration of apprenticeships in the greater
part of incorporated trades. All such incorporations were anciently
called universities ; which indeed is the proper Latin name for any
incorporation whatever. The university of smiths, the university of
tailors, etc., are expressions which we commonly meet with in the old
charters of ancient towns. When those particular incorporations
which are now peculiarly called universities were first established, the
term of years which it was necessary to study, in order to obtain the
degree of master of arts, appears evidently to have been copied from
the term of apprenticeship in common trades, of which the incorpora-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 109

tions were much more ancient. As to have wrought seven years under
a master properly qualified was necessary, in order to entitle any
person to become a master, and to have himself apprentices in a com-
mon trade ; so to have studied seven years under a master properly
qualified, was necessary to entitle him to become a master, teacher,
or doctor (words anciently synonymous) in the liberal arts, and to
have scholars or apprentices (words likewise originally synonymous) to
study under him.
By the 5th of Elizabeth, commonly called the Statute of Apprentice-
ship, it was enacted, that no person should for the future exercise any
trade, craft, or mystery at that time exercised in England, unless he
had previously served to it an apprenticeship of seven years at least ;
and what before had been the bye-law of many particular corporations,
became in England the general and public law of all trades carried on
in market towns. For though the words of the statute (repealed 1814)
are very general, and seem plainly to include the whole kingdom, by
interpretation its operation has been limited to market towns, it having
been held that in country villages a person may exercise several
different trades, though he has not served a seven years apprenticeship
to each, they being necessary for the conveniency of the inhabitants,
and the number of people frequently not being sufficient to supply
each with a particular set of hands. "
By a strict interpretation of the words too, the operation of this
statute has been limited to those trades which were established in
England before the 5th of Elizabeth, and has never been extended to
such as have been introduced since that time. This limitation has
given occasion to several distinctions which, considered as rules of
police, appear as foolish as can well be imagined. It has been
adjudged, for example, that a coachmaker can neither himself make
nor employ journeymen to make his coach-wheels, but must buy
them of a master wheelwright ; this latter trade having been exercised
in England before the 5th of Elizabeth. But a wheelwright, though
he has never served an apprenticeship to a coachmaker, may either
himself make or employ journeymen to make coaches ; the trade of a
coachmaker not being within the statute, because not exercised in
England at the time when it was made. The manufactures of Man-
chester, Birmingham, and Wolverhampton, are many of them, upon
this account, not within the statute ; not having been exercised in
England before the 5th of Elizabeth.
In France, the duration of apprenticeships is different in different
towns and in different trades. In Paris, five years is the term required
in a great number ; but before any person can be qualified to exercise
the trade as a master, he must, in many of them, serve five years more
as a journeyman. During this latter term he is called the companion
of his master, and the term itself is called his companionship.

.
110 THE BANEFUL EFFECTS OF LONG APPRENTICESHIPS.

In Scotland there is no general law which regulates universally the

luration of apprenticeships. The term is different in different corpo-
rations. Where it is long, a part of it may generally be redeemed by
paying a small fine. In most towns, too, a very small fine is sufficient
to purchase the freedom of any corporation. The weavers of linen
and hempen cloth, the principle manufactures of the country, as well
as all other artificers subservient to them, wheel-makers, reel-makers,
etc. , may exercise their trades in any town corporate without paying
any fine. In all towns corporate all persons are free to sell butcher's-
meat upon any lawful day of the week. Three years is in Scotland a
common term of apprenticeship, even in some very nice trades ; and
in general I know of no country in Europe in which corporation laws
are so little oppressive.
The property which every man has in his own labour, as it is the
original foundation of all other property, so it is the most sacred and
inviolable. The patrimony of a poor man lies in the strength and
dexterity of his hands ; and to hinder him from employing this strength
and dexterity in what manner he thinks proper without injury to his
neighbour, is a plain violation of this most sacred property. It is a
manifest encroachment upon the just liberty both of the workman, and
of those who might be disposed to employ him. As it hinders the one
from working at what he thinks proper, so it hinders the others from
employing whom they think proper. To judge whether he is fit to be
employed, may surely be trusted to the discretion of the employers
whose interest it so much concerns. The affected anxiety of the law-
giver lest they should employ an improper person, is evidently as
impertinent as it is oppressive.
The institution of long apprenticeships can give no security that
insufficient workmanship shall not frequently be exposed to public
sale. When this is done it is generally the effect of fraud, and not of
inability ; and the longest apprenticeship can give no security against
fraud. Quite different regulations are necessary to prevent this abuse.
The sterling mark on plate, and the stamps on linen and woollen cloth,
give the purchaser much greater security than any statute of apprentice-
ship. He generally looks at these, but never thinks it worth while to in
quire whether the workmen had served a seven years' apprenticeship.
The institution of long apprenticeships has no tendency to form
young people to industry. A journeyman who works by the piece is
likely to be industrious, because he derives a benefit from every
exertion of his industry. An apprentice is likely to be idle, and almost
always is so, because he has no immediate interest to be otherwise.
In the inferior employments, the sweets of labour consist altogether
in the recompense of labour. They who are soonest in a condition to
enjoy the sweets of it, are likely soonest to conceive a relish for it, and
to acquire the early habit of industry. A young man naturally con-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. III

ceives an aversion to labour, when for a long time he receives no

benefit from it. The boys who are put out apprentices from public
charities are generally bound for more than the usual number of
years, and they generally turn out very idle and worthless.
Apprenticeships were altogether unknown to the ancients. The
reciprocal duties of master and apprentice make a considerable article
in every modern code. The Roman law is perfectly silent with regard
to them. I know no Greek or Latin word (I might venture, I believe,
to assert that there is none) which expresses the idea we now annex
to the word apprentice, a servant bound to work at a particular trade
for the benefit of a master, during a term of years, upon condition that
the master shall teach him that trade.
Long apprenticeships are altogether unnecessary. The arts, which
are much superior to common trades, such as those of making clocks
and watches, contain no such mystery as to require a long course of
instruction. The first invention of such beautiful machines, indeed,
and even that of some of the instruments employed in making them,
must, no doubt, have been the work of deep thought and long time,
and may justly be considered as among the happiest efforts of human
ingenuity. But when both have fairly been invented and are well
understood, to explain to any young man, in the completest manner,
how to apply the instruments and how to construct the machines,
cannot well require more than the lessons of a few weeks : perhaps
those of a few days might be sufficient. In the common mechanic
trades, those of a few days might certainly be sufficient. The dexterity
of hand, indeed, even in common trades, cannot be acquired without
much practice and experience. But a young man would practise with
much more diligence and attention, if from the beginning he wrought
as a journeyman, being paid in proportion to the little work which he
could execute, and paying in his turn for the materials which he might
sometimes spoil through awkwardness and inexperience. His education
would generally in this way be more effectual, and always less tedious
and expensive. The master, indeed, would be a loser. He would lose
all the wages of the apprenticeship, which he now saves for seven
years together. In the end, perhaps, the apprentice himself would be
a loser. In a trade so easily learnt he would have more competitors,
and his wages, when he came to be a complete workman, would be
much less than at present. The same increase of competition would
reduce the profits of the masters as well as the wages of the workmen.
The trades, the crafts, the mysteries, would all be losers. But the
public would be a gainer, the work of all artificers coming in this way
much cheaper to market. o
It is to prevent this reduction of price, and consequently of wages
and profit, by restraining that free competition which would most
certainly occasion it, that all corporations, and the greater part of
112 HOW GOVERNMENT OF CORPORATE TOWNS AFFECTED TRADE.

corporation laws, have been established. In order to erect a cor-

poration, no other authority in ancient times was requisite in many
parts of Europe, but that of the town corporate in which it was
established. In England, indeed, a charter from the king was like-
wise necessary. But this prerogative of the crown seems to have
been reserved rather for extorting money from the subject, than
for the defence of the common liberty against such oppressive mono-
polies. Upon paying a fine to the king, the charter seems generally to
have been readily granted ; and when any particular class of artificers i
or traders thought proper to act as a corporation without a charter,
such adulterine guilds, as they were called, were not always disfran
chised upon that account, but obliged to fine annually to the king for
permission to exercise their usurped privileges. (Madox Firma Burgi,
p. 26. ) The immediate inspection of all corporations, and of the bye-
laws which they might think proper to enact for their own government,
belonged to the town corporate in which they were established ; and
whatever discipline was exercised over them, proceeded commonly, not
from the king, but from that greater incorporation of which those sub-
ordinate ones were only parts or members.
The government of towns corporate was altogether in the hands of
traders and artificers ; and it was the manifest interest of every par-
ticular class of them to prevent the market from being over-stocked, as
they commonly express it, with their own particular species of industry ;
which is in reality to keep it always under-stocked. Each class was
eager to establish regulations proper for this purpose, and, provided it
was allowed to do so, was willing to consent that every other class
should do the same. In consequence of such regulations, indeed, each
class was obliged to buy the goods they had occasion for from every
other within the town, somewhat dearer than they otherwise might have
done. But in recompense, they were enabled to sell their own just as
much dearer, so that so far it was as broad as long, as they say; and in
the dealings of the different classes within the town with one another
none of them were losers by these regulations. But in their dealings
with the country they were all great gainers ; and in these latter dealings
consists the whole trade which supports and enriches every town.
Every town draws its whole subsistence, and all the materials of its
ndustry, from the country. It pays for these chiefly in two ways : first,
by sending back to the country a part of those materials wrought up
and manufactured, in which case their price is augmented by the wages
of the workmen, and the profits of their masters or immediate em .
ployers : secondly, by sending to it a part both of the rude and manu-
uctured produce, either of other countries, or of distant parts of the
lame country, imported into the town in which case too the original
price of those goods is augmented by the wages of the carriers or
sailors, and by the profits of the merchants who employ them. In
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 113

what is gained upon the first of those two branches of commerce, con-
vists the advantage which the town makes by its manfactures ; in what
gained upon the second, the advantage of its inland and foreign trade.
The wages of the workmen, and the profits of their different employers,
make up the whole of what is gained upon both. Whatever regula-
tions, therefore, tend to increase those wages and profits beyond what
they otherwise would be, tend to enable the town to purchase, with a
smaller quantity of its labour, the produce of a greater quantity of the
labour ofthe country. They give the traders and artificers in the town
an advantage over the landlords, farmers, and labourers in the country,
and break down that natural equality which would otherwise take place
in the commerce which is carried on between them. The whole annual
produce of the labour of the society is annually divided between those
two different sets of people. By means of those regulations a greater
share of it is given to the inhabitants of the town than would otherwise
fall to them, and a less to those of the country.
The price which the town really pays for the provisions and materials
annually imported into it, is the quantity of manufactures and other
goods annually exported from it. The dearer the latter are sold, the
cheaper the former are bought. The industry of the town becomes
more, and that of the country less advantageous.
That the industry which is carried on in towns is, everywhere in
Europe, more advantageous than that which is carried on in the
country, without entering into any very nice computations, we may
satisfy ourselves by one very simple and obvious observation. In every
country in Europe we find, at least, a hundred people who have
acquired great fortunes from small beginnings by trade and manufac-
tures, the industry which properly belongs to towns, for one who has
done so by that which properly belongs to the country, the raising of
rude produce by the improvement and cultivation of land. Industry,
therefore, must be better rewarded, the wages of labour and the profits
of stock must evidently be greater in the one situation than in the
other. But stock and labour naturally seek the most advantageous
employment. They naturally, therefore, resort as much as they can to
the town, and desert the country.
The inhabitants of a town, being collected into one place, can easily
combine together. The most insignificant trades carried on in town.
have accordingly, in some place or other, been incorporated ; and even
where they have never been incorporated, yet the corporation spirit,
the jealousy of strangers, the aversion to take apprentices, or to com-
municate the secret of their trade generally prevail in them, and often
teach them, by voluntary associations and agreements, to prevent that
free competition which they cannot prohibit by bye-laws. The trades
which employ but a small number of hands, run most easily into such
combinations. Half a dozen wool-combers, perhaps, are necessary to
8
114 RELATIVE INTELLIGENCE OF THE MECHANIC AND PLOUGHMEN.

keep a thousand spinners and weavers at work. By combining not to

take apprentices they cannot only engross the employment but reduce
the whole manufacture into a sort of slavery to themselves, and thus
raise the price of their labour much above what is due to the nature of
their work.
The inhabitants of the country dispersed in distant places, cannot
easily combine together. They have not only never been incorporated,
but the corporation spirit never has prevailed among them. No
apprenticeship has ever been thought necessary to qualify for hus-
bandry, the great trade ofthe country. After what are called the fine arts,
and the liberal professions, however, there is perhaps no trade which
requires so great a variety of knowledge and experience. The innu-
merable volumes which have been written upon it in all languages may
satisfy us, that among the wisest and most learned nations, it has never
been regarded as a matter very easily understood. And from all those
volumes we shall in vain attempt to collect that knowledge of its various
and complicated operations which is commonly possessed even by the
common farmer, how contemptuously soever the very contemptible
authors of some of them may sometimes affect to speak of him. There
is scarce any common mechanic trade, on the contrary, of which all
the operations may not be as completely and distinctly explained in a
pamphlet of a very few pages, as it is possible for words illustrated by
figures to explain them. In the history of the arts now publishing by
the French academy of sciences, several of them are actually explained
in this manner. The direction of operations besides, which must be
varied with every change of the weather as well as with many other
accidents, requires much more judgment and discretion, than that of
those which are always the same or very nearly the same.
Not only the art of the farmer, the general direction of the opera-
tions of husbandry, but many inferior branches of country labour re-
quire much more skill and experience than the greater part of mechanic
trades. The man who works upon brass and iron, works with instru-
ments and upon materials of which the temper is always the same, or
very nearly the same. But the man who ploughs the ground with a
team of horses or oxen, works with instruments of which the health,
strength, and temper, are very different upon different occasions. The
condition of the materials which he works upon too is as variable
as that of the instruments which he works with, and both require
to be managed with much judgment and discretion. The common
ploughman, though generally regarded as the pattern of stupidity
and ignorance, is seldom defective in his judgment and discretion. He
is less accustomed, indeed, to social intercourse than the mechanic who
lives in a town. His voice and language are more uncouth and more
difficult to be understood by those who are not used to them. His un-
derstanding however, being accustomed to consider a greater variety of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS.

jects, is generally much superior to that of the other, whose whole

tention from morning to night is commonly occupied in performing
one or two very simple operations. How much the lower ranks of
people in the country are really superior to those of the town, is well
known to every man whom either business or curiosity has led to con-
verse much with both. " In China and Hindostan accordingly both the
rank and the wages of country labourers are said to be superior to those
of the greater part of artificers and manufacturers. They would pro-
bably be so everywhere if corporation laws and the corporation spirit did
not prevent it.
The superiority which the industry of the towns has everywhere in
Europe over that of the country, is not altogether owing to corpora-
tions and corporation laws. It is supported by many other regulations.
The high duties upon foreign manufactures and upon all goods imported
by alien merchants, all tend to the same purpose. Corpora laws
enable the inhabitants of towns to raise their prices without fearing to
be undersold by the free competition of their own countrymen. Those
other regulations secure them equally against that of foreigners. 57 The
enhancement of price occasioned by both is everywhere finally paid by
the landlords, farmers, and labourers of the country, who have seldom
opposed the establishment of such monopolies. They have commonly
neither inclination nor fitness to enter into combinations and the
clamour and sophistry of merchants and manufacturers easily persuade
them that the private interest of a part, and of a subordinate part of
the society, is the general interest of the whole.
In Great Britain the superiority of the industry of the towns over
that of the country seems to have been greater formerly than in the
present times. The wages of country labour approach nearer to those
of manufacturing labour, and the profits of stock employed in agricul-
ture to those of trading and manufacturing stock, than they are said to
have done in the last century, or in the beginning of the present. This
change may be regarded as the necessary, though very late consequence
of the extraordinary encouragement given to the industry of the towns.
The stock accumulated in them comes in time to be so great that it can
no longer be employed with the ancient profit in that species of indus-
try which is peculiar to them. That industry has its limits like every
other ; and the increase of stock by increasing the competition, neces-
sarily reduces the profit. The lowering of profit in the towns forces
out stock to the country, where, by creating a new demand for country
labour, it necessarily raises its wages. It then spreads itself, if I may
say so, over the face of the land, and by being employed in agriculture
is in part restored to the country at the expense of which, in a great
measure, it had originally been accumulated in the town. That every-
where in Europe the greatest improvements of the country have been
owing to such overflowings of the stock originally accumulated in the
towns, I shall endeavour to show hereafter ; and at the same time to
8*
116 BEST DISCIPLINE OVER WORKMEN THAT OF CUSTOMERS.

demonstrate, that though some countries have by this course attained

to a considerable degree of opulence, it is in itself necessarily slow,
uncertain, liable to be disturbed and interrupted by innumerable acci-
dents, and in every respect contrary to the order of nature and of
reason. The interests, prejudices, laws and customs which have given
occasion to it, I shall endeavour to explain as fully and distinctly as I
can in the third and fourth books of this inquiry.
People of the same trade seldom meet together even for merriment
and diversion, but the conversation ends in a conspiracy against the
public, or on some contrivance to raise prices. " It is impossible indeed
to prevent such meetings by any law which either could be executed,
or would be consistent with liberty and justice. But though the law
cannot hirer people of the same trade from sometimes assembling
together , ought to do nothing to facilitate such assemblies, much
less to render them necessary.
A regulation which obliges all those of the same trade in a particular
town to enter their names and places of abode in a public register,
facilitates such assemblies. It connects individuals who might never
otherwise be known to one another, and gives every man of the trade a
direction where to find every other man of it.
A regulation which enables those of the same trade to tax themselves
in order to provide for their poor, their sick, their widows and orphans,
by giving them a common interest to manage, may also render such
assemblies necessary.
An incorporation not only renders them necessary, but makes the
act of the majority binding upon the whole. In a free trade an effectual
combination cannot be established but by the unanimous consent of
every single trader, and it cannot last any longer than every single
trader continues of the same mind. The majority of a corporation
can enact a bye-law with proper penalties, which will limit the competi
tion more effectually, and more durably than any voluntary combination
whatever.
The pretence that corporations are necessary for the better govern-
ment of the trade, is without any foundation. The real and effectual
discipline which is exercised over a workman, is not that of his corpo-
ration, but that of his customers. It is the fear of losing their employ-
ment which restrains his frauds and corrects his negligence. An ex-
clusive corporation necessarily weakens the force of this discipline. A
particular set of workmen must then be employed, let them behave
well or ill. It is upon this account, that in many large incorporateċi
towns no tolerable workmen are to be found, even in some of the most
necessary trades. If you would have your work tolerably executed, it
must be done in the suburbs, where the workmen, having no exclusive
privilege, have nothing but their character to depend upon, and you
must then smuggle it into the town as well as you can.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 115

It is in this manner that the policy of Europe, by restraining the

competition in some employments to a smaller number than would
otherwise be disposed to enter into them, occasions a very important
inequality in the whole of the advantages and disadvantages of the
different employments of labour and stock.
II. The policy of Europe, by increasing the competition in some
employments beyond what it naturally would be, occasions another
inequality of an opposite kind in the whole of the advantages and dis-
advantages of the different employments of labour and stock.
It has been considered as of so much importance that a proper
number of young people should be educated for certain professions,
that, sometimes the public, and sometimes the piety of private founders
have established many pensions, scholarships, exhibitions, bursaries,
etc., for this purpose, which draw many more people into those trades
than could otherwise pretend to follow them. In all Christian countries,
I believe, the education of the greater part of churchmen is paid for in
this manner. Very few of them are educated altogether at their own
expense. The long, tedious, and expensive education , therefore, of
those who are, will not always procure them a suitable reward, the
church being crowded with people who, in order to get employment,
are willing to accept of a much smaller recompense than what such an
education would otherwise have entitled them to ; and in this manner
the competition of the poor takes away the reward of the rich. It
would be indecent, no doubt, to compare either a curate or a chaplain
with a journeyman in any common trade. The pay of a curate or
chaplain, however, may very properly be considered as of the same
nature with the wages of a journeyman. They are, all three, paid for
their work according to the contract which they may happen to make
with their respective superiors. Till after the middle of the fourteenth
century, five merks, containing about as much silver as ten pounds of
our present money, was in England the usual pay of a curate or a
stipendiary parish priest, as we find it regulated by the decrees of
several different national councils. At the same period fourpence a
day, containing the same quantity of silver as a shilling of our present
money, was declared to be the pay of a master mason, and threepence
a day, equal to ninepence of our present money, that of a journeyman
mason. (Statute of labourers, 25 Ed. III . ) The wages of both these
labourers, therefore, supposing them to have been constantly employed,
were much superior to those of the curate. The wages of the master
mason, supposing them to have been without employment one third of
the year, would have fully equalled them. By the 12th of Queen Anne,
c. 12, it is declared, ' That whereas for want of sufficient maintenance
' and encouragement to curates, the cures have in several places been
'meanly supplied, the bishop is, therefore, empowered to appoint by
'writing under his hand and seal a sufficient certain stipend or allow
118 CURATES, MEDICAL MEN, AND MEN OF LETTERS.

ance, not exceeding fifty and not less than twenty pounds a year,
( Act 1817, £80 to £ 150. ) Forty pounds a year is reckoned at presen
very good pay for a curate, and notwithstanding this act of parliament,
there are many curacies under twenty pounds a year. 60 There are
journeymen shoemakers in London who earn forty pounds a year, and
there is scarce an industrious workman of any kind in that metro-
polis who does not earn more than twenty. This last sum indeed
does not exceed what is frequently earned by common labourers 11
many country parishes. Whenever the law has attempted to regulate
the wages of workmen, it has always been rather to lower them than
to raise them. But the law has upon many occasions attempted to
raise the wages of curates, and for the dignity of the church, to oblige
the rectors of parishes to give them more than the wretched mainten-
ance which they themselves might be willing to accept of. And in
both cases the law seems to have been equally ineffectual, and has
never either been able to raise the wages of curates, or to sink those of
labourers to the degree that was intended ; because it has never been
able to hinder either the one from being willing to accept of less than
the legal allowance, on account of the indigence of their situation
and the multitude of their competitors ; or the other from receiving
more, on account of the contrary competition of those who expected
to derive either profit or pleasure from employing them.
The great benefices and other ecclesiastical dignities support the
honour of the church, notwithstanding the mean circumstances of
some of its inferior members. The respect paid to the profession too
makes some compensation even to them for the meanness of their
pecuniary recompense. In England, and in all Roman Catholic
countries, the lottery of the church is in reality much more advan-
tageous than is necessary. The example of the churches of Scotland,
of Geneva, and of several other protestant churches, may satisfy us,
that in so creditable a profession, in which education is so easily pro-
cured, the hopes of much more moderate benefices will draw a suffi-
cient number of learned, decent, and respectable men into holy orders.
(Average income 1867, £ 150 to £250.)
In professions in which there are no benefices, such as law and
physic, if an equal proportion of people were educated at the public
expense, the competition would soon be so great, as to sink very much
their pecuniary reward. It might then not be worth any man's while
to educate his son to either of those professions at his own expense.
They would be entirely abandoned to such as had been educated by
those public charities, whose numbers and necessities would oblige
them in general to content themselves with a very miserable recom-
pense, to the entire degradation of the now respectable professions of
law and physic.
That unprosperous race of men commonly called men of letters, are
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 119

pretty much in the situation which lawyers and physicians probably

would be in upon the foregoing supposition. In every part of Europe
the greater part of them have been educated for the church, but have
been hindered by different reasons from entering into holy orders.
They have generally, therefore, been educated at the public expense,
and their numbers are everywhere so great as commonly to reduce the
price of their labour to a very paltry recompense.
Before the invention of the art of printing, the only employment by
which a man of letters could make anything by his talents, was that of
a public or a private teacher, or by communicating to other people the
curious and useful knowledge which he had acquired himself. And
this is still surely a more honourable, a more useful, and in general
even a more profitable employment than that other of writing for a
bookseller, to which the art of printing has given occasion. The time
and study, the genius, knowledge, and application requisite to qualify
an eminent teacher of the sciences, are at least equal to what is neces-
sary for the greatest practitioners in law and physic. But the usual
reward of the eminent teacher bears no proportion to that of the
lawyer or physician ; because the trade of the one is crowded with
indigent people who have been brought up to it at the public expense ;
whereas those of the other two are encumbered with very few who have
not been educated at their own. The usual recompense, however, of
public and private teachers, small as it may appear, would undoubtedly
be less than it is, if the competition of those yet more indigent men of
letters who write for bread was not taken out of the market. Before
the invention of the art of printing, a scholar and a beggar seem to
have been terms very nearly synonymous. The different governors of
the universities before that time appear to have often granted licences
to their scholars to beg.
In ancient times, before any charities of this kind had been esta
blished for the education of indigent people to the learned professions,
the rewards of eminent teachers appear to have been much more con-
siderable. Isocrates, in what is called his discourse against the
sophists, reproaches the teachers of his own times with inconsistency.
" They make the most magnificent promises to their scholars,' says he,
'and undertake to teach them to be wise, to be happy, and to be just,
and in return for so important a service they stipulate the paltry
reward of four or five minæ. They who teach wisdom, continues he,
' ought certainly to be wise themselves ; but if any man were to sell
such a bargain for such a price, he would be convicted of the most
' evident folly.' He certainly does not mean here to exaggerate the
reward, and we may be assured that it was not less than he represents
it. Four minæ were equal to thirteen pounds six shillings and eight-
pence five minæ to sixteen pounds thirteen shillings and fourpence."
Something not less than the largest of those two sums, therefore, must
120 INCOMES OF THE GREAT TEACHERS OF ANTIQUITY.

At that time have been usually paid to the most eminent teachers at
Athens. Isocrates himself demanded ten minæ, or thirty-three pounds
six shillings and eightpence, from each scholar. When he taught at
Athens, he is said to have had an hundred scholars. I understand
this to be the number whom he taught at one time, or who attended
what we would call one course of lectures, a number which will not
appear extraordinary from so great a city to so famous a teacher, who
taught too what was at that time the most fashionable of all sciences,
rhetoric. He must have made, therefore, by each course of lectures, a
thousand minæ, or 3,333l. 6s. 8d. A thousand minæ, accordingly, is
said by Plutarch in another place, to have been his Didactron, or usual
price of teaching. Many other eminent teachers in those times appear
to have acquired great fortunes. Gorgias made a present to the temple
of Delphi of his own statue in solid gold. We must not, I presume,
suppose that it was as large as the life. His way of living, as well as
that of Hippias and Protagoras, two other eminent teachers of those
times, is represented by Plato as splendid even to ostentation. Plato
himself is said to have lived with a good deal of magnificence.
Aristotle, after having been tutor to Alexander, and most munificently
rewarded, as it is universally agreed, both by him and his father Philip,
thought it worth while, notwithstanding, to return to Athens, in order
to resume the teaching of his school. Teachers of the sciences were
probably in those times less common than they came to be in an age
or two afterwards, when the competition had probably somewhat
reduced both the price of their labour and the admiration for their
persons. The most eminent of them, however, appear always to have
enjoyed a degree of consideration much superior to any of the like
profession in the present times. The Athenians sent Carneades the
academic, and Diogenes the stoic, upon a solemn embassy to Rome ;
and though their city had then declined from its former grandeur, it
was still an independent and considerable republic. Carneades too
was a Babylonian by birth, and as there never was a people more
jealous of admitting foreigners to public offices than the Athenians,
their consideration for him must have been very great.
This inequality is upon the whole, perhaps, rather advantageous than
hurtful to the public. It may somewhat degrade the profession of a
public teacher ; but the cheapness of literary education is surely an
advantage which greatly overbalances this trifling inconveniency.
The public too might derive still greater benefit from it, if the con.
stitution of those schools and colleges, in which education is carried
on, was more reasonable than it is at present through the greater part
of Europe.
III. The policy of Europe, by obstructing the free circulation of
labour and stock, both from employment to employment, and from
place to place, occasions in some cases a very inconvenient inequality
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 121

in the whole of the advantages and disadvantages of their different

employments.
The statute of apprenticeship obstructs the free circulation of labour
from one employment to another, even in the same place. The ex-
clusive privileges of corporations obstruct it from one place to another,
even in the same employment.
It frequently happens that while high wages are given to the work-
men in one manufacture, those in another are obliged to content them-
selves with bare subsistence. The one is in an advancing state, and
has therefore a continual demand for new hands ; the other is in a
declining state, and the superabundance of hands is continually
increasing. Those two manufactures may sometimes be in the same
town, and sometimes in the same neighbourhood, without being able
to lend the least assistance to one another. The statute of apprentice-
ship may oppose it in the one case, and both that and an exclusive
corporation in the other. In many different manufactures, however,
the operations are so much alike, that the workmen could easily
change trades with one another, if those absurd laws did not hinder
them. The arts of weaving plain linen and plain silk, for example, are
almost entirely the same. That of weaving plain woollen is somewhat
different ; but the difference is so insignificant, that either a linen or a
silk weaver might become a tolerable workman in a very few days. It
any of those three capital manufactures, therefore, were decaying, the
workmen might find a resource in one of the other two which was in a
more prosperous condition ; and their wages would neither rise too
high in the thriving, nor sink too low in the decaying manufacture.
The linen manufacture indeed is, in England, by a particular statute,
open to everybody ; but as it is not much cultivated through the
greater part of the country, it can afford no general resource to the
workmen of other decaying manufactures, who, wherever the statute of
apprenticeship takes place, have no other choice but either to come
upon the parish, or to work as common labourers, for which, by their
habits, they are much worse qualified than for any sort of manufacture
that bears any resemblance to their own. They generally, therefore,
choose to come upon the parish.
Whatever obstructs the free circulation of labour from one employ-
ment to another, obstructs that of stock likewise ; the quantity of stock
which can be employed in any branch of business depending very much
upon that of the labour which can be employed in it. Corporation
laws, however, give less obstruction to the free circulation of stock
from one place to another than to that of labour. It is everywhere
much easier for a wealthy merchant to obtain the privilege of trading
in a town corporate, than it is for a poor artificer to obtain that of
working in it.
The obstruction which corporation laws give to the free circulation
[22 ENACTMENTS AS TO THE RELIEF OF THE POOR.

of labour is common, I believe, to every part of Europe. That which

is given to it by the poor laws is, so far as I know, peculiar to England.
It consists in the difficulty which a poor man finds in obtaining a
settlement, or even in being allowed to exercise his industry in any
parish but that to which he belongs. It is the labour of artificers and
manufacturers only of which the free circulation is obstructed by cor-
poration laws. The difficulty of obtaining settlements obstructs even
that of common labour. It may be worth while to give some account
of the rise, progress, and present state of this disorder, the greatest
perhaps of any in the police of England.
When by the destruction of monasteries the poor had been deprived
of the charity of those religious houses, after some other ineffectual
attempts for their relief, it was enacted by the 43rd of Elizabeth c. 2,
that every parish should be bound to provide for its own poor ; and
that overseers of the poor should be annually appointed, who , with the
churchwardens, should raise, by a parish rate, competent sums for
this purpose.
By this statute the necessity of providing for their own poor was
indispensably imposed upon every parish. Who were to be considered
as the poor of each parish became, therefore, a question of some im-
portance. This question, after some variation, was at last determined
by the 13th and 14th of Charles II . when it was enacted, that forty
days undisturbed residence should gain any person a settlement in
any parish, but that within that time it should be lawful for two justices
of the peace, upon complaint made by the churchwardens or overseers
of the poor, to remove any new inhabitant to the parish where he was
last legally settled ; unless he either rented a tenement of ten pounds a
year, or could give such security for the discharge of the parish where
he was then living, as those justices should judge sufficient.
Some frauds, it is said, were committed in consequence of this
statute, parish officers sometimes bribing their own poor to go clandes-
tinely to another parish, and by keeping themselves concealed for forty
days to gain a settlement there; to the discharge of that to which they
properly belonged. It was enacted, therefore, by the 1st of James II. ,
that the forty days undisturbed residence of any person necessary to
gain a settlement, should be accounted only from the time of his
delivering notice in writing, of the place of his abode and the number
of his family to one of the churchwardens or overseers of the parish
where he came to dwell.
But parish officers, it seems, were not always more honest with
regard to their own than they had been with regard to other parishes,
and sometimes connived at such intrusions, receiving the notice, and
taking no proper steps in consequence of it. As every person in a
parish, therefore, was supposed to have an interest to prevent as much
as possible their being burdened by such intruders, it was further
ZTE SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 123

enacted by the 3rd Willlam III. that the forty days residence should be
accounted only from the publication of such notice in writing on Sunday
in the church, immediately after divine service.
' After all,' says Doctor Burn, ' this kind of settlement, by continu-
' ing forty days after publication of notice in writing, is very seldom
6
obtained ; and the design of the acts is not so much for gaining of
settlements as for the avoiding of them by persons coming into a
parish clandestinely : for the giving of notice is only putting a force
' upon the parish to remove. But if a person's situation is such, that it
'is doubtful whether he is actually removable or not, he shall by giving
' of notice compel the parish either to allow him a settlement uncon-
tested, by suffering him to continue forty days ; or, by removing him,
to try the right.'
This statute, therefore, rendered it almost impracticable for a poor
man to gain a new settlement in the old way, by forty days inha-
bitancy. But that it might not appear to preclude altogether the
common people of one parish from ever establishing themselves with
security in another, it appointed four other ways by which a settlement
might be gained without any notice delivered or published. The first
was, by being taxed to parish rates and paying them ; the second, by
being elected into an annual parish office, and serving in it a year ; the
third, by serving an apprenticeship in the parish ; the fourth, by being
hired into service there for a year, and continuing in the same service
during the whole of that time.
Nobody can gain a settlement by either of the two first ways, but by
the public deed of the whole parish, who are too well aware of the
consequences to adopt any new-comer who has nothing but his labour
to support him, either by taxing him for the parish rates, or by electing
him into a parish office.
No married man can well gain any settlement in either of these two
last ways. An apprentice is scarce ever married ; and it is expressly
enacted, that no married servant shall gain any settlement by being
hired for a year. The principal effect of introducing settlements by
service, has been to put out in a great measure the old fashion of
hiring for a year, which before had been so customary in England, that
ven at this day, if no particular term is agreed upon, the law intends
that every servant is hired for a year. But masters are not always
willing to give their servants a settlement by hiring them in this man-
ner ; and servants are not always willing to be so hired, because, as
ever last settlement discharges all the foregoing, they might thereby
lose their original settlement in the places of their nativity, the habita-
tion of their parents and relations.
No independent workman, it is evident, whether labourer or artificer,
is likely to gain any new settlement either by apprenticeship or by
service. When such a person, therefore, carried his industry to a new
124 THE PRACTICE OF GIVING CERTIFICATES TO PROVE SETTLEMENTS.

parish, he was liable to be removed, how healthy and industrious so-

ever, at the caprice of any churchwarden or overseer, unless he either
rented a tenement of ten pounds a year, a thing impossible for one
who has nothing but his labour to live by ; or could give such security
for the discharge of the parish as two justices of the peace should
judge sufficient. What security they shall require, indeed, is left
altogether to their discretion ; but they cannot well require less than
thirty pounds, it having been enacted, that the purchase even of a
freehold estate of less than thirty pounds value, shall not gain any
person a settlement, as not being sufficient for the discharge of the
parish. But this is a security which scarce any man who lives by
labour can give ; and greater security is frequently demanded.
In order to restore in some measure that free circulation of labour
which those different statutes had almost entirely taken away, the
invention of certificates was fallen upon. By the 8th and 9th of
William III. it was enacted, that if any person should bring a certifi-
cate from the parish where he was last legally settled, subscribed by the
churchwardens and overseers of the poor, and allowed by two justices of
the peace, that every other parish should be obliged to receive him; that
he should not be removable merely upon account of his being likely to
become chargeable, but only upon his becoming actually chargeable,
and that then the parish which granted the certificate should be
obliged to pay the expense both of his maintenance and of his removal.
And in order to give the most perfect security to the parish where such
certificated man should come to reside, it was further enacted by the
same statute, that he should gain no settlement there by any means
whatever, except either by renting a tenement of ten pounds a year,
or by serving upon his own account in an annual parish office for one
whole year ; and consequently neither by notice, nor by service, nor
by apprenticeship, nor by paying parish rates. By the 12th of Queen
Anne too, stat. i. , c. 18, it was further enacted, that neither the servants
nor apprentices of such certificated men should gain any settlement
in the parish where he resided under such certificate.
How far this invention has restored that free circulation of labour
which the preceding statutes had almost entirely taken away, we may
learn from the following very judicious observation of Dr. Burn.
' It is obvious,' says he, ' that there are divers good reasons for
' requiring certificates with persons coming to settle in any place ;
' namely, that persons residing under them can gain no settlement,
'neither by apprenticeship, nor by service, nor by giving notice, nor
'by paying parish rates ; that they can settle neither apprentices nor
"
servants ; that if they become chargeable, it is certainly known
' whither to remove them, and the parish shall be paid for the removal,
' and for their maintenance in the mean time ; and that if they fall
sick, and cannot be removed, the parish which gave the certificate
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 125

*must maintain them : none of all which can be without a certificate.

' Which reasons will hold proportionably for parishes not granting
' certificates in ordinary cases ; for it is far more than an equal chance,
'but that they will have the certificated persons again, and in a worse,
' condition.' The moral of this observation seems to be, that certifi-
cates ought always to be required by the parish where any poor man
comes to reside, and that they ought very seldom to be granted by
that which he proposes to leave. 6 There is somewhat of hardship in
' this matter of certificates,' says the same very intelligent author, in
?
his History ofthe Poor Laws, by putting it in the power of a parish
• officer, to imprison a man as it were for life ; however inconvenient
' it may be for him to continue at that place where he has had the
' misfortune to acquire what is called a settlement, or whatever advan-
" tage he may propose to himself by living elsewhere.' This act was
66
repealed in 1715. °
Though a certificate carries along with it no testimonial of good
behaviour, and certifies nothing but that the person belongs to the
parish to which he really does belong, it is altogether discretionary in
the parish officers either to grant or to refuse it. A mandamus was
once moved for, says Dr. Burn, to compel the churchwardens and
overseers to sign a certificate ; but the court of King's Bench rejected
the motion as a very strange attempt.
The very unequal price of labour which we find in England in places
at no great distance from one another, is probably owing to the ob-
struction which the law of settlements gives to a poor man who would
carry his industry from one parish to another without a certificate. A
single man, indeed, who is healthy and industrious, may sometimes
reside by sufferance without one ; but a man with a wife and family
who should attempt to do so, would in most parishes be sure of being
removed, and if the single man should afterwards marry, he would
generally be removed likewise. The scarcity of hands in one parish,
therefore, cannot always be relieved by their superabundance in
another, as it is constantly in Scotland, and, I believe, in all other
countries where there is no difficulty of settlement. In such countries,
though wages may sometimes rise a little in the neighbourhood of a
large town, or wherever else there is an extraordinary demand for
labour, and sink gradually as the distance from such places increases,
till they fall back to the common rate of the country, yet we never
meet with those sudden and unaccountable differences in the wages
of neighbouring places which we sometimes find in England, where it
is often more difficult for a poor man to pass the artificial boundary of
a parish, than an arm of the sea or a ridge of high mountains, natural
boundaries which sometimes separate very distinctly different rates of
wages in other countries.
To remove a man who has committed no misdemeanour from the
 26 ABSURDITY OF LEGISLATIVE ATTEMPTS TO REGULATE WAGES.

parish where he chooses to reside, is an evident violation of natural

iberty and justice. The common people of England, however, só
jealous of their liberty, but like the common people of most other
countries never rightly understanding wherein it consists, have now for
more than a century together suffered themselves to be exposed to
this oppression without a remedy. Though men of reflection too have
sometimes complained of the law of settlements as a public grievance ;
yet it has never been the object of any general popular clamour,
such as that against general warrants, an abusive practice undoubtedly,
but such a one as was not likely to occasion any general oppression.
There is scarce a poor man in England of forty years of age, I will
venture to say, who has not in some part of his life felt himself most
64
cruelly oppressed by this ill-contrived law of settlements.
I shall conclude this long chapter with observing, that though
anciently it was usual to rate wages, first by general laws extending
over the whole kingdom, and afterwards by particular orders of the
justices of peace in every particular county, both these practices have
now gone entirely into disuse. ' By the experience of above four
'hundred years,' says Doctor Burn, ' it seems time to lay aside all
' endeavours to bring under strict regulations, what in its own nature
seems incapable of minute limitation : for if all persons in the same
kind of work were to receive equal wages, there would be no emula-
'tion, and no room left for industry or ingenuity.'
Particular acts of parliament, however, still attempt sometimes to
regulate wages in particular trades and in particular places. Thus the
8th of George III. prohibits under heavy penalties all master tailors in
London, and five miles round it, from giving, and their workmen from
accepting, more than two shillings and sevenpence halfpenny a day,
except in the case of a general mourning. Whenever the legislature
attempts to regulate the difference between masters and their work-
men, its counsellors are always the masters. When the regulation
therefore, is in favour of the workmen, it is always just and equitable ;
but it is sometimes otherwise when in favour of the masters. Thus the
law which obliges the masters in several different trades to pay their
workmen in money and not in goods, is quite just and equitable. It
imposes no real hardship upon the masters. It only obliges them to
pay that value in money, which they pretended to pay, but did not
always really pay in goods. This law is in favour of the workmen ;
but the 8th of George III. is in favour of the masters. When masters
combine together in order to reduce the wages of their workmen, they
commonly enter into a private bond or agreement, not to give more
than a certain wage under a certain penalty. Were the workmen to
enter into a contrary combination of the same kind, not to accept of a
certain wage under a certain penalty, the law would punish them very
severely ; and if it dealt impartially, it would treat the masters in the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 127

same manner. But the 8th of George III. enforces by law that very
regulation which masters sometimes attempt to establish by such com-
binations. The complaint of the workmen, that it puts the ablest and
most industrious upon the same footing with an ordinary workman,
seems perfectly well founded. 65
In ancient times too it was usual to attempt to regulate the profits of
merchants and other dealers, by rating the price both of provisions
and other goods. The assize of bread is, so far as I know, the only
remnant of this ancient usage. Where there is an exclusive corpora-
tion, it may perhaps be proper to regulate the price of the first neces-
sary of life. But where there is none, the competition will regulate it
much better than any assize. The method of fixing the assize of
bread established by the 31st of George II. could not be put in
practice in Scotland, on account of a defect in the law ; its execution
depending upon the office of clerk of the market, which does not
exist there. This defect was not remedied till the 3rd of George III .
The want of an assize occasioned no sensible inconveniency, and the
establishment of one in the few places where it has yet taken place,
has produced no sensible advantage. In the greater part of the towns
of Scotland, however, there is an incorporation of bakers who claim
exclusive privileges, though they are not very strictly guarded. "
The proportion between the different rates both of wages and profit
in the different employments of labour and stock, seems not to be
much affected, as has already been observed, by the riches or poverty,
the advancing, stationary, or declining state of the society. Such
revolutions in the public welfare, though they affect the general rates
both of wages and profit, must in the end affect them equally in all
different employments. The proportion between them, therefore, must
remain the same, and cannot well be altered, at least for any consider-
able time, by any such revolutions.

CHAP. XI. - Of the Rent of Land. "

RENT, considered as the price paid for the use of land, is naturally the
1 highest which the tenant can afford to pay in the actual circum-
stances of the land. In adjusting the terms of the lease, the landlord
endeavours to leave him no greater share of the produce than what is
sufficient to keep up the stock from which he furnishes the feed, pays
the labour, and purchases and maintains the cattle and other instru-
ments of husbandry, together with the ordinary profits of farming stock
in the neighbourhood. This is evidently the smallest share with which
the tenant can content himself without being a loser, and the landlord
seldom means to leave him any more. Whatever part of the produce,
or, what is the same thing, whatever part of its price is over and above
128 RULES WHICH ORDINARILY REGULATE RENT CLAIMS.

this share, he naturally endeavours to reserve to himself as the rent of

his land, which is evidently the highest the tenant can afford to pay in
the actual circumstances of the land. Sometimes, indeed, the liberality,
more frequently the ignorance, of the landlord makes him accept of
somewhat less than this portion ; and sometimes, too, though more
rarely, the ignorance of the tenant makes him undertake to pay some-
what more, or to content himself with somewhat less than the ordinary
profits of farming stock in the neighbourhood. This portion, however,
may still be considered as the natural rent of land, or the rent for which
it is naturally meant that land should for the most part be let.
The rent of land, it may be thought, is frequently no more than a
reasonable profit or interest for the stock laid out by the landlord upon
its improvement. This, no doubt, may be partly the case upon some
occasions ; for it can scarce ever be more than partly the case. 68 The
landlord demands a rent even for unimproved land, and the supposed
interest or profit upon the expense of improvement is generally an
addition to this original rent. Those improvements, besides, are not
always made by the stock of the landlord, but sometimes by that ofthe
tenant. When the lease comes to be renewed, however, the landlord
commonly demands the same augmentation of rent, as if they had
been all made by his own.
He sometimes dernands rent for what is altogether incapable of
human improvement. Kelp is a species of sea-weed, which, when
burnt, yields an alkaline salt, useful for making glass, soap, and for
several other purposes. It grows in several parts of Great Britain,
particularly in Scotland, upon such rocks only as lie within the high
water-mark, which are twice every day covered with the sea, and ofwhich
the produce, therefore, was never augmented by human industry. The
landlord, however, whose estate is bounded by a kelp shore of this
kind, demands a rent for it as much as for his corn-fields.
The sea in the neighbourhood of the islands of Shetland is more
than commonly abundant in fish, which make a great part of the sub-
sistence of their inhabitants. But in order to profit by the produce of
the water, they must have a habitation upon the neighbouring land.
The rent of the landlord is in proportion, not to what the farmer can
make by the land, but to what he can make both by the land and by
the water. It is partly paid in sea-fish ; and one of the very few
instances in which rent makes a part of the price of that commodity
is to found in that country.
The rent of land, therefore, considered as the price paid for the use
of the land, is naturally a monopoly price. It is not at all proportioned
to what the landlord may have laid out upon the improvement of the
land, or to what he can afford to take ; but to what the farmer can
afford to give.
Such parts only of the produce of land can commonly be brought to
market of which the ordinary price is sufficient to replace the stock
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS . 129

which must be employed in bringing them thither, together with its

ordinary profits. If the ordinary price is more than this, the surplus
part of it will naturally go to the rent of the land. If it is not more,
though the commodity may be brought to market, it can afford no rent
to the landlord. Whether the price is, or is not more, will depend
upon the demand.
There are some parts of the produce of land for which the demand
must always be such as to afford a greater price than what is sufficien
to bring them to market ; and there are others for which it either may
or may not be such as to afford this greater price. The former must
always afford a rent to the landlord. The latter sometimes may, and
sometimes may not, according to different circumstances.
Rent, it is to be observed, therefore, enters into the composition of the
price of commodities in a different way from wages and profit. High 01
low wages and profit are the causes of high or low price ; high or low rent
is the effect of it." It is because high or low wages and profit must be paid,
in order to bring a particular commodity to market, that its price is high
or low ; but it is because its price is high or low, a great deal more, or
very little more, or no more, than what is sufficient to pay those wages
and profit, that it affords a high rent, a low rent, or no rent at all.
The particular consideration, first, of those parts of the produce of
land which always afford some rent ; secondly, of those which some-
times may and sometimes may not afford rent ; and, thirdly, of the
variations which, in the different periods of improvement, naturally
take place, in the relative value of those two different sorts of rude
produce, when compared both with one another and with manufactured
commodities, will divide this chapter into three parts.

PART I.— Of the Produce of Land which always affords Rent.

As men, like all other animals, naturally multiply in proportion to the
means of their subsistence, food is always, more or less, in demand.
It can always purchase or command a greater or smaller quantity of
labour, and somebody can always be found who is willing to do some-
thing in order to obtain it. The quantity of labour, indeed, which it
can purchase, is not always equal to what it could maintain, if managed
in the most economical mannner, on account of the high wages which
are sometimes given to labour. But it can always purchase such a
quantity of labour as it can maintain, according to the rate at which
that sort of labour is commonly maintained in the neighbourhood.
But land, in almost any situation, produces a greater quantity of
food than what is sufficient to maintain all the labour necessary for
bringing it to market, in the most liberal way in which that labour is
ever maintained. The surplus too is always more than sufficient to
9
130 MONOPOLY IS A GREAT ENEMY TO GOOD MANAGEMENT.

replace the stock which employed that labour, together with its profits.
Something, therefore, always remains for a rent to the landlord.
The most desert moors in Norway and Scotland produce some sort
of pasture for cattle, of which the milk and the increase are always
more than sufficient, not only to maintain all the labour necessary fo
tending them, and to pay the ordinary profit to the farmer or owner of
the herd or flock,*but to afford some small rent to the landlord. The
rent increases in proportion to the goodness of the pasture. The same
extent of ground not only maintains a greater number of cattle, but as
they are brought within a smaller compass, less labour becomes requi-
site to tend them , and to collect their produce. The landlord gains
both ways : by the increase of the produce, and by the diminution of
the labour which must be maintained out of it.
The rent of land not only varies with its fertility, whatever be its
produce, but with its situation, whatever be its fertility. Land in the
neighbourhood of a town gives a greater rent than land equally fertile
in a distant part of the country. Though it may cost no more labour
to cultivate the one than the other, it must always cost more to bring
the produce of the distant land to market. A greater quantity of
labour, therefore, must be maintained out of it ; and the surplus, from
which are drawn both the profit of the farmer and the rent of the
landlord, must be diminished. But in remote parts of the country the
rate of profits, as has already been shown, is generally higher than in
the neighbourhood of a large town. A smaller proportion of this
diminished surplus, therefore, must belong to the landlord.
Good roads, canals, and navigable rivers, by diminishing the expense
of carriage, put the remote parts of the country more nearly upon a
level with those in the neighbourhood of the town. They are upon
that account the greatest of all improvements. They encourage the
cultivation of the remote, which must always be the most extensive
circle of the country. They are advantageous to the town, by breaking
down the monopoly of the country in its neighbourhood. They are
advantageous even to that part of the country. Though they introduce
some rival commodities into the old market, they open many new
markets to its produce. Monopoly, besides, is a great enemy to good
management, which can never be universally established but in conse-
quence of that free and universal competition which forces everybody
to have recourse to it for the sake of self-defence. It is not more than
fifty years ago, that some of the counties in the neighbourhood of
London petitioned the parliament against the extension of the turn-
pike roads into remoter counties. Those remoter counties, they pre-
tended, from the cheapness of labour, would be able to sell their grass
and corn cheaper in the London market than themselves, and would
thereby reduce their rents, and ruin their cultivation. Their rents, how-
ever, have risen, and their cultivation has been improved since that time
* See note on Rent in Appendix .
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 131

A corn-field of moderate fertility produces a much greater quantity

of food for man than the best pasture of equal extent. Though its
cultivation requires much more labour, yet the surplus which remains
after replacing the seed and maintaining all that labour, is likewise
much greater. If a pound of butcher's-meat, therefore, was never
supposed to be worth more than a pound of bread, this greater surplus
would everywhere be of greater value, and constitute a greater fund
both for the profit of the farmer and the rent of the landlord. It seems
to have done so universally in the rude beginning of agriculture.
But the relative values of those two different species of food, bread,
and butcher's-meat, are very different in the different periods of agri-
culture. In its rude beginning, the unimproved wilds, which then
occupy the far greater part of the country, are all abandoned to cattle.
There is more butcher's-meat than bread, and bread, therefore, is the
food for which there is the greatest competition, and which conse-
quently brings the greatest price. At Buenos Ayres, we are told by
Ulloa, four reals, one-and-twenty pence halfpenny stirling, was, forty
or fifty years ago, the ordinary price of an ox, chosen from a herd of
two or three hundred. He says nothing of the price of bread, pro-
bably because he found nothing remarkable about it. An ox there, he
says, costs little more than the labour of catching him. But corn can
nowhere be raised without a great deal of labour, and in a country
which lies upon the river Plate, at that time the direct road from
Europe to the silver mines of Potosi, the money price of labour could
not be very cheap. It is otherwise when cultivation is extended over
the greater part of the country. There is then more bread than
butcher's-meat. The competition changes its direction, and the price
of butcher's-meat becomes greater than the price of bread.
By the extension besides of cultivation, the unimproved wilds become
insufficient to supply the demand for butcher's-meat. A great part of
the cultivated lands must be employed in rearing and fattening cattle,
of which the price, therefore, must be sufficient to pay, not only the
labour necessary for tending them, but the rent which the landlord and
the profit which the farmer could have drawn from such land employed
in tillage. The cattle bred upon the most uncultivated moors, when
brought to the same market, are, in proportion to their weight or
goodness, sold at the same price as those which are reared upon th
most improved land. The proprietors of those moors profit by it, an 1
raise the rent of their land in proportion to the price of their cattl
it is not more than a century ago that in many parts of the Highlands
of Scotland, butcher's-meat was as cheap or cheaper than even bread
made of oatmeal. The union opened the market of England to the
Highland cattle. Their ordinary price is at present about three times
greater than at the beginning of the century, and the rents of many
Highland estates have been tripled and quadrupled in the same time.
 2 NEIGHBOURHOOD OF LARGE TOWNS AFFECTS AGRICULTURE.

1 almost every part of Great Britain a pound of the best butcher's

eat, is in the present times, generally worth more than two pounds of
he best white bread ; and in plentiful years it is sometimes worth
three or four pounds.
It is thus that in the progress of improvement the rent and profit of
unimproved pasture come to be regulated in some measure by the rent
and profit of what is improved, and these again by the rent and profit
of corn. Corn is an annual crop. Butcher's meat, a crop which
requires four or five years to grow. As an acre of land, therefore, will
produce a much smaller quantity of the one species of food than ofthe
other, the inferiority of the quantity must be compensated by the
superiority of the price. If it was more than compensated, more corn
land would be turned into pasture ; and if it was not compensated,
part of what was in pasture would be brought back into corn.
This equality, however, between the rent and profit of grass and
those of corn ; of the land of which the immediate produce is food fc
cattle, and of that of which the immediate produce is food for men
must be understood to take place only through the greater part of the
improved lands of a great country. In some particular local situations
it is quite otherwise, and the rent and profit of grass are much superior
to what can be made by corn.
Thus in the neighbourhood of a great town, the demand for milk and
for forage to horses, frequently contribute, together with the high price.
of butcher's-meat, to raise the value of grass above what may be called
its natural proportion to that of corn. This local advantage, it is
evident, cannot be communicated to the lands at a distance.
Particular circumstances have sometimes rendered some countries
so populous, that the whole territory, like the lands in the neighbour-
hood of a great town, has not been sufficient to produce both the grass
and the corn necessary for the subsistence of their inhabitants. Their
lands, therefore, have been principally employed in the production of
grass, the more bulky commodity, and which cannot be so easily
brought from a great distance ; and corn, the food of the great body
of the people, has been chiefly imported from foreign countries.
Holland is at present in this situation, and a considerable part of
ancient Italy seems to have been so during the prosperity of the
Romans. To feed well, old Cato said, as we are told by Cicero, was
the first and most profitable thing in the management of a private
estate ; to feed tolerably well, the second ; and to feed ill, the third.
To plough, he ranked only in the fourth place of profit and advantage.
Tillage, indeed, in that part of ancient Italy which lay in the neigh-
bourhood of Rome, must have been very much discouraged by the
distributions of corn which were frequently made to the people, either
gratuitously, or at a very low price. This corn was brought from the
conquered provinces, of which several, instead of obliged
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 933

to furnish a tenth part of their produce at a stated price, about six-

pence a peck, to the republic. The low price at which this corn was
distributed to the people, must necessarily have sunk the price of what
could be brought to the Roman market from Latium, or the ancient
territory of Rome, and must have discouraged its cultivation in that
part of the country.
In an open country too, of which the principal produce is corn, a
well-enclosed piece of grass will frequently rent higher than any corn-
field in its neighbourhood. It is convenient for the maintenance ofthe
cattle employed in the cultivation of the corn, and its high rent is, in
this case, not so properly paid from the value of its own produce, as
from that of the corn lands which are cultivated by means of it. It is
likely to fall, if ever the neighbouring lands are completely enclosed.
The present high rent of enclosed land in Scotland seems owing to the
scarcity of enclosure, and will probably last no longer than that
scarcity. The advantage of enclosure is greater for pasture than for
corn. It saves the labour of guarding the cattle, which feed better too
when not liable to be disturbed by their keeper or his dog.
But where there is no local advantage of this kind, the rent and
profit of corn, or whatever else is the common vegetable food of the
people, must naturally regulate, upon the land which is fit for producing
it, the rent and profit of pasture.
The use of the artificial grasses, of turnips, carrots, cabbages, and
the other expedients which have been fallen upon to make an equal
quantity of land feed a greater number of cattle than when in natural
grass, should somewhat reduce, it might be expected, the superiority
which, in an improved country, the price of butcher's meat naturally
has over that of bread. It seems accordingly to have done so ; and
there is some reason for believing that, at least in the London market,
the price of butchers'-meat in proportion to the price of bread, is a
good deal lower in the present times than it was in the beginning of the
last century:
In the appendix to the Life of Prince Henry, Doctor Birch has given
us an account of the prices of butcher's-meat as commonly paid by that
prince. It is there said, that the four quarters of an ox weighing six
hundred pounds usually cost him nine pounds ten shillings or there
abouts ; that is, thirty-one shillings and eightpence per hundred pound
weight. Prince Henry died on the 6th of November 1612, in the nine
teenth year of his age.
In March 1764, there was a parliamentary inquiry into the causes of
the high price of provisions at that time. It was thien, among othe
proof to the same purpose, given in evidence by a Virginia merchant
that in March 1763 , he had victualled his ships for twenty-four c
twenty-five shillings the hundredweight of beef, which he considere
as the ordinary price ; whereas, in that dear year, he had paid twenty
134 COST OF FOOD FOR MEN OR CATTLE RULES RENT OF LAND.

seven shillings for the same weight and sort. This high price in 1764
is, however, four shillings and eight-pence cheaper than the ordinary
price paid by Prince Henry ; and it is the best beef only, it must be
observed, which is fit to be salted for those distant voyages.
The price paid by Prince Henry amounts to 31d. per pound weight
of the whole carcase, coarse and choice pieces taken together ; and at
that rate the choice pieces could not have been sold by retail for less
than 4 d. or 5d. the pound.
In the parliamentary inquiry in 1764, the witnesses stated the price
of the choice pieces of the best beef to be to the consumer 4d. and 41d.
the pound ; and the coarse pieces in general to be from seven farthings
to 2 d. and 21d.; and this they said was in general one halfpenny
learer than the same sort of pieces had usually been sold in the month
of March. But even this high price is still a good deal cheaper than
what we can well suppose the ordinary retail price to have been in the
time of Prince Henry.
During the twelve first years of the last century, the average price of
the best wheat at the Windsor market was £ 1 18s. 34d. the quarter of
nine Winchester bushels.
But in the twelve years preceding 1764, including that year, the
average price of the same measure of the best wheat at the same mar-
ket was £2 IS. 91d.
In the twelve first years of the last century, therefore, wheat appears
to have been a good deal cheaper, and butcher's-meat a good deal
dearer, than in the twelve years preceding 1764, including that year.
In all great countries the greater part of the cultivated lands are em-
ployed in producing either food for men or food for cattle. The rent
and profit of these regulate the rent and profit of all other cultivated
land. If any particular produce afforded less, the land would soon be
turned into corn or pasture ; and if any afforded more, some part of
the lands in corn or pasture would soon be turned to that produce.
Those productions, indeed, which require either a greater original
expense of improvement, or a greater annual expense of cultivation, in
order to fit the land for them, appear commonly to afford , the one a
greater rent, the other a greater profit than corn or pasture. Thi
superiority, however, will seldom be found to amount to more than
reasonable interest or compensation for this superior expense.
In a hop garden, a fruit garden, a kitchen garden, both the rent o
the landlord, and the profit of the farmer, are generally greater than in
a corn or grass field. But to bring the ground into this condition re.
quires more expense. Hence a greater rent becomes due to the land.
lord. It requires too a more attentive and skilful management. Hence
a greater profit becomes due to the farmer. The crop too, at least in
the hop and fruit garden, is more precarious. Its price, therefore, be-
sides compensating all occasional losses, must afford something like
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 135

the profit of insurance. The circumstances of gardeners, generally

mean, and always moderate, may satisfy us that their great ingenuity is
not commonly over-recompensed. Their delightful art is practised by
so many rich people for amusement, that little advantage is to be made
by those who practise it for profit ; because the persons who should
naturally be their best customers, supply themselves with all their most
precious productions.
The advantage which the landlord derives from such improvement
seems at no time to have been greater than what was sufficient to com
pensate the original expense of making them. In the ancient hus
bandry, after the vineyard, a well-watered kitchen garden seems to have
been the part of the farm which was supposed to yield the most valua-
ble produce. But Democritus, who wrote upon husbandry about two
thousand years ago, and who was regarded by the ancients as one of
the fathers of the art, thought they did not act wisely who enclosed a
kitchen garden. The profit, he said, would not compensate the ex-
pense of a stone wall ; and bricks (he meant, I suppose, bricks baked
in the sun) mouldered with the rain and the winter storm , and required
continual repairs. Columella, who reports this judgment of Democri
tus, does not controvert it, but proposes a very frugal method of en-
closing with a hedge of brambles and briers, which, he says, he had
found by experience to be both a lasting and an impenetrable fence ;
but which, it seems, was not commonly known in the time of Demo-
critus. Palladius adopts the opinion of Columella, which had before
been recommended by Varro. In the judgment of those ancient im-
provers, the produce of a kitchen garden had, it seems, been little more
than sufficient to pay the extraordinary culture and the expense of
watering ; for in countries so near the sun, it was thought proper, in
those times as in the present, to have the command of a stream of
water, which could be conducted to every bed in the garden. Through
the greater part of Europe, a kitchen garden is not at present supposed
to deserve a better enclosure than that recommended by Columella.
In Great Britain, and some other northern countries, the finer fruits
cannot be brought to perfection but by the assistance of a wall.
Their price, therefore, in such countries must be sufficient to pay the
expense of building and maintaining what they cannot be had without.
The fruit-wall frequently surrounds the kitchen garden, which thus
enjoys the benefit of an enclosure which its own produce could seldom
pay for.
That the vineyard, when properly planted and brought to perfection,
was the most valuable part of the farm, seems to have been an un-
doubted maxim in the ancient agriculture, as it is in the modern
through all the wine countries. But whether it was advantageous to
plant a new vineyard, was a matter of dispute among the ancient
Italian husbandmen, as we learn from Columella. He decides, like a
136 STATE OF THE VINEYARDS AND CORN-FIELDS IN FRANCE.

true lover of all curious cultivation, in favour of the vineyard, and

endeavours to show, by a comparison of the profit and expense, that it
was a most advantageous improvement. Such comparisons, however,
between the profit and expense of new projects, are commonly very
fallacious ; and in nothing more so than in agriculture. Had the gain
actually made by such plantations been commonly as great as he
imagined it might have been, there could have been no dispute about
it. The same point is frequently at this day a matter of controversy
in the wine countries. Their writers on agriculture, indeed, the lovers
and promoters of high cultivation, seem generally disposed to decide
with Columella in favour of the vineyard. In France the anxiety of
the proprietors of the old vineyards to prevent the planting of any new
nes, seems to favour their opinion, and to indicate a consciousness
in those who must have the experience, that this species of cultivation
`s at present in that country more profitable than any other. It seems
at the same time, however, to indicate another opinion, that this
superior profit can last no longer than the laws which at present
restrain the free cultivation of the vine. In 1731 , they obtained an
order of council, prohibiting both the planting of new vineyards, and
the renewal of those old ones, of which the cultivation had been inter.
rupted for two years, without a particular permission from the king, to
be granted only in consequence of an information from the intendant
of the province, certifying that he had examined the land, and that it
was incapable of any other culture. The pretence of this order was
the scarcity of corn and pasture, and the superabundance of wine.
But had this superabundance been real, it would, without any order
of council, have effectually prevented the plantation of new vineyards,
by reducing the profits of this species of cultivation below their natural
proportion to those of corn and pasture. With regard to the supposed
scarcity of corn occasioned by the multiplication of vineyards, corn
is nowhere in France more carefully cultivated than in the wine
provinces, where the land is fit for producing it ; as in Burgundy,
Guienne, and the Upper Languedoc. The numerous hands employed
in the one species of cultivation necessarily encourage the other, by
affording a ready market for its produce. . To diminish the number of
those who are capable of paying for it, is surely a most unpromising
expedient for encouraging the cultivation of corn. It is like the policy
which would promote agriculture by discouraging manufactures.
The rent and profit of those productions, therefore, which require
either a greater original expense of improvement in order to fit the
land for them, or a greater annual expense of cultivation, though often
much superior to those of corn and pasture, yet when they do no
more than compensate such extraordinary expense, are in reality regu-
lated by the rent and profit of those common crops.
It sometimes happens, indeed, that the quantity of land which can
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 137

be fitted for some particular produce, is too small to supply the effec
tual demand. The whole produce can be disposed of to those who
are willing to give somewhat more than what is sufficient to pay the
whole rent, wages, and profit necessary for raising and bringing it to
market, according to their natural rates, or according to the rates at
which they are paid in the greater part of other cultivated land. The
Jurplus part of the price which remains after defraying the whole
expense of improvement and cultivation may commonly, in this case,
and in this case only, bear no regular proportion to the like surplus in
corn or pasture, but may exceed it in almost any degree ; and the
greater part of this excess goes to the rent of the landlord.
The usual and natural proportion, for example, between the rent and
profit of wine and those of corn and pasture, must be understood to
take place only with regard to those vineyards which produce nothing
but good common wine, such as can be raised almost anywhere, upon
any light, gravelly, or sandy soil, and which has nothing to recommend
it but its strength and wholesomeness. It is in such vineyards only
that the common land of the country can be brought into competition ;
for with those of a peculiar quality it is evident that it cannot.
The vine is more affected by the difference of soils than any other
fruit tree. From some it derives a flavour which no culture or manage-
ment can equal, it is supposed, upon any other. This flavour, real or
imaginary, is sometimes peculiar to the produce of a few vineyards ;
sometimes it extends through the greater part of a small district, and
sometimes through a considerable part of a large province. The
whole quantity of such wines that is brought to market falls short of
the effectual demand, or the demand of those who would be willing to
pay the whole rent, profit and wages necessary for preparing and
bringing them thither, according to the ordinary rate, or according to
the rate at which they are paid in common vineyards. The whole
quantity, therefore, can be disposed of to those who are willing to pay
more, which necessarily raises the price above that of common wine.
The difference is greater or less, according as the fashionableness and
scarcity of the wine render the competition of the buyers more or less
eager. Whatever it be, the greater part of it goes to the rent of the
ļ 'andlord. For though such vineyards are in general more carefully
cultivated than most others, the high price of the wine seems to be,
not so much the effect, as the cause of this careful cultivation. In so
valuable a produce the loss occasioned by negligence is so great as to
force even the most careless to attention. A small part of this high
price, therefore, is sufficient to pay the wages of the extraordinary
labour bestowed upon their cultivation, and the profits of the extraor-
dinary stock which puts that labour into motion.
The sugar colonies possessed by many European nations in the
West Indies, may be compared precious vineyards. Their
138 SUGAR GROWN IN COCHIN CHINA. TOBACCO IN VIRGINIA.

whole produce falls short of the effectual demand of Europe, and can
be disposed of to those who are willing to give more than what is suf-
ficient to pay the whole rent, profit, and wages necessary for preparing
and bringing it to market, according to the rate at which they are
commonly paid by any other produce. In Cochin China the finest
white sugar commonly sells for three piastres the quintal, about thirteen
shillings and sixpence of our money, as we are told by Mr. Poivre
(Voyages d'un Philosophe,) a very careful observer of the agriculture of
that country. What is there called the quintal weighs from a hundrea
and fifty to two hundred Paris pounds, or a hundred and seventy-five
Paris pounds at a medium, which reduces the price of the hundred-
weight English to about eight shillings sterling, not a fourth part of
what is commonly paid for the brown or muskavado sugars imported
from our colonies, and not a sixth part of what is paid for the finest
white sugar. The greater part of the cultivated lands in Cochin China
are employed in producing corn and rice, the food of the great body of
the people. The respective prices of corn, rice, and sugar, are there
probably in the natural proportion, or in that which naturally takes
place in the different crops of the greater part of cultivated land, and
which recompenses the landlord and farmer, as nearly as can be com-
puted, according to what is usually the original expense of improve-
ment and the annual expense of cultivation. But in our sugar colonies
the price of sugar bears no such proportion to that of the produce of a
rice or corn field either in Europe or in America. It is commonly said
that a sugar planter expects that the rum and the molasses should
defray the whole expense of his cultivation, and that his sugar should
be all clear profit. " If this be true, for I pretend not to affirm it, it is as
if a corn farmer expected to defray the expense of his cultivation with
the chaff and the straw, and that the grain should be all clear profit.
We see frequently societies of merchants in London and other trading
towns, purchase waste lands in our sugar colonies, which they expect
to improve and cultivate with profit by means of factors and agents ;
notwithstanding the great distance and the uncertain returns, from the
defective administration of justice in those countries. Nobody will at-
tempt to improve and cultivate in the same manner the most fertile
lands of Scotland, Ireland, or the corn provinces of North America,
though from the more exact administration of justice in these countries,
more regular returns might be expected.
In Virginia and Maryland the cultivation of tobacco is preferred, as
more profitable, to that of corn. Tobacco might be cultivated with
advantage through the greater part of Europe ; but in almost every
part of Europe it has become a principal subject of taxation, and to
collect a tax from every different farm in the country where this plant
might happen to be cultivated, would be more difficult, it has been sup
posed, than to levy one upon its importation at the custom-house. The
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 139

cultivation of tobacco has upon this account been most absurdly pro
hibited through the greater part of Europe, which necessarily gives a
sort of monopoly to the countries where it is allowed ; and as Virginia
and Maryland produce the greatest quantity of it, they share largely,
though with some competitors, in the advantage of this monopoly. The
cultivation of tobacco, however, seems not to be so advantageous as
that of sugar. I have never even heard of any tobacco plantation that
was improved and cultivated by the capital of merchants who resided
in Great Britain, and our tobacco colonies send us home no such
wealthy planters as we see frequently arrive from our sugar islands.
Though from the preference given in those colonies to the cultivation
of tobacco above that of corn , it would appear that the effectual de-
mand of Europe for tobacco is not completely supplied, it probably is
more nearly so than that for sugar : and though the present price of
tobacco is probably more than sufficient to pay the whole rent, wages
and profit necessary for preparing and bringing it to market, according
to the rate at which they are commonly paid in corn land, it must not
be so much more as the present price of sugar. Our tobacco planters,
accordingly, have shown the same fear of the superabundance of
tobacco, which the proprietors of the old vineyards in France have
of the superabundance of wine. By act of assembly they have re-
strained its cultivation to six thousand plants, supposed to yield a
thousand weight of tobacco, for every negro between sixteen and
sixty years of age. Such a negro, over and above this quantity of
tobacco, can manage, they reckon, four acres of Indian corn. To pre-
vent the market from being overstocked too, they have sometimes, in
plentiful years, we are told by Dr. Douglas ( Summary, vol. ii. p. 372.)
(I suspect he has been ill-informed), burnt a certain quantity of tobacco
for every negro, in the same manner as the Dutch are said to do of
spices. If such violent methods are necessary to keep up the present
price of tobacco, the superior advantage of its culture over that of corn,
if it still has any, will not probably be of long continuance.
It is in this manner that the rent of the cultivated land, of which the
produce is human food, regulates the rent of the greater part of other
cultivated land. No particular produce can long afford less ; becaus
the land would immediately be turned to another use. And if any par-
ticular produce commonly affords more, it is because the quantity of
land which can be fitted for it is too small to supply the effectual demand.
In Europe corn is the principal produce of land which serves im-
mediately for human food. Except in particular situations, therefore,
the rent of corn land regulates in Europe that of all other cultivated
land. Britain need envy neither the vineyards of France nor the olive
plantations of Italy. Except in particular situations, the value of these
is regulated by that of corn, in which the fertility of Britain is not
much inferior to that of either of those two countries.
 140 RELATIVE VALUE OF CROPS OF CORN, RICE, AND POTATOES.

If in any country the common and favourite vegetable food of the

people should be drawn from a plant of which the most common land,
with the same or nearly the same culture, produced a much greater
quantity than the most fertile does of corn, the rent of the landlord, or
the surplus quantity of food which would remain to him, after paying
the labour and replacing the stock of the farmer together with its
ordinary profits, would necessarily be much greater. Whatever was
the rate at which labour was commonly maintained in that country,
this greater surplus could always maintain a greater quantity of it, and
consequently enable the landlord to purchase or command a greater
quantity of it. The real value of his rent, his real power and authority,
and his command of the necessaries and conveniencies of life with
which the labour of other people could supply him, would necessarily be
much greater.
A rice field produces a much greater quantity of food than the most
fertile corn field. Two crops in the year from thirty to sixty bushels
each, are said to be the ordinary produce of an acre. Though its
cultivation, therefore, requires much labour, a much greater surplus
remains after maintaining all that labour. In those rice countries,
therefore, where rice is the common and favourite vegetable food
of the people, and where the cultivators are chiefly maintained with it,
a greater share of this greater surplus should belong to the landlord
than in corn countries. " In Carolina, where the planters, as in other
British colonies, are generally both farmers and landlords, and where
rent consequently is confounded with profit, the cultivation of rice is
found to be more profitable than that of corn, though their fields
produce only one crop in the year, and though, from the prevalence of
the customs of Europe, rice is not there the common and favourite
vegetable food of the people.
A good rice field is a bog at all seasons, and at one season a bog
covered with water. It is unfit either for corn, or pasture, or vineyard,
or, indeed, for any other vegetable produce that is very useful to men ;
and the lands which are fit for those purposes are not fit for rice. Even
in the rice countries, therefore, the rent of rice lands cannot regulate
the rent of the other cultivated land which can never be turned to the
produce of that crop.
!
The food produced by a field of potatoes is not inferior in quantity
to that produced by a field of rice, and much superior to what is pro-
duced by a field of wheat. Twelve thousand weight of potatoes from
an acre of land is not a greater produce than two thousand weight of
wheat. The food or solid nourishment, indeed which can be drawn
from each of those two plants, is not altogether in proportion to their
weight, on account of the watery nature of potatoes. Allowing, how-
ever, half the weight of this root to go to water, a very large allowance,
such an acie of potatoes will still produce six thousand weight of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS, 141

solid nourishment, three times the quantity produced by the acre of

wheat. An acre of potatoes is cultivated with less expense than an
acre of wheat ; the fallow, which generally precedes the sowing of
wheat, more then compensating the hoeing and other extraordinary
culture which is always given to potatoes. Should this root ever be
come in any part of Europe, like rice in some rice countries, the
common and favourite vegetable food of the people, so as to occupy
the same proportion ofthe lands in tillage which wheat and other sorts
of grain for human food do at present, the same quantity of cultivated
land would maintain a much greater number of people, and the
labourers being generally fed with potatoes, a greater surplus would
remain after replacing all the stock and maintaining all the labour
employed in cultivation. A greater share of this surplus too would
belong to the landlord. Population would increase, and rents would
rise much beyond what they are at present.
The land which is fit for potatoes, is fit for almost every other useful
vegetable. If they occupied the same proportion of cultivated land
which corn does at present, they would regulate, in the same manner,
the rent of the greater part of other cultivated land.
In some parts of Lancashire it is pretended, I have been told, that
bread of oatmeal is a heartier food for labouring people than wheaten
bread, and I have frequently heard the same doctrine held in Scotland.
I am, however, somewhat doubtful of the truth of it. The common
people in Scotland, who are fed with oatmeal, are in general neither so
strong nor so handsome as the same rank of people in England who
are fed with wheaten bread. They neither work so well, nor look so
well ; and as there is not the same difference between the people of
fashion in the two countries, experience would seem to show, that the
food of the common people in Scotland is not so suitable to the human
constitution as that of their neighbours of the same rank in England.
But it seems to be otherwise with potatoes. The chairmen, porters,
and coal-heavers in London, and those unfortunate women who live by
prostitution, the strongest men and the most beautiful women perhaps
in the British dominions, are said to be, the greater part of them, from
the lowest rank of people in Ireland, who are generally fed with this
root. No food can afford a more decisive proof of its nourishing
quality, or of its being peculiarly suitable to the health of the human
constitution.
It is difficult to preserve potatoes through the year, and impossible
to store them like corn, for two or three years together. The fear of
not being able to sell them before they rot, discourages their cultiva-
tion, and is, perhaps, the chief obstacle to their ever becoming in any
great country, like bread, the principal vegetable food of all the different
ranks of the people, "
 142 WHAT ARE THE GREAT WANTS OF MANKIND ?
1

PART II.--Of the Produce of Land which sometimes does, and some-
times does not, afford Rent.
HUMAN food seems to be the only produce of land which always and
necessarily affords some rent to the landlord. Other sorts of produce
sometimes may and sometimes may not, according to different circum-
stances.
After food, clothing and lodging are the two great wants ofmankind.
Land in its original rude state can afford the materials of clothing
and lodging to a much greater number of people than it can feed. In
its improved state it can sometimes feed a greater number of people
than it can supply with those materials ; at least, in the way in which
they require them, and are willing to pay for them. In the one state,
therefore, there is always a superabundance of those materials, which
are frequently, upon that account, of little or no value. In the other
there is often a scarcity, which necessarily augments their value. In
the one state a great part of them is thrown away as useless, and the
price of what is used is considered as equal only to the labour and
expense of fitting it for use, and can, therefore, afford no rent to the
landlord. In the other they are all made use of, and there is frequently
a demand for more than can be had. Somebody is always willing to
give more for every part of them than what is sufficient to pay the
expense of bringing them to market. Their price, therefore, can
always afford some rent to the landlord.
The skins of the larger animals were the original materials of
clothing. Among nations of hunters and shepherds, therefore, whose
food consists chiefly in the flesh of those animals, every man, by pro-
viding himself with food , provides himself with the materials of more
clothing than he can wear. If there was no foreign commerce, the
greater part of them would be thrown away as things of no value.
This was probably the case among the hunting nations of North
America, before their country was discovered by the Europeans, with
whom they now exchange their surplus peltry, for blankets, firearms,
and brandy, which gives it some value. In the present commercial
state of the known world, the most barbarous nations, I believe, among
whom land property is established, have some foreign commerce of
this kind, and find among their wealthier neighbours such a demand
for all the materials of clothing, which their land produces, and which
can neither be wrought up nor consumed at home, as raises their price
above what it costs to send them to those wealthier neighbours. It
affords, therefore, some rent to the landlord. When the greater part
ofthe highland cattle were consumed on their own hills, the exportation
of their hides made the most considerable article of the commerce of
that country, and what they were exchanged for afforded some addition
to the rent of the highland estates The wool of England, which in
 ¶SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 143

old times could neither be consumed nor wrought up at home, found a

market in the then wealthier and more industrious country of Flanders,
and its price afforded something to the rent of the land which produced
it. In countries not better cultivated than England was then, or than
the Highlands of Scotland are now, and which had no foreign com
merce, the materials of clothing would evidently be so superabundant,
that a great part of them would be thrown away as useless, and no
part could afford any rent to the landlord.
The materials of lodging cannot always be transported to so great a
distance as those of clothing, and do not so readily become an object
of foreign commerce. When they are superabundant in the country
which produces them, it frequently happens, even in the present com-
mercial state of the world, that they are of no value to the landlord.
A good stone quarry in the neighbourhood of London would afford a
considerable rent. In many parts of Scotland and Wales it affords
none. Barren timber for building is of great value in a populous and
well-cultivated country, and the land which produces it affords a con-
siderable rent. But in many parts of North America the landlord
would be much obliged to anybody who would carry away the greater
part of his large trees. In some parts of the highlands of Scotland
the bark is the only part of the wood which, for want of roads and
water-carriage, can be sent to market. The timber is left to rot upon
the ground. When the materials of lodging are so superabundant, the
part made use of is worth only the labour and expense of fitting it for
that use. It affords no rent to the landlord, who generally grants the
use of it to whoever takes the trouble of asking it. The demand of
wealthier nations, however, sometimes enables him to get a rent for it.
The paving of the streets of London has enabled the owners of some
barren rocks on the coast of Scotland to draw a rent from what never
afforded any before. The woods of Norway and of the coasts of the
Baltic, find a market in many parts of Great Britain which they could
not find at home, and thereby afford some rent to their proprietors.
Countries are populous, not in proportion to the number of people
whom their produce can clothe and lodge, but in proportion to that of
those whom it can feed. When food is provided, it is easy to find the
necessary clothing and lodging. But though these are at hand, it may
often be difficult to find food. In some parts even of the British
dominions, what is called a house, may be built by one day's labour of
one man. The simplest species of clothing, the skins of animals, require
somewhat more labour to dress and prepare them for use. They do
not, however, require a great deal. Among savage and barbarous
nations, a hundredth or little more than a hundredth part of the labour
of the whole year, will be sufficient to provide them with such clothing
and lodging as satisfy the greater part of the people. All the other ninety-
nine parts are frequently no more than enough to provide them with food.
144 DIFFERENCE IN CONDITION AND WANTS OF RICH AND POOR.

But when by the improvement and cultivation of land the labour of

one family can provide food for two, the labour of half the societ
becomes sufficient to provide food for the whole. The other hal
therefore, or at least the greater part of them, can be employed in pr
viding other things, or in satisfying the other wants and fancies
mankind. Clothing and lodging, household furniture, and what
called equipage, are the principal objects of the greater part of those
wants and fancies. The rich man consumes no more food than his
poor neighbour. In quality it may be very different, and to select and
prepare it may require more labour and art ; but in quantity it is very
nearly the same. But compare the spacious palace and great wardrobe
of the one, with the hovel and the few rags of the other, and you will
be sensible that the difference between their clothing, lodging, and
household furniture, is almost as great in quantity as it is in quality.
The desire of food is limited in every man by the narrow capacity of
the human stomach ; but the desire ofthe conveniences and ornaments
of building, dress, equipage, and household furniture, seems to have no
limit or certain boundary. Those, therefore, who have the command
of more food than they themselves can consume, are always willing to
exchange the surplus, or, what is the same thing, the price of it, for
gratifications of this other kind. What is over and above satisfying
the limited desire, is given for the amusement of those desires which
cannot be satisfied, but seem to be altogether endless. The poor, in
order to obtain food, exert themselves to gratify those fancies of the
rich, and to obtain it more certainly, they vie with one another in the
cheapness and perfection of their work. The number of workmen
increases with the increasing quantity of food, or with the growing
improvement and cultivation of the lands ; and as the nature of their
business admits of the utmost subdivisions of labour, the quantity of
materials which they can work up, increases in a much greater propor-
tion than their numbers. Hence arises a demand for every sort of
materials which human invention can employ, either usefully or orna-
mentally, in building, dress, equipage, or household furniture ; for the
fossils and minerals contained in the bowels of the earth, the precious
inetals, and the precious stones.
Food is in this manner, not only the original source of rent, but
every other part of the produce of land which afterwards affords rent,
derives that part of its value from the improvement of the powers of
labour in producing food by means of the improvement and the culti-
vation of the land.
Those other parts of the produce of land, however, which afterwards
afford rent, do not afford it always. Even in improved and cultivated
countries, the demand for them is not always such as to afford a
greater part than what is sufficient to pay the labour, and replace,
together with its ordinary profits, the stock which must be employed
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 145

In bringing them to market. Whether it is or is not such, depends

upon different circumstances.
Whether a coal mine, for example, can afford any rent, depends
partly upon its fertility, and partly upon its situation.
A mine of any kind may be said to be either fertile or barren,
according as the quantity of mineral which can be brought from it
by a certain quantity of labour, is greater or less than what can be
brought by an equal quantity from the greater part of other mines of
the same kind.
Some coal-mines advantageously situated, cannot be wrought on
account of their barrenness. The produce does not pay the expense.
They can afford neither profit nor rent.
There are some of which the produce is barely sufficient to pay the
labourer, and replace, together with its ordinary profits, the stock
employed in working them. They afford some profit to the under-
taker of the work, but no rent to the landlord. They can be wrought
advantageously by nobody but the landlord, who being himself under-
taker of the work, gets the ordinary profit of the capital which he
employs in it. Many coal-mines in Scotland are wrought in this
manner, and can be wrought in no other. The landlord will allow
nobody else to work them without paying some rent, and nobody can
afford to pay any rent.
Other coal-mines in the same country sufficiently fertile, cannot
be wrought on account of their situation. A quantity of mineral
sufficient to defray the expense of working, could be brought from
the mine by the ordinary, or even less than the ordinary, quantity of
labour ; but in an inland country, thinly inhabited, and without either
good roads or water-carriage, this quantity could not be sold.
Coals are a less agreeable fuel than wood ; they are said, too,
to be less wholesome. The expense of coals, therefore, at the place
where they are consumed, must generally be somewhat less than that
of wood.
The price of wood, again, varies with the state of agriculture, nearly
in the same manner, and exactly for the same reason, as the price of
! cattle. In its rude beginnings the greater part of every country is
covered with wood, which is then a mere incumbrance of no value to
the landlord, who would gladly give it to anybody for the cutting. As
agriculture advances, the woods are partly cleared by the progress of
tillage, and partly go to decay in consequence of the increased number
of cattle. These, though they do not increase in the same proportion
as corn, which is altogether the acquisition of human industry, yet
multiply under the care and protection of men, who store up in the
season of plenty what may maintain them in that of scarcity, who
through the whole year furnish them with a greater quantity of food
than uncultivated nature provides for them, and who, hy destroying
ΤΟ
146 RELATIVE VALUE OF WOOD OR COALS AS FUEL- AND PRICE.

and extirpating their enemies, secure them in the free enjoyment of all
that she provides. Numerous herds of cattle, when allowed to wander
through the woods, though they do not destroy the old trees, hinder
any young ones from coming up, so that in the course of a century or
two the whole forest goes to ruin. The scarcity of wood then raises
its price. It affords a good rent, and the landlord sometimes finds
that he can scarce employ his best lands more advantageously than in
growing barren timber, of which the greatness of the profit often com-
pensates the lateness of the returns. This seems in the present times
to be nearly the state of things in several parts of Great Britain, where
the profit of planting is found to be equal to that of either corn or pas-
ture. The advantage which the landlord derives from planting, can
nowhere exceed, at least for any considerable time, the rent which
these could afford him ; and in an inland country which is highly cul-
tivated, it will frequently not fall much short of this rent. Upon the
sea-coast of a well-improved country, indeed, if coals can conveniently
be had for fuel, it may sometimes be cheaper to bring barren timber
for building from less cultivated foreign countries, than to raise it at
home. In the new town of Edinburgh, built within these few years,
there is not, perhaps, a single stick of Scotch timber.
Whatever may be the price of wood, if that of coals is such that the
expense of a coal-fire is nearly equal to that of a wood one, we may be
assured, that at that place, and in these circumstances, the price of
coals is as high as it can be. It seems to be so in some of the inland
parts of England, particularly in Oxfordshire, where it is usual, even in
the fires of the common people, to mix coals and wood together, and
where the difference in the expense of those two sorts of fuel cannot,
therefore, be very great.
Coals, in the coal countries, are everywhere much below this highest
price. If they were not, they could not bear the expense of a distant
carriage, either by land or by water. A small quantity only could be
sold, and the coal masters and coal proprietors find it more for their
interest to sell a great quantity at a price somewhat above the lowest,
than a small quantity at the highest. The most fertile coal-mine, too,
regulates the price of coals at all the other mines in its neighbourhood.
Both the proprietor and the undertaker of the work find, the one that
he can get a greater rent, the other that he can get a greater profit, by
somewhat underselling all their neighbours. Their neighbours are
soon obliged to sell at the same price, though they cannot so well
afford it, and though it always diminishes, and sometimes takes away
altogether both their rent and their profit. Some works are abandoned
altogether ; others can afford no rent, and can be wrought only by
the proprietor.
The lowest price at which coals can be sold for any considerable
time is, like that of all other commodities, the price which is barely
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 147

sufficient to replace, together with its ordinary profits, the stock which
must be employed in bringing them to market. At a coal- mine for
which the landlord can get no rent, but which he must either work
himself or let it alone altogether, the price of coals must generally be
nearly about this price.
Rent, even where coals afford one, has generally a smaller share in
their price than in that of most other parts of the rude produce of land.
The rent of an estate above ground, commonly amounts to what is
supposed to be a third of the gross produce ; and it is generally a rent
Certain and independent of the occasional variations in the crop. In
coal-mines a fifth of the gross produce is a very great rent ; a tenth
the common rent, and it is seldom a rent certain, but depends upon
the occasional variations in the produce. These are so great, that in a
country where thirty years purchase is considered as a moderate price
for the property of a landed estate, ten years purchase is regarded as
a good price for that of a coal-mine.
The value of a coal-mine to the proprietor frequently depends as
much upon its situation as upon its fertility. That of a metallic mine
depends more upon its fertility, and less upon its situation. The
coarse, and still more the precious metals, when separated from the
ore, are so valuable that they can generally bear the expense of a very
long land and of the most distant sea carriage. Their market is not
confined to the countries in the neighbourhood of the mine, but extends
to the whole world. The copper of Japan makes an article of com-
merce in Europe ; the iron of Spain in that of Chili and Peru ; and
the silver of Peru finds its way, not only to Europe, but from Europe
to China.
The price of coals in Westmorland or Shropshire can have little
effect on their price at Newcastle ; and their price in the Lionnois can
have none at all. The productions of such distant coal-mines can
never be brought into competition with one another. But the produc-
tions of the most distant metallic mines frequently may, and in fact
commonly are. The price, therefore, of the coarse, and still more that
of the precious metals, at the most fertile mines in the world, must
necessarily more or less affect their price at every other in it. The
price of copper in Japan must have some influence upon its price atthe
copper mines in Europe. The price of silver in Peru, or the quantity
either of labour or of other goods which it will purchase there, must
have some influence on its price, not only at the silver mines of Europe,
but at those of China. After the discovery of the mines of Peru, the
silver mines of Europe were, the greater part of them abandoned. The
value of silver was so much reduced that their produce could no longer
pay the expense of working them, or replace with a profit, the food,
clothes, lodging, and other necessaries which were consumed in that
operation. This was the case too with the mines of Cuba and St.
10 *

Γ.
148 LANDLORD INTEREST IN COAL, IRON, SILVER, OR TIN MINES.

Domingo, and even with the ancient mines of Peru, after the discovery
of those of Potosi.
The price of every metal at every mine, therefore, being regulated in
some measure by its price at the most fertile mine in the world that is
actually wrought, it can at the greater part of mines do very little more
than pay the expense of working, and can seldom afford a very high
rent to the landlord. Rent, accordingly, seems at the greater part of
mines to have but a small share in the price of the coarse, and a still
smaller in that of the precious metals. Labour and profit make up the
greater part of both.
A sixth part of the gross produce may be reckoned the average rent
of the tin mines of Cornwall, the most fertile that are known in the
world, as we are told by the Rev. Mr. Borlace, vice-warden of the stan-
naries. Some, he says, afford more, and some do not afford so much.
A sixth part of the gross produce is the rent too of several very fertile
lead mines in Scotland.
In the silver mines of Peru, we are told by Frezier and Ulloa, the
proprietor frequently exacts no other acknowledgment from the under-
taker ofthe mine, but that he will grind the ore at his mill, paying him
the ordinary multure or price of grinding. Till 1736, indeed , the tax
of the king of Spain amounted to one-fifth of the standard silver, which
till then might be considered as the real rent of the greater part of the
silver mines of Peru, the richest which have been known in the world.
Ifthere had been no tax, this fifth would naturally have belonged to the
landlord, and many mines might have been wrought which could not
then be wrought, because they could not afford this tax. The tax ofthe
Duke of Cornwall, upon tin is supposed to amount to more than five
per cent. or one twentieth part of the value ; and whatever may be his
proportion, it would naturally too belong to the proprietor of the mine,
if tin was duty free. But if you add one-twentieth to one-sixth, you
will find that the whole average rent of the tin mines of Cornwall, was
to the whole average rent of the silver mines of Peru, as thirteen to
twelve. But the silver mines of Peru are not now able to pay even
this low rent, and the tax upon silver was in 1736, reduced from one-
fifth to one-tenth. Even this tax upon silver too gives more temptation
to smuggling than the tax of one twentieth upon tin ; and smuggling
must be much easier in the precious than in the bulky commodity. The
tax of the King of Spain accordingly is said to be very ill paid, and
that of the Duke of Cornwall very well. Rent, therefore, it is probable,
makes a greater part of the price of tin at the most fertile tin mines,
than it does of silver at the most fertile silver mines in the world.
After replacing the stock employed in working those different mines,
together with its ordinary profits, the residue which remains to the pro-
prietor, is greater in the coarse than in the precious metal.
Neither are the profits of the undertakers of silver mines commonly
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 149

very great in Peru. The same most respectable and well informed
authors acquaint us, that when any person undertakes to work a new
mine in Peru, he is universally looked upon as a man destined to bank-
ruptcy and ruin, and is upon that account shunned and avoided by
everybody. Mining, it seems, is considered there in the same light as
here as a lottery in which the prizes do not compensate the blanks,
though the greatness of some tempts many adventurers to throw away
their fortunes in such unprosperous projects. 74
As the sovereign, however, derives a considerable part of his revenue
from the produce of silver mines, the law in Peru gives every possible
encouragement to the discovery and working of new ones. Whoever
discovers a new mine is entitled to measure off two hundred and forty
six feet in length, according to what he supposes to be the direction of
the vein, and half as much in breadth. He becomes proprietor of this
portion of the mine, and can work it without paying any acknowledg-
ment to the landlord. The interest of the Duke of Cornwall has given
occasion to a regulation nearly of the same kind in that ancient duchy.
In waste and uninclosed lands any person who discovers a tin mine,
may mark out its limits to a certain extent, which is called bounding a
mine. The bounder becomes the real proprietor of the mine, and may
either work it himself or give it in lease to another without the consent
of the owner of the land, to whom, however, a very small acknowledg-
ment must be paid upon working it. In both regulations the sacred
rights of private property are sacrificed to the supposed interests of
the public revenue.
The same encouragement is given in Peru to the discovery and
working of new gold mines ; and in gold the king's tax amounts only
to a twentieth part of the standard metal. It was once a fifth, and
afterwards a tenth, as in silver ; but it was found that the work could
not bear even the lowest of these two taxes. If it is rare, however,
say the same authors, Frezier and Ulloa, to find a person who has
made his fortune by a silver, it is still much rarer to find one who has
done so by a gold mine. This twentieth part seems to be the whole
rent which is paid by the greater part of the gold mines in Chili and
Peru. Gold too is much more liable to be smuggled than even silver ;
not only on account of the superior value of the metal in proportion to
its bulk, but on account of the peculiar way in which nature produces
it. Silver is very seldom found virgin, but, like most other metals, is
generally mineralized with some other body, from which it is impossible
to separate it in such quantities as will pay for the expense, but by a
very laborious and tedious operation, which cannot well be carried on
but in the workshops erected for the purpose, and therefore exposed
to the inspection of the king's officers. Gold, on the contrary, is almost
always found virgin. It is sometimes found in pieces of some bulk ;
and even when mixed in small and almost insensible particles with
150 UTILITY, BEAUTY, AND SCARCITY OF METALS FORM THEIR VALUE,

sand, earth, and other extraneous bodies, it can be separated from them
by a very short and simple operation, which can be carried on in any
private house by anybody who is possessed of a small quantity of mer-
cury. If the king's tax, therefore, is but ill paid upon silver, it is likely
to be much worse paid upon gold ; and rent must make a much smaller
part ofthe price of gold, than even of that of silver.
The lowest price at which the precious metals can be sold, or the
smallest quantity of other goods for which they can be exchanged
during any considerable time, is regulated by the same principles which
fix the lowest ordinary price of all other goods. The stock which must
commonly be employed, the food, clothes, and lodging which must
commonly be consumed in bringing them from the mine to the market,
determine it. It must at least be sufficient to replace that stock with
the ordinary profits.
Their highest price, however, seems not to be necessarily determined
by anything but the actual scarcity or plenty of those metals themselves.
It is not determined by that of any other commodity in the same man-
ner as the price of coals is by that of wood, beyond which no scarcity
can ever raise it. Increase the scarcity of gold to a certain degree, and
the smallest bit of it may become more precious than a diamond, and
exchange for a greater quantity of other goods.
The demand for those metals arises partly from their utility and
partly from their beauty. If you except iron, they are more useful
than perhaps any other metal. As they are less liable to rust and im-
purity, they can more easily be kept clean ; and the utensils either of
the table or the kitchen are often upon that account more agreeable
when made of them. A silver boiler is more cleanly than a lead, cop-
per, or tin one ; and the same quality would render a gold boiler still
better than a silver one. Their principle merit, however, arises from
their beauty, which renders them peculiarly fit for the ornaments of
dress and furniture. No paint or dye can give so splendid colour as
gilding. The merit of their beauty is greatly enhanced by their scarcity.
With the greater part of rich people the chief enjoyment of riches con-
sists in the parade of riches, which in their eye is never so complete as
when they appear to possess those decisive marks of opulence which
nobody can possess but themselves. In their eyes the merit of an
object which is in any degree either useful or beautiful, is greatly
enhanced by its scarcity, or by the great labour which it requires to
collect any considerable quantity of it, a labour which nobody can afford
to pay but themselves. Such objects they are willing to purchase at a
higher price than things much more beautiful and useful, but more
common. These qualities of utility, beauty, and scarcity, are the ori-
ginal foundation of the high price of those metals, or of the great quan
tity of other goods for which they can everywhere be exchanged. This
value was antecedent to and independent of their being employed as
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 151

coin, and was the quality which fitted them for that employment. That
employment, however, by occasioning a new demand, and by diminish-
ing the quantity which could be employed in any other way, may have
afterwards contributed to keep up or increase their value.
The demand for the precious stones arises altogether from their
beauty. They are of no use, but as ornaments ; and the merit of their
beauty is greatly enhanced by their scarcity, or by the difficulty and
expense of getting them from the mine. Wages and profit accordingly
make up, upon most occasions, almost the whole of their high price.
Rent comes in but for a very small share, frequently for no share ; and
the most fertile mines only afford any considerable rent. When
Tavernier, a jeweller, visited the diamond mines of Golconda and
Visiapour, he was informed that the sovereign of the country, for
whose benefit they were wrought, had ordered all of them to be shut up,
except those which yield the largest and finest stones. The others, it
seems, were to the proprietor not worth the working.
As the price both of the precious metals and of the precious stones
is regulated all over the world by their price at the most fertile mine
in it, the rent which a mine of either can afford to its proprietor is in
proportion, not to its absolute, but to what may be called its relative
fertility, or to its superiority over other mines of the same kind. If
new mines were discovered as much superior to those of Potosi as they
were superior to those of Europe, the value of silver might be so much
degraded as to render even the mines of Potosi not worth the work-
ing. Before the discovery of the Spanish West Indies, the most fertile
mines in Europe may have afforded as great a rent to the proprietor as
the richest mines in Peru do at present. Though the great quantity of
silver was much less, it might have exchanged for an equal quantity of
other goods, and the proprietor's share might have enabled him to
purchase or command an equal quantity either of labour or of commo-
dities. The value both of the produce and of the rent, the real revenue
which they afforded both to the public and to the proprietor, might
have been the same.
The most abundant mines either of the precious metals or of the
precious stones could add very little to the wealth of the world. A
produce of which the value is principally derived from its scarcity, is
necessarily degraded by its abundance. A service of plate, and the
frivolous ornaments of dress and furniture, could be purchased for a
smaller quantity of labour, or for a smaller quantity of commodities ;
and in this would consist the sole advantage which the world could
derive from that abundance.
It is otherwise in estates above ground. The value both of their
produce and of their rent is in proportion to their absolute, and not to
their relative fertility. The land which produces a certain quantity of
food, clothes, and lodging, can always feed, clothe, and lodge a certain
 152 FOOD FORMS THE CHIEF PART OF THE RICHES OF THE WORLD.

number of people : and whatever may be the proportion of the land-

lord, it will always give him a proportionable command of the labour
of those people, and of the commodities with which that labour can
supply him. The value of the most barren lands is not diminished by
the neighbourhood of the most fertile. On the contrary, it is generally
increased by it. The great number of people maintained by the fertile
lands afford a market to many parts of the produce of the barren ,
A which they could never have found among those whom their produce
alone could maintain.
Whatever increases the fertility of land in producing food, increases
not only the value of the lands upon which the improvement is
bestowed, but contributes likewise to increase that of many other
lands, by creating a new demand for their produce. The abundance
of food, of which, in consequence of the improvement of land, many
people have the disposal beyond what they themselves can consume,
is the great cause of the demand both for the precious metals and the
precious stones, as well as for every other conveniency and ornament
of dress, lodging, household furniture, and equipage. Food not only
constitutes the principal part of the riches of the world, but it is the
abundance of food which gives the principal part of their value to
many other sorts of riches. The poor inhabitants of Cuba and St.
Domingo, when they were first discovered by the Spaniards, used to
wear little bits of gold as ornaments in their hair and other parts of
their dress . They seemed to value them as we would do any little
pebbles of somewhat more than ordinary beauty, and to consider
them as just worth the picking up, but not worth the refusing to any-
body who asked them. They gave them to their new guests at the
first request, without seeming to think that they had made them any
very valuable present. They were astonished to observe the rage of the
Spaniards to obtain them, and had no notion that there could anywhere
be a country in which many people had the disposal of so great a
superfluity of food, so scanty always among themselves, that for a very
small quantity of those glittering baubles they would willingly give as
much as might maintain a whole family for many years. Could they
have been made to understand this, the passion of the Spaniards would
not have surprised them.

PART III.--Of the Variations in the Proportion between the respective

Values of that sort of Produce which always affords Rent, and of
that which sometimes does and sometimes does not afford rent.
THE increasing abundance of food, in consequence of increasing im-
provement and cultivation, must necessarily increase the demand for
every part of the produce of land which is not food , and which can bo
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 153

applied either to use or to ornament. In the whole progress of im-

provement, it might therefore be expected, that there should be only
one variation in the comparative values of those two different sorts of
produce. The value of that sort which sometimes does and sometimes
does not afford rent should constantly rise in proportion to that which
always affords some rent. As art and industry advance, the materials of
clothing and lodging, the useful fossils and minerals of the earth, the
precious metals and the precious stones, should gradually come to be
more and more in demand, should gradually exchange for a greater
and a greater quantity of food, or in other words, should gradually be-
come dearer and dearer. This accordingly has been the case with most
of these things upon most occasions, and would have been the case with
all of them upon all occasions, if particular accidents had not upon
some occasions increased the supply of some of them in a still greater
proportion than the demand.
The value of a freestone quarry, for example, will necessarily
increase with the increasing improvement and population of the country
round about it, especially if it should be the only one in the neighbour-
hood. But the value of a silver mine, even though there should not be
another within a thousand miles of it, will not necessarily increase with
the improvement of the country in which it is situated. The market
for the produce of a freestone quarry can seldom extend more than a
few miles round about it, and the demand must generally be in pro-
portion to the improvement and population of that small district. But
the market for the produce of a silver mine may extend over the whole
known world. Unless the world in general, therefore, be advancing in
improvement and population, the demand for silver might not be at
all increased by the improvement even of a large country in the
neighbourhood of the mine. Even though the world in general were
improving, yet if, in the course of its improvement, new mines should
be discovered, much more fertile than any which had been known
before, though the demand for silver would necessarily increase, yet the
supply might increase in so much a greater proportion, that the real
price of that metal might gradually fall ; that is, any given quantity, a
pound weight of it, for example, might gradually purchase or command
a smaller and a smaller quantity of labour, or exchange for a smaller !
and a smaller quantity of corn, the principal part of the subsistence of
the labourer.
The great market for silver is the commercial and civilized part of
the world.
If, by the general progress of improvement, the demand of this
market should increase, while at the same time the supply did not
increase in the same proportion, the value of silver would gradually
rise in proportion to that of corn. Any given quantity of silver would
exchange for a greater and a greater quantity of corn ; or, in other
154 HOW SUPPLY, LIMITED OR ABUNDANT, IS RULED BY DEMAND.

words, the average money price of corn would gradually become

cheaper and cheaper.
If, on the contrary, the supply, by some accident, should increase for
many years together in a greater proportion than the demand, that
metal would gradually become cheaper and cheaper ; or, in other
words, the average money price of corn would, in spite of all improve-
ments, gradually become dearer and dearer.
But if, on the other hand, the supply of the metal should increase
nearly in the same proportion as the demand, it would continue to
purchase or exchange for nearly the same quantity of corn, and the
average money price of corn would, in spite of all improvements, con-
tinue very nearly the same.
These three seem to exhaust all the possible combinations of events
which can happen in the progress of improvements ; and during the
course of the four centuries preceding the present, if we may judge by
what has happened both in France and in Great Britain, each of those
three different combinations seems to have taken place in the European
market, and nearly in the same order too in which I have here se!
them down.

Digression concerning the Variations in the Value of Silver during

the Course of the Four last Centuries.
FIRST PERIOD.- In 1350, and for some time before, the average
price of the quarter of wheat in England seems not to have been
estimated lower than four ounces of silver, Tower-weight, equal to
about twenty shillings of our present money. From this price it
seems to have fallen gradually to two ounces of silver, equal to about
ten shillings of our present money, the price at which we find it esti-
mated in the beginning of the sixteenth centry, and at which it seems
to have continued to be estimated till about 1570.
In 1350, being the 25th of Edward III. , was enacted what is called,
The Statute of Labourers. In the preamble it complains much of the
insolence of servants, who endeavoured to raise their wages upon their
masters. It therefore ordains, that all servants and labourers should
for the future be contented with. the same wages and liveries (liveries
in those times signified, not only clothes, but provisions) which they
had been accustomed to receive in the 20th year of the king, and
the four preceding years ; that upon this account their livery wheat
should nowhere be estimated higher than tenpence a bushel, and
that it should always be in the option of the master to deliver them
either the wheat or the money. Tenpence a bushel, therefore, had, in
the 25th of Edward III. , been reckoned a very moderate price of
wheat, since it required a particular statute to oblige servants to accept
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 155

of it in exchange for their usual livery of provisions ; and it had been

reckoned a reasonable price ten years before that, or, in the 16th year
of the king, the term to which the statute refers. But in the 16th
year of Edward III., tenpence contained about half an ounce of silver,
Tower-weight, and was nearly equal to half a crown of our present
money. Four ounces of silver, Tower-weight, therefore, equal to six
shillings and eightpence of the money of those times, and to near
twenty shillings of that of the present, must have been reckoned a
moderate price for the quarter of eight bushels.
This statute is surely a better evidence of what was reckoned in
those times a moderate price of grain, than the prices of some parti-
cular years which have generally been recorded by historians and other
writers on account of their extraordinary dearness or cheapness, and
from which, therefore, it is difficult to form any judgment concerning
what may have been their ordinary price. There are, besides, other
reasons for believing that in the beginning of the fourteenth century, and
for some time before, the common price of wheat was not less than four
ounces of silver the quarter, and that of other grain in proportion.
In 1309, Ralph de Born, Prior of St. Augustine's, Canterbury, gave a
feast upon his installation day, of which William Thorn has preserved,
not only the bill of fare, but the prices of many particulars. In that
feast were consumed ; 1st, Fifty-three quarters of wheat, which cost
nineteen pounds, or seven shillings and twopence a quarter, equal to
about one-and-twenty shillings and sixpence of our present money ;
2dly, Fifty-eight quarters of malt, which cost seventeen pounds ten
shillings, or six shillings a quarter, equal to about eighteen shillings of
our present money ; 3dly, Twenty quarters of oats, which cost four
pounds, or four shillings a quarter, equal to about twelve shillings of
our present money. The prices of malt and oats seem here to be
higher than their ordinary proportion to the price of wheat.
These prices are not recorded on account of their extraordinary
dearness or cheapness, but are mentioned accidentally as the prices
actually paid for large quantities of grain consumed at a feast which
was famous for its magnificence.
In 1262, being the 51st of Henry III., was revived an ancient
statute called, The Assize of Bread and Ale, which, the king says in
the preamble, had been made in the times of his progenitors, some-
time kings of England. It is probably, therefore, as old at least as
the time of his grandfather Henry II. , and may have been as old as
the conquest. It regulates the price of bread according as the prices
of wheat may happen to be, from one shilling to twenty shillings the
quarter of the money of those times. But statutes of this kind are
generally presumed to provide with equal care for all deviations from
the middle price, for those below it as well as for those above it. Ten
shillings, therefore, containing six ounces of silver, Tower-weight, and

Λ
150 FLUCTUATIONS IN VALUE OF WHEAT.

equal to about thirty shillings of our present money, must, upon this
supposition, have been reckoned the middle price of the quarter of
wheat when this statute was first enacted, and must have continued to
be so in the 51st of Henry III. We cannot therefore be very wrong
in supposing that the middle price was not less than one-third of the
highest price at which this statute regulates the price of bread, or than
six shillings and eightpence of the money of those times, containing
four ounces of silver, Tower-weight.
From these different facts, therefore, we seem to have some reason
to conclude, that about the middle of the fourteenth century, and for a
considerable time before, the average or ordinary price of the quarter.
of wheat was not supposed to be less than four ounces of silver
Tower-weight.
From about the middle of the fourteenth to the beginning of the
sixteenth century, what was reckoned the reasonable and moderate,
that is, the ordinary or average price of wheat, seems to have sunk
gradually to about one half of this price ; so as at last to have fallen
to about two ounces of silver, Tower-weight, equal to about ten
shillings of our present money. It continued to be estimated at this
price till about 1570.
In the household book of Henry, the fifth Earl of Northumberland,
drawn up in 1512, there are two different estimations of wheat. In
one of them it is computed at six shillings and eightpence the quarter,
in the other at five shillings and eightpence only. In 1512, six shillings
and eightpence contained only two ounces of silver, Tower-weight, and
were equal to about ten shillings of our present money.
From the 25th of Edward III. to the beginning of the reign of
Elizabeth, during the space of more than two hundred years, six
shillings and eightpence, it appears from several different statutes, had
continued to be considered as what is called the moderate and reason-
able, that is the ordinary or average price of wheat. The quantity of
silver, however, contained in that nominal sum was, during the course
of this period, continually diminishing, in consequence of some altera-
tions which were made in the coin. But the increase of the value of
silver had, it seems, so far compensated the diminution of the
quantity of it contained in the same nominal sum, that the legislature
did not think it worth while to attend to this circumstance.
Thus in 1436 it was enacted, that wheat might be exported without
a licence when the price was so low as six shillings and eightpence ;
and in 1463 it was enacted, that no wheat should be imported if the
price was not above six shillings and eightpence the quarter. The
legislature had imagined that when the price was so low, there could
be no inconveniency in exportation, but that when it rose higher it
became prudent to allow of importation. Six shillings and eightpence,
therefore, containing about the same quantity of silver as thirteen
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 157

shillings and fourpence of our present money (one-third part less than
the nominal sum contained in the time of Edward III. ), had in
those times been considered as what is called the moderate and reason-
able price of wheat.
In 1554, by the 1st and 2nd of Philip and Mary ; and in 1558, by
the 1st of Elizabeth, the exportation of wheat was in the same manner
prohibited, whenever the price of the quarter should exceed six shil-
lings and eightpence, which did not then contain twopennyworth more
silver than the same nominal sum does at present. But it had soon
been found that to restrain the exportation of wheat till the price was
so very low, was, in reality, to prohibit it altogether. In 1562, there-
fore, by the 5th of Elizabeth, the exportation of wheat was allowed
from certain ports whenever the price of the quarter should not exceed
ten shillings, containing nearly the same quantity of silver as the like
nominal sum does at present. This price had at this time, therefore,
been considered as what is called the moderate and reasonable price
of wheat. It agrees nearly with the estimation of the Northumberland
House book in 1512.
That in France the average price of grain was, in the same manner,
much lower in the end of the fifteenth and beginning of the sixteenth
century, than in the two centuries preceding, has been observed both
by Mr. Duprè de St. Maur, and by the elegant author of the
Essay on the Police of Grain. Its price, during the same period,
had probably sunk in the same manner through the greater part of
Europe.
This rise in the value of silver, in proportion to that of corn, may
either have been owing altogether to the increase of the demand for
that metal, in consequence of increasing improvement and cultivation,
the supplyin the mean time continuing the same as before ; or, the demand
continuing the same as before, it may have been owing altogether to
the gradual diminution of the supply ; the greater part of the mines
which were then known in the world being much exhausted, and con-
sequently the expense of working them much increased ; or it may
have been owing partly to the one and partly to the other of those two
circumstances. In the end of the fifteenth and beginning of the
sixteenth centuries, the greater part of Europe was approaching
towards a more settled form of government than it had enjoyed for
several ages before. The increase of security would naturally increase
industry and improvement ; and the demand for the precious metals,
as well as for every other luxury and ornament, would naturally in-
crease with the increase of riches. A greater annual produce would
require a greater quantity of coin to circulate it ; and a greater number
of rich people would require a greater quantity of plate and other
ornaments of silver. It is natural to suppose too, that the greater part
of the mines which then supplied the European market with silver,
 158 THE CONVERSION PRICE, AND FIARS RATE IN SCOTLAND.

might be a good deal exhausted, and have become more expensive in

the working. They had been wrought, many of them, from the time of
the Romans.
It has been the opinion, however, of the greater part of those who
have written upon the prices of commodities in ancient times, that,
from the Conquest, perhaps from the invasion of Julius Cæsar, till the
discovery of the mines of America, the value of silver was continually
diminishing. This opinion they seem to have been led into, partly by
the observations which they had occasion to make both upon the
prices of corn and of some other parts of the rude produce of land ;
and partly by the popular notion, that as the quantity of silver natur-
ally increases in every country with the increase of wealth, so its value
diminishes as its quantity increases.
In their observations upon the prices of corn, three different circum-
stances seem frequently to have misled them .
I. In ancient times almost all rents were paid in kind ; in a certain
quantity of corn, cattle, poultry, etc. It sometimes happened, however,
that the landlord would stipulate, that he should be at liberty to de-
mand of the tenant either the annual payment in kind, or a certain
sum of money instead of it. The price at which the payment in kind
was in this manner exchanged for a certain sum of money, is in Scot-
- land called the conversion price. As the option is always in the land-
lord to take either the substance or the price, it is necessary for the
safety of the tenant, that the conversion price should rather be below
than above the average market price. In many places accordingly, it is
not much above one half of this price. Through the greater part of
Scotland this custom still continues with regard to poultry, and in some
places with regard to cattle. It might probably have continued to
take place too with regard to corn, had not the institution of the public
fiars put an end to it. These are annual valuations, according to the
judgment of an assize, of the average price of all the different sorts of
grain, and of all the different qualities of each, according to the actual
market price in every different county. This institution rendered it
sufficiently safe for the tenant, and much more convenient for the land-
lord, to convert, as they call it, the corn rent, rather at what should
happen to be the price of the fiars of each year, than at any certain
fixed price. But the writers who have collected the prices of corn in
ancient times, seem frequently to have mistaken what is called in Scot
land the conversion price for the actual market price. Fleetwood
acknowledges, upon one occasion, that he had made this mistake. As
he wrote his book, however, for a particular purpose, he does not think
proper to make this acknowledgment till after transcribing this con-
version price fifteen times. The price is eight shillings the quarter of
wheat. This sum in 1423, the year at which he begins with it, con-
tained the same quantity of silver as sixteen shillings of our present
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 159

money. But in 1562, the year at which he ends with it, it contained no
more than the same nominal sum does at present.
II. They have been misled by the slovenly manner in which some
ancient statutes of assize had been sometimes transcribed by lazy
topiers ; and perhaps actually composed by the legislature.
The ancient statutes of assize seem to have begun always with
determining what ought to be the price of bread and ale when the
price of wheat and barley were at the lowest, and to have proceeded
gradually to determine what it ought to be, according as the prices of
those two sorts of grain should gradually rise above this lowest price.
But the transcribers of those statutes seem frequently to have thought
it sufficient to copy the regulation as far as the three or four first and
lowest prices ; saving in this manner their own labour, and judging, I
suppose, that this was enough to show what proportion ought to be
observed in all higher prices.
Thus, in the assize of bread and ale of the 51st of Henry III. , the
price of bread was regulated according to the different prices of wheat,
from one shilling to twenty shillings the quarter of the money of those
times. But in the manuscripts from which all the different editions of
the statutes, preceding that of Mr. Ruffhead, were printed, the copiers
had never transcribed this regulation beyond the price of twelve shil-
lings. Several writers, therefore, being misled by this faulty transcrip-
tion, very naturally concluded that the middle price, or six shillings
the quarter, equal to about eighteen shillings of our present money,
was the ordinary or average price of wheat at that time.
In the statute of Tumbrel and Pillory, enacted nearly about the
same time, the price of ale is regulated according to every sixpence
rise in the price of barley, from two shillings to four shillings the
quarter. That four shillings, however, was not considered as the
highest price to which barley might frequently rise in those times, and
that these prices were only given as an example of the proportion
which ought to be observed in all other prices, whether higher or
lower, we may infer from the last words of the statute : ' et sic deinceps
" crescetur vel diminuetur per sex denarios.' The expression is very
slovenly, but the meaning is plain enough : " That the price of ale is in
'this manner to be increased or diminished according to every sixpence
' rise or fall in the price of barley.' In the composition of this statute
the legislature itself seems to have been as negligent as the copiers
were in the transcription of the other.
In an ancient MS. of the Regiam Majestatem, an old Scotch law
book, there is a statute of assize, in which the price of bread is regu-
lated according to all the different prices of wheat, from tenpence to
three shillings the Scotch boll, equal to about half an English quarter.
Three shillings Scotch, at the time when this assize is supposed to have
been enacted, were equal to about nine shillings sterling of our present
160 THE PLANTAGENET AND TUDOR RULE.

money. Mr. Ruddiman seems (pref. to Anderson's Diplomata Scotia)

to conclude from this, that three shillings was the highest price to
which wheat ever rose in those times, and that tenpence, a shilling, or
at most two shillings, were the ordinary prices. Upon consulting the
MS., however, it appears evidently that all these prices are only set
down as examples of the proportion which ought to be observed
between the respective prices of wheat and bread. The last words
of the statute are, ‘ reliqua judicabis secundum præscripta habendo
' respectum ad pretium bladi.' ' You shall judge of the remaining
6
cases according to what is above written, having a respect to the
' price of corn.'
III, They seem to have been misled too by the very low price at
which wheat was sometimes sold in very ancient times ; and to have
imagined, that as its lowest price was then much lower than in later
times, its ordinary price must likewise have been much lower. They
might have found, however, that in those ancient times, its highest
price was fully as much above, as its lowest price was bélow anything
that had ever been known in later times. Thus, in 1270, Fleetwood
gives us two prices of the quarter of wheat. The one is four pounds
sixteen shillings of the money of those times, equal to fourteen pounds
eight shillings of that of the present ; the other is six pounds eight
shillings, equal to nineteen pounds four shillings of our present money."
No price can be found in the end of the fifteenth, or beginning of the
sixteenth century, which approaches to the extravagance of these. The
price of corn, though at all times liable to variation, varies most in
those turbulent and disorderly societies, in which the interruption of all
commerce and communication hinders the plenty of one part of the
country from relieving the scarcity of another. In the disorderly state
of England under the Plantagenets, who governed it from about the
middle of the twelfth, till towards the end of the fifteenth century, one
district might be in plenty, while another at no great distance, by
having its crop destroyed either by some accident of the seasons, or
by the incursion of some neighbouring baron, might be suffering all
the horrors of a famine ; and yet if the lands of some hostile lord were
interposed between them, the one might not be able to give the least
assistance to the other. Under the vigorous administration of the
Tudors, who governed England during the latter part of the fifteenth,
and through the whole of the sixteenth century, no baron was powerful
snough to dare to disturb the public security.
The reader will find at the end of this chapter all the prices of wheat
which have been collected by Fleetwood from 1202 to 1597, both inclu-
sive, reduced to the money of the present times, and digested according
to the order of time, into seven divisions of twelve years each. At the
end of each division, too, he will find the average price of the twelve
years of which it consists. In that long period of time, Fleetwood has
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 161

been able to collect the prices of no more than eighty years, so that
four years are wanting to make out the last twelve years. I have
added, therefore, from the accounts of Eton College, the prices of 1598,
1599, 1600, and 1601. It is the only addition which I have made.
The reader will see, that from the beginning of the thirteenth, till after
the middle of the sixteenth century, the average price of each twelve
years grows gradually lower and lower ; and that towards the end of
the sixteenth century it begins to rise again. The prices, indeed, which
Fleetwood has been able to collect, seem to have been those chiefly
which were remarkable for extraordinary dearness or cheapness ; and
! I do not pretend that any very certain conclusion can be drawn from
them. So far, however, as they prove anything at all, they confirm
the account which I have been endeavouring to give. Fleetwood him-
self, however, seems, with most other writers, to have believed, that
during all this period the value of silver, in consequence of its increas-
ing abundance, was continually diminishing. The prices of corn which
he himself has collected, certainly do not agree with this opinion.
They agree perfectly with that of Mr. Duprè de St. Maur, and with
that which I have been endeavouring to explain. Bishop Fleetwood
and Mr. Duprè de St. Maur are the two authors who seem to have
collected, with the greatest diligence and fidelity, the prices of things
in ancient times. It is somewhat curious that, though their opinions
are so very different, their facts, so far as they relate to the price of
corn at least, should coincide so very exactly.
It is not, however, so much from the low price of corn, as from that
of some other parts of the rude produce of land, that the most judicious
writers have inferred the great value of silver in those very ancient
times. Corn, it has been said, being a sort of manufacture, was, in
those rude ages, much dearer in proportion than the greater part of
other commodities ; it is meant, I suppose, than the greater part of
unmanufactured commodities ; such as cattle, poultry, game of all
kinds, etc. That in those times of poverty and barbarism these were
proportionably much cheaper than corn, is undoubtedly true. But this
cheapness was not the effect of the high value of silver, but of the low
value of those commodities. It was not because silver would in such
times purchase or represent a greater quantity of labour, but because
such commodities would purchase or represent a much smaller quantity
than in times of more opulence and improvement. Silver must cer-
tainly be cheaper in Spanish America than in Europe ; in the country
where it is produced, than in the country to which it is brought at the
expense of a long carriage both by land and by sea, of a freight, and an
insurance. One-and-twenty-pence halfpenny sterling, however, we are
told by Ulloa, was, not many years ago, at Buenos Ayres, the price of
an ox chosen from a herd of three or four hundred. Sixteen shillings
sterling, we are told by M. Byron, was the price of a good horse in the
II
162 ON THE REAL VALUE OF SILVER AND THAT OF LABOUR.

capital of Chili. In a country naturally fertile, but of which the far

greater part is altogether uncultivated, cattle, poultry, game of all kinds,
etc. , as they can be acquired with a very small quantity of labour, so
they will purchase or command but a very small quantity. The low
money price for which they may be sold, is no proof that the real value
of silver is there very high, but that the real value of those commodities
is very low.
Labour, it must always be remembered, and not any particular com-
modity or set of commodities, is the real measure of the value both of
silver and of all other commodities.
But in countries almost waste, or but thinly inhabited, cattle, poultry,
game of all kinds, etc., as they are the spontaneous productions of
nature, so she frequently produces them in much greater quantities
than the consumption of the inhabitants requires. In such a state of
things the supply commonly exceeds the demand. In different states
of society, in different stages of improvement, therefore, such com-
modities will represent, or be equivalent to, very different quantities of
labour.
In every state of society, in every stage of improvement, corn is the
production of human industry. But the average produce of every sort
of industry is always suited, more or less exactly, to the average con-
sumption ; the average supply to the average demand. In every
different stage of improvement, besides, the raising of equal quantities
of corn in the same soil and climate, will, at an average, require nearly
equal quantities of labour ; or what comes to the same thing, the price
of nearly equal quantities ; the continual increase of the productive
powers of labour in an improved state of cultivation, being more or less
counterbalanced by the continually increasing price of cattle, the prin-
cipal instruments of agriculture.* Upon all these accounts, therefore,
we may rest assured, that equal quantities of corn will, in every state
of society, in every stage of improvement, more nearly represent, or be
equivalent to, equal quantities of labour, than equal quantities of any
other part of the rude produce of land. Corn, accordingly, it has
already been observed, is, in all the different stages of wealth and
improvement, a more accurate measure of value than any other com-
modity or set of commodities. In all those different stages, therefore,
we can judge better of the real value of silver, by comparing it with
corn, than by comparing it with any other commodity, or set of
commodities.
Corn, besides, or whatever else is the common and favourite vegeta-
ble food of the people, constitutes, in every civilized country, the prin-
cipal part of the subsistence of the labourer. In consequence of the
extension of agriculture , the land of every country produces a much
greater quantity of vegetable than of animal food, and the labourer
everywhere lives chiefly upon the wholesome food that is cheapest
* See notes on Corn Laws and Rent in Appendix.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 163

and most abundant. Butcher's-meat, except in the most thriving coun-

tries, or where labour is most highly rewarded, makes but an insignifi-
cant part of his subsistence ; poultry makes a still smaller part of it,
and game no part of it. In France, and even in Scotland where labour
is somewhat better rewarded than in France, the labouring poor seldom
eat butcher's-meat, except upon holidays and other extraordinary occa-
sions. The money price of labour, therefore, depends much more upon
the average money price of corn, the subsistence of the labourer, than
upon that of butcher's-meat, or of any other part of the rude produce of
and. The real value of gold and silver, therefore, the real quantity of
labour which they can purchase or command, depends much more
upon the quantity of corn which they can purchase or command,
than upon that of butcher's-meat, or any other part of the rude pro-
duce of the land.
Such slight observations, however, upon the prices either of corn or
of other commodities, would not probably have misled so many intelli-
gent authors, had they not been influenced, at the same time, by the
popular notion, that as the quantity of silver naturally increases in
every country with the increase of wealth, so its value diminishes as its
quantity increases. This notion, however, seems to be altogether
groundless .
The quantity of the precious metals may increase in any country
from two different causes : either, first, from the increased abundance
ofthe mines which supply it ; or, secondly, from the increased wealth
ofthe people, from the increased produce of their annual labour. The
first of these causes is no doubt necessarily connected with the diminu-
tion of the value of the precious metals ; but the second is not.
When more abundant mines are discovered, a greater quantity ofthe
precious metals is brought to market, and the quantity of the necessa-
ries and conveniencies of life for which they must be exchanged being
the same as before, equal quantities of the metals must be exchanged
for smaller quantities of commodities. So far, therefore, as the increase
of the quantity of the precious metals in any country arises from the
increased abundance of the mines, it is necessarily connected with
some diminution of their value.
When, on the contrary, the wealth of any country increases, when
the annual produce of its labour becomes gradually greater and greater,
a greater quantity of coin becomes necessary in order to circulate a
greater quantity of commodities : and the people, as they can afford it
as they have more commodities to give for it, will naturally purchase a
greater and a greater quantity of plate. The quantity of their coin wil'
increase from necessity; the quantity oftheir plate from vanity and osten.
tation, or from the same reason that the quantity of fine statues, pictures,
and of every other luxury and curiosity, is likely to increase among、
them. But as statuaries and painters are not likely to be worse re-
TI
 164 THE MONEY PRICE OF LABOUR AT HOME AND ABROAD.

warded in times of wealth and prosperity, than in times of poverty and

depression, so gold and silver are not likely to be worse paid for.
The price of gold and silver, when the accidental discovery of more
abundant mines does not keep it down, as it naturally rises with the
wealth of every country, so, whatever be the state of the mines, it is at
all times naturally higher in a rich than in a poor country. Gold and
silver, like all other commodities, naturally seek the market where the
best price is given for them, and the best price is commonly given for
everything in the country which can best afford it. Labour, it must
be remembered, is the ultimate price which is paid for everything, and
in countries where labour is equally well rewarded, the money price of
labour will be in proportion to that of the subsistence of the labourer.
But gold and silver will naturally exchange for a greater quantity of
subsistence in a rich than in a poor country, in a country which aboundı
with subsistence, than in one which is but indifferently supplied with
it. Ifthe two countries are at a great distance, the difference may be
very great ; because though the metals naturally fly from the worse to
the better market, yet it may be difficult to transport them in such
quantities as to bring their price nearly to a level in both. If the
countries are near, the difference will be smaller, and may sometimes
be scarce perceptible ; because in this case the transportation will be
easy. China is a much richer country than any part of Europe, and
the difference between the price of subsistence in China and in Europe
is very great. 76 Rice in China is much cheaper than wheat is anywhere
in Europe. England is a much richer country than Scotland ; but the
difference between the money price of corn in those two countries is much
smaller, and is but just perceptible. In proportion to the quantity or
measure, Scotch corn generally appears to be a good deal cheaper than
English ; but in proportion to its quality, it is certainly somewhat
dearer. Scotland receives almost every year very large supplies from
England, and every commodity must commonly be somewhat dearer
77
in the country to which it is brought than in that from which it comes.
English corn, therefore, must be dearer in Scotland than in England,
and yet in proportion to its quality, or to the quantity and goodness of
the flour or meal which can be made from it, it cannot commonly be
sold higher there than the Scotch corn, which comes to the market in
competition with it.
The difference between the money price of labour in China and in
Europe, is still greater than that between the money price of sub-
sistence ; because the real recompense of labour is higher in Europe
han in China, the greater part of Europe being in an improving state,
while China seems to be standing still. The money price of labour is
" Lower in Scotland than in England, because the real recompense of
labour is much lower ; Scotland, though advancing to greater wealth,
advancing much more slowly than England. " The frequency of emi-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 165

gration from Scotland, and the rarity of it from England, sufficiently

prove that the demand for labour is very different in the two countries
The proportion between the real recompense of labour in different
countries, it must be remembered, is naturally regulated, not by their
actual wealth or poverty, but by their advancing, their stationary, or
their declining condition.
Gold and silver, as they are naturally of the greatest value among
the richest, so they are naturally of the least value among the poorest
nations. Among savages, who are the poorest of all nations, they are
of scarce any value.
In great towns corn is always dearer than in remote parts of the
country. This, however, is the effect, not of the real cheapness of
silver, but of the real dearness of corn. It does not cost less labour to
bring silver to the great town than to the remote parts of the country ;
but it costs a great deal more to bring corn.
In some very rich and commercial countries, such as Holland and
the territory of Genoa, corn is dear for the same reason that it is dear
in great towns. They do not produce enough to maintain their in-
habitants. They are rich in the industry and skill of their artificers
and manufacturers ; in every sort of machinery which can facilitate
and abridge labour ; in shipping, and in all the other instruments and
means of carriage and commerce but they are poor in corn, which, as
it must be brought to them from distant countries, must, by an addi-
tion to its price, pay for the carriage from those countries. It does not
cost less labour to bring silver to Amsterdam than to Dantzick ; but it
costs a great deal more to bring corn. The real cost of silver must be
nearly the same in both places ; but that of corn must be very different.
Diminish the real opulence either of Holland or of the territory of
Genoa, while the number of their inhabitants remains the same ;
diminish their power of supplying themselves from distant countries ;
and the price of corn, instead of sinking with that diminution in the
quantity of their silver, which must necessarily accompany this declen-
sion, either as its cause or as its effect, will rise to the price of a famine.
When we are in want of necessaries we must part with all superfluities,
of which the value, as it rises in times of opulence and prosperity, so it
sinks in times of poverty and distress. It is otherwise with necessaries.
Their real price, the quantity of labour which they can purchase or
command, rises in times of poverty and distress, and sinks in times of
opulence and prosperity, which are always times of great abundance ;
for they could not otherwise be times of opulence and prosperity. Corn
is a necessary, silver is only a superfluity.
Whatever, therefore, may have been the increase in the quantity of
the precious metals, which, during the period between the middle of
the fourteenth and that of the sixteenth century, arose from the increase
of wealth and improvement, it could have no tendency to diminish
166 INFLUX OF SILVER FROM AMERICA AFFECTED PRICES OF GRAIN.

their value either in Great Britain, or in any other part of Europe. If

those who have collected the prices of things in ancient times, therefore
had, during this period, no reason to infer the diminution of the value
of silver, from any observations which they had made upon the prices
either of corn or of other commodities, they had still less reason to infer
it from any supposed increase of wealth and improvement.

SECOND PERIOD. -But how various soever may have been ine
opinions of the learned concerning the progress of the value of silver
during this first period, they are unanimous concerning it during the
second.
From about 1570 to about 1640, during a period of about seventy
years, the variation in the proportion between the value of silver and
that of corn, held a quite opposite course. Silver sunk in its real value,
or would exchange for a smaller quantity of labour than before ; and
corn rose in its nominal price, and instead of being commonly sold for
about two ounces of silver the quarter, or about ten shillings of our
present money, came to be sold for six and eight ounces of silver the
quarter, or about thirty and forty shillings of our present money.
The discovery of the abundant mines of America, seems to have
been the sole cause of this diminution in the value of silver in propor-
tion to that of corn. It is accounted for accordingly in the same
manner by everybody ; and there never has been any dispute either
about the fact, or about the cause of it. The greater part of Europe
was, during this period, advancing in industry and improvement, and
the demand for silver must consequently have been increasing. But
the increase of the supply had, it seems, so far exceeded that of the
demand, that the value of that metal sunk considerably. The discovery
of the mines of America, it is to be observed, does not seem to have
had any very sensible effect upon the prices of things in England till
after 1570, though even the mines of Potosi had been discovered more
than twenty years before.
From 1595 to 1620, both inclusive, the average price of the quarter
of nine bushels of the best wheat at Windsor market, appears from the
accounts of Eton College, to have been 27. Is. 6d. From which sum,
neglecting the fraction, and deducting a ninth, or 45. 71d., the price of
the quarter of eight bushels comes out to have been 17. 16s. 10}d. And
from this sum, neglecting likewise the fraction , and deducting a ninth,
or 4s. 1d. , for the difference between the price of the best wheat and
that of the middle wheat, the price of the middle wheat comes out to
have been about 17. 12s. 8d. , or about six ounces and one-third of ar
ounce of silver.
From 1621 to 1636 both inclusive, the average price of the same
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 167

measure of the best wheat at the same market, appears, from the same
accounts, to have been 27. 10s.; from which, making the like deductions
as in the foregoing case, the average price of the quarter of eight
bushels of middle wheat comes out to have been 17. 19s. 6d., or about
seven ounces and two-thirds of an ounce of silver.

THIRD PERIOD.- Between 1630 and 1640, or about 1636, the effect
of the discovery of the mines of America in reducing the value of silver,
appears to have been completed, and the value of that metal seems
never to have sunk lower in proportion to that of corn than it was
about that time. It seems to have risen somewhat in the course of the
present century, and it had probably begun to do so even some time
before the end of the last.
From 1637 to 1700, both inclusive, being the sixty-four last years of
the last century, the average price of the quarter of nine bushels of the
best wheat at Windsor market, appears, from the same accounts, to
have been 27. IIS. old.; which is only Is. old. dearer than it had been
during the sixteen years before. But in the course of these sixty-four
years there happened two events which must have produced a much
greater scarcity of corn than what the course of the seasons would
otherwise have occasioned, and which, therefore, without supposing
any further reduction in the value of silver, will much more than ac-
count for this very small enhancement of price.
The first of these events was the civil war, which, by discouraging
tillage and interrupting commerce, must have raised the price of corn
much above what the course of the seasons would otherwise have oc-
casioned. It must have had this effect more or less at all the different
markets in the kingdom, but particularly at those in the neighbourhood
of London, which require to be supplied from the greatest distance.
In 1648, accordingly, the price of the best wheat at Windsor market,
appears, from the same accounts, to have been 47. 5s. , and in 1649 to
to have been 47. the quarter of nine bushels. The excess of those two
years above 27. Ios. (the average price of the sixteen years preceding
1637) is 37. 5s.; which, divided among the sixty-four last years of the
last century, will alone very nearly account for that small enhancement
of price which seems to have taken place in them. These, however,
though the highest, are by no means the only high prices which seem
to have been occasioned by the civil wars.
The second event was the bounty upon the exportation of corn.
granted in 1688. * The bounty, it has been thought by many people, by
encouraging tillage, may in a long course of years, have occasioned a
greater abundance, and consequently a greater cheapness of corn in
the home-market, than what would otherwise have taken place there.
* See note on Corn Laws in Appendix.
168 BOUNTY ON EXPORTATION OF GRAIN. DEBASED COIN.

How far the bounty could produce this effect at any time, I shall
examine hereafter ; I shall only observe at present, that between 1688
and 1700, it had not time to produce any such effect. During this short
period its only effect must have been, by encouraging the exportation
of the surplus produce of every year, and thereby hindering the
abundance of one year from compensating the scarcity of another, to
raise the price in the home-market. The scarcity which prevailed in
England from 1693 to 1699, both inclusive, though no doubt principally
owing to the badness of the seasons, and, therefore, extending through
a considerable part of Europe, must have been somewhat enhanced by
the bounty. In 1699, accordingly, the further exportation of corn was
prohibited for nine months.
There was a third event which occurred in the course of the same
period, and which, though it could not occasion any scarcity of corn,
nor perhaps any augmentation in the real quantity of silver which was
usually paid for it, must necessarily have occasioned some augmentation
in the nominal sum. This event was the great debasement of the
silver coin, by clipping and wearing. This evil had begun in the reign
of Charles II. and had gone on continually increasing till 1695 ; at
which time, as we may learn from Mr. Lowndes, the current silver coin
was, at an average, near five-and-twenty per cent. below its standard
value. But the nominal sum which constitutes the market-price of
every commodity is necessarily regulated, not so much by the quantity
of silver which, according to the standard, ought to be contained in it,
as by that which, it is found by experience, actually is contained in it.
This nominal sum, therefore, is necessarily higher when the coin is
much debased by clipping and wearing, than when near to its proper
standard value.
In the course of the present century, the silver coin has not at any
time been more below its standard weight than it is at present. But
though very much defaced, its value has been kept up by that of the
gold coin for which it is exchanged. For though before the late re-
coinage the gold coin was a good deal defaced too , it was less so than
the silver. In 1695 , on the contrary, the value of the silver coin was
not kept up by the gold coin ; a guinea then commonly exchanging for
thirty shillings of the worn and clipt silver. Before the late recoinage
of the gold, the price of silver bullion was seldom higher than five
shillings and seven-pence an ounce, which is but five- pence above the
mint price. But in 1695, the common price of silver bullion was six
shillings and five-pence an ounce,* which is fifteen-pence above the
mint price. Even before the late recoinage of the gold, therefore, the
coin, gold and silver together, when compared with silver bullion, was
not supposed to be more than eight per cent. below its standard value
In 1695, on the contrary, it had been supposed to be near five-and-
* Lowndes's Essay on the Silver Coin, p. 68.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 169
&
twenty per cent. below that value. But in the beginning of the present
century, that is, immediately after the great recoinage in King
' William's time, the greater part of the current silver coin must have
been still nearer to its standard weight than it is at present. In the
course of the present century too there has been no great public
calamity, such as the civil war, which could either discourage tillage,
or interrupt the interior commerce of the country. And though the
bounty which has taken place through the greater part of this century,
must always raise the price of corn somewhat higher than it otherwise
would be in the actual state of tillage, yet as in the course of this
century the bounty has had full time to produce all the good effects
commonly imputed to it, to encourage tillage, and thereby to increase
the quantity of corn in the home market, it may, upon the principles
of a system which I shall explain and examine hereafter, be supposed
to have done something to lower the price of that commodity the one
way, as well as to raise it the other. It is by many people supposed
to have done more. In the sixty-four years of the present century
accordingly, the average price of the quarter of nine bushels of the
best wheat at Windsor market, appears, by the accounts of Eton College,
to have been 27. os. 61% d. , which is about ten shillings and sixpence, or
more than five-and-twenty per cent. cheaper than it had been during
the sixty-four last years of the last century ; and about nine shillings
and sixpence cheaper than it had been during the sixteen years pre-
ceding 1636, when the discovery of the abundant mines of America
may be supposed to have produced its full effect ; and about one
shilling cheaper than it had been in the twenty-six years preceding
1620, before that discovery can well be supposed to have produced its
full effect. According to this account, the average price of middle
wheat, during these sixty-four first years of the present century, comes
out to have been about 17. 125. the quarter of eight bushels.
The value of silver, therefore, seems to have risen somewhat in pro-
portion to that of corn during the course of the present century, and it
had probably begun to do so some time before the end of the last.
In 1687, the price of the quarter of nine bushels of the best wheat at
Windsor market was 17. 5s. 2d. the lowest price at which it had ever
been from 1595.
In 1688, Mr. Gregory King, a man famous for his knowledge in
matters of this kind, estimated the average price of wheat in years of
moderate plenty to be to the grower 3s. 6d. the bushel, or eight-and-
twenty shillings the quarter. The grower's price I understand to be
the same with what is sometimes called the contract price, or the price
at which a farmer contracts for a certain number of years to deliver a
certain quantity of corn to a dealer. As a contract of this kind saves
the farmer the expense and trouble of marketing, the contract price is
generally lower than what is supposed to be the average market price.
170 OPERATION OF THE BOUNTY IN RAISING PRICE OF GRAIN.

Mr. King had judged eight-and-twenty shillings the quarter to be at

that time the ordinary contract price in years of moderate plenty.
Before the scarcity occasioned by the late extraordinary course of bad
seasons, it was, I have been assured, the ordinary contract price in all
common years.
In 1688 was granted the parliamentary bounty upon the exportation
of corn . The country gentlemen, who then composed a still greater
proportion of the legislature than they do at present, had felt that the
money price of corn was falling. The bounty was an expedient to
raise it artificially to the high price at which it had frequently been
sold in the times of Charles I. and II. It was to take place, therefore,
till wheat was so high as forty-eight shillings the quarter ; that is
twenty shillings, or §ths dearer than Mr. King had in that very year
estimated the grower's price to be in times of moderate plenty. If his
calculations deserve any part of the reputation which they have ob-
tained very universally, eight-and-forty shillings the quarter was a price
which, without some such expedient as the bounty, could not at that
time be expected, except in years of extraordinary scarcity. But the
government of King William was not then fully settled. It was in no con-
dition to refuse anything to the country gentlemen, from whom it was at
that very time soliciting the first establishment of the annual land-tax.
The value of silver, therefore, in proportion to that of corn, had pro-
bably risen somewhat before the end of the last century ; and it seems
to have continued to do so during the course of the greater part of the
present, though the necessary operation of the bounty must have
hindered that rise from being so sensible as it otherwise would have
been in the actual state of tillage.
In plentiful years the bounty, by occasioning an extraordinary
exportation, necessarily raises the price of corn above what it other-
wise would be in those years. To encourage tillage, by keeping up the
price of corn even in the most plentiful years, was the avowed end of
the institution.
In years of great scarcity, indeed, the bounty has generally been
suspended. It must, however, have had some effect upon the prices of
many of those years. By the extraordinary exportation which it
occasions in years of plenty, it must frequently hinder the plenty of
one year from compensating the scarcity of another.
Both in years of plenty and in years of scarcity, therefore, the bounty
raises the price of corn above what it naturally would be in the actual
state of tillage. If, during the sixty-four first years of the present
century, therefore, the average price has been lower than during the
sixty-four last years of the last century, it must, in the same state of
tillage, have been much more so, had it not been for this operation of
the bounty.
But without the bounty, it may be said, the state of tillage would not
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 171

have been the same. What may have been the effects of this insti-
tution upon the agriculture of the country, I shall endeavour to explain
hereafter, when I come to treat particularly of bounties. I shall only
observe at present, that this rise in the value of silver, in proportion to
that of corn, has not been peculiar to England . It has been observed
to have taken place in France during the same period , and nearly in
the same proportion too, by three very faithful, diligent, and laborious
collectors of the prices of corn, Mr. Duprè de St. Maur, Mr. Messance ,
and the author of the Essay on the Police of Grain. But in France,
till 1764, the exportation of grain was by law prohibited ; and it is
somewhat difficult to suppose, that nearly the same diminution of price
which took place in one country, notwithstanding this prohibition ,
should in another be owing to the extraordinary encouragement given
by it to exportation.
It would be more proper, perhaps, to consider this variation in the
average money price of corn as the effect rather of some gradual rise
in the real value of silver in the European market, than of any fall in
the real value of corn. Corn, it has already been observed, is at distant
periods of time a more accurate measure of value than either silver or
perhaps any other commodity. When, after the discovery of the
abundant mines in America, corn rose to three and four times its former
money price, this change was universally ascribed, not to any rise in
the real value of corn, but to a fall in the real value of silver. If during
the sixty-four first years of the present century, therefore, the average
money price of corn has fallen somewhat below what it had been
during the greater part of the last century, we should in the same
manner impute this change, not to any fall in the real value of corn,
but to some rise in the real value of silver in the European market.
79
The high price of corn during these ten or twelve years past,'
indeed, has occasioned a suspicion that the real value of silver still
continues to fall in the European market. This high price of corn,
however, seems evidently to have been the effect of the extraordinary
unfavourableness of the seasons, and ought therefore to be regarded,
not as a permanent, but as a transitory and occasional event. The
seasons for these ten or twelve years past have been unfavourable
through the greater part of Europe ; and the disorders of Poland have
very much increased the scarcity in all those countries, which, in dear
years, used to be supplied from that market. So long a course of bad
seasons, though not a very common event, is by no means a singular
one ; and whoever has inquired much into the history of the prices of
corn in former times, will be at no loss to recollect several other
examples of the same kind. Ten years of extraordinary scarcity,
besides, are not more wonderful than ten years of extraordinary plenty.
The low price of corn from 1741 to 1750, both inclusive, may very we!
be set in opposition to its high price during these last eight or ten
172 VARIATION OF SEASONS AFFECTS AVERAGE PRICES OF GRAIN.

years. From 1741 to 1750, the average price of the quarter of nine
bushels of the best wheat at Windsor market, it appears from the
accounts of Eton College, was only 17. 13s. 93d. , which is nearly 6s. 3d
below the average price of the sixty-four first years of the present
century. The average price of the quarter of eight bushels of middle
wheat comes out, according to this account, to have been, during these
ten years, only 17. 6s. 8d.
Between 1741 and 1750, however, the bounty must have hindered
the price of corn from falling so low in the home market as it naturally
would have done. During these ten years the quantity of all sorts of
grain exported, it appears from the custom-house books, amounted to
no less than eight millions twenty-nine thousand one hundred and fifty-
six quarters one bushel. The bounty paid for this amounted to
1,514,9627. 17s. 44d. In 1749 accordingly, Mr. Pelham, at that time
prime minister, observed to the House of Commons, that for the three
years preceding, a very extraordinary sum had been paid as bounty for
the exportation of corn. He had good reason to make this observation,
and in the following year he might have had still better. In that single
year the bounty paid amounted to no less than 324,1767. 10s. 6d.
(Tract iii. on the Corn Trade. ) It is unnecessary to observe how much
this forced exportation must have raised the price of corn above what it
otherwise would have been in the home market.
At the end of the accounts annexed to this chapter the reader will
find the particular account of those ten years separated from the rest.
He will find there too the particular account of the preceding ten years,
of which the average is likewise below, though not much below, the
general average of the sixty-four first years of the century. The year
1740, however, was a year of extraordinary scarcity. These twenty
years preceding 1750, may very well be set in opposition to the twenty
preceding 1770. As the former were a good deal below the general
average of the century, notwithstanding the intervention of one or
two dear years, so the latter have been a good deal above it, not-
withstanding the intervention of one or two cheap ones, of 1759, for
example. If the former have not been as much below the general
average, as the latter have been above it, we ought probably to impute
it to the bounty. The change has evidently been too sudden to be
ascribed to any change in the value, which is always slow and gradual.
The suddenness of the effect can be accounted for only by a cause
which can operate suddenly, the accidental variation of the seasons.
The money price of labour in Great Britain has, indeed, risen during
the course of the present century. This, however, seems to be the
effect, not so much of any diminution in the value of silver in the
European market, as of an increase in the demand for labour in Great
Britain, arising from the great and almost universal prosperity of the
country. In France, a country not altogether so prosperous, the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 173

money price of labour has, since the middle of the last century, been
observed to sink gradually with the average money price of corn.
Both in the last century and in the present, the day wages of common
labour are there said to have been pretty uniformly about the twentieth
part of the average price of the septier of wheat, a measure which
contains a little more than four Winchester bushels. In Great Britain
the real recompense of labour, it has already been shown, the real quan-
tities of the necessaries and conveniencies of life which are given to
the labourer, has increased considerably during the course of the pre-
sent century. The rise in its money price seems to have been the
effect, not of any diminution ofthe value of silver in the general market
of Europe, but of a rise in the real price of labour in the particular
market of Great Britain, owing to the peculiarly happy circumstances
of the country.
For some time after the first discovery of America, silver would con-
tinue to sell at its former, or not so much below its former price. The
profits of mining would for some time be very great, and much above
their natural rate. Those who imported that metal into Europe, how-
ever, would soon find that the whole annual importation could not be
disposed of at this high price. Silver would gradually exchange for a
smaller and a smaller quantity of goods. Its price would sink gradu-
ally lower and lower, till it fell to its natural price ; or to what was just
sufficient to pay, according to their natural rates, the wages of the
labour, the profits of the stock, and the rent of the land, which must
be paid in order to bring it from the mine to the market. In the
greater part of the silver mines of Peru, the tax of the King of Spain,
amounting to a tenth of the gross produce, eats up, it has already
been observed, the whole rent of the land. This tax was originally a
half; it soon afterwards fell to a third, then to a fifth, and at last to a
tenth, at which rate it still continues. In the greater part of the silver
mines of Peru, this, it seems, is all that remains, after replacing the
stock of the undertaker of the work, together with its ordinary profits ;
and it seems to be universally acknowledged that these profits, which
were once very high, are now as low as they can well be, consistently
with carrying on their works.
The tax of the King of Spain was reduced to a fifth part of the
registered silver in 1504 (Solorzano, vol. ii.) , one-and-forty years before
1545, the date of the discovery of the mines of Potosi. In the course
of ninety years, or before 1636, these mines, the most fertile in all
Americas had time sufficient to produce their full effect, or to reduce the
value of silver in the European market as low as it could well fall, while
it continued to pay this tax to the King of Spain. Ninety years is time
sufficient to reduce any commodity, of which there is no monopoly, to its
natural price, or to the lowest price at which, while it pays a particular
tax, it can continue to be sold for any considerable time together.
174 SETTLEMENT OF THE AMERICAN COLONIES MAINTAIN PRICES.

The price of silver in the European market might perhaps have fallen
still lower, and it might have become necessary either to reduce the
tax upon it, not only to one-tenth, as in 1736, but to one-twentieth, in
the same manner as that upon gold, or to give up working the greater
part of the American mines which are now wrought. The gradual
increase of the demand for silver, or the gradual enlargement of the
market for the produce of the silver mines of America, is probably
the cause which has prevented this from happening, and which has not
only kept up the value of silver in the European market, but has per-
haps even raised it somewhat higher than it was about the middle of
the last century.
Since the first discovery of America, the market for the produce of
its silver mines has been growing gradually more and more extensive.
First. The market of Europe has become gradually more and more
extensive. Since the discovery of America, the greater part of Eu-
rope has been much improved. England, Holland, France, and Ger-
many, even Sweden, Denmark, and Russia have all advanced con-
siderably, both in agriculture and in manufactures. Italy seems not to
have gone backwards. The fall of Italy preceded the conquest of
Peru. Since that time it seems rather to have recovered a little.
Spain and Portugal, indeed , are supposed to have gone backwards.
Portugal, however, is but a very small part of Europe, and the declension
of Spain is not, perhaps, so great as is commonly imagined. In the
beginning of the sixteenth century Spain was a very poor country, even
in comparison with France, which has been so much improved since
that time. It was the well-known remark of the Emperor Charles V. ,
who had travelled so frequently through both countries, that everything
abounded in France, but that everything was wanting in Spain. The
increasing produce.of the agriculture and manufactures of Europe
must necessarily have required a gradual increase in the quantity of
silver coin to circulate it ; and the increasing number of wealthy
individuals must have required the like increase in the quantity of their
plate and other ornaments of silver.
Secondly, America is itself a new market for the produce of its own
silver mines ; and as its advances in agriculture, industry, and popula-
ion, are much more rapid than those of the most thriving countries in
Europe, its demand must increase much more rapidly. The English
colonies are altogether a new market, which partly for coin and partly
for plate, requires a continually augmenting supply of silver through a
great continent where there never was any demand before. The
greater part too of the Spanish and Portuguese colonies are altogether
new markets. New Granada, the Yucatan, Paraguay, and the Brazils
were, before discovered by the Europeans, inhabited by savage nations,
who had neither arts nor agriculture. A considerable degree of both
has now been introduced into all of them. Even Mexico and Peru,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 175

though they cannot be considered as altogether new markets, are cer-

tainly much more extensive ones than they ever were before. After all
the wonderful tales which have been published concerning the splendid
state of those countries in ancient times, whoever reads, with any
degree of sober judgment, the history of their first discovery and con-
quest, will evidently discern that, in arts, agriculture, and commerce,
their inhabitants were much more ignorant than the Tartars of the
Ukraine are at present. Even the Peruvians, the more civilized nation
of the two, though they made use of gold and silver as ornaments,
had no coined money of any kind. Their whole commerce was
carried on by barter, and there was accordingly scarce any division of
labour among them. Those who cultivated the ground were obliged to
build their own houses, to make their own household furniture, their
own clothes, shoes, and instruments of agriculture. The few artificers
among them are said to have been all maintained by the sovereign, the
nobles, and the priests, and were probably their servants or slaves.
All the ancient arts of Mexico and Peru have never furnished one
single manufacture to Europe. The Spanish armies, though they
scarce ever exceeded five hundred men, and frequently did not amount
to halfthat number, found almost everywhere great difficulty in procur-
ing subsistence. The famines which they are said to have occasioned
almost wherever they went, in countries too, which at the same time
are represented as very populous and well cultivated, sufficiently
demonstrate that the story of this populousness and high cultivation is
in a great measure fabulous. The Spanish colonies are under a govern-
ment in many respects less favourable to agriculture, improvement,
and population, than that of the English colonies. They seem, how-
ever, to be advancing in all these much more rapidly than any country
in Europe. In a fertile soil and happy climate, the great abundance
and cheapness of land, a circumstance common to all new colonies, is,
it seems, so great. an advantage as to compensate many defects in
civil government. Frezier, who visited Peru in 1713, represents Lima
as containing between twenty-five and twenty-eight thousand inhabit
ants. Ulloa, who resided in the same country between 1740 and 1746,
represents it as containing more than fifty thousand. The difference
in their accounts of the populousness of several other principal towns
in Chili and Peru is nearly the same ; and as there seems to be no
reason to doubt of the good information of either, it marks an increase
which is scarce inferior to that of the English colonies. America,
therefore, is a new market for the produce of its own silver mines, of
which the demand must increase much more rapidly than that of the
most thriving country in Europe.
Thirdly, the East Indies is another market for the produce of the
silver mines of America, and a market which, from the time of the first
discovery of those mines, has been continually taking off a greater and
176 RISE AND PROGRESS OF TRADE WITH INDIA.

agreater quantity of silver. Since that time, the direct trade between
America and the East Indies, which is carried on by means of the
Acapulco ships, has been continually augmenting, and the indirect
intercourse by the way of Europe has been augmenting in a still
greater proportion . During the sixteenth century, the Portuguese
were the only European nation who carried on any regular trade to
the East Indies. In the last years of that century the Dutch began to
encroach upon this monopoly, and in a few years expelled them from
their principal settlements in India. During the greater part of the
last century those two nations divided the most considerable part of
the East India trade between them ; the trade of the Dutch continually
augmenting in a still greater proportion than that of the Protuguese
declined. The English and French carried on some trade with India
in the last century, but it has been greatly augmented in the course of
the present. The East India trade of the Swedes and Danes began in
the course of the present century. Even the Muscovites now trade
regularly with China by a sort of caravans which go over land through
Siberia and Tartary to Pekin. The East India trade of all these
nations, if we except that of the French, which the last war had well
nigh annihilated, has been almost continually augmenting. The in-
creasing consumption of East India goods in Europe is, it seems, so
great, as to afford a gradual increase of employment to them all. Tea,
for example, was a drug very little used in Europe before the middle of
the last century. At present the value of the tea annually imported by
the English East India Company, for the use of their own countrymen,
amounts to more than a million and a half a year ; and even this is not
enough ; a great deal more being constantly smuggled into the country
from the ports of Holland, from Gottenburg in Sweden, and from the
coast of France, too, as long as the French East India Company was
81
in prosperity. The consumption of the porcelain of China, of the
spiceries of the Moluccas, of the piece goods of Bengal, and of the
innumerable other articles, has increased very nearly in a like propor-
tion. The tonnage, accordingly, of all the European shipping employed
in the East India trade at any one time during the last century, was
not, perhaps, much greater than that of the English East India Com-
pany before the late reduction of their shipping, r
But in the East Indies, particularly in China and Hindostan, the
value of the precious metals, when the Europeans first began to tradɩ
to those countries, was much higher than in Europe ; and it still con-
tinues to be so. In rice countries, which generally yield two, some-
imes three crops in the year, each of them more plentiful than any
common crop of corn, the abundance of food must be much greater
than in any corn country of equal extent. Such countries are accord-
ingly much more populous. In them, too, the rich, having a greater
superabundance of food to dispose of beyond what they themselves
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 177

tan consume, have the means of purchasing a much greater quantity

of the labour of other people. The retinue of a grandee in China or
Hindostan accordingly is, by all accounts, much more numerous and
splendid than that of the richest subjects in Europe. The same super-
abundance of food , of which they have the disposal, enables them to
give a greater quantity of it for all those singular and rare productions
which nature furnishes but in very small quantities ; such as the pre-
cious metals and the precious stones, the great objects of the competi-
tion of the rich. Though the mines, therefore, which supplied the
Indian market had been as abundant as those which supplied the
European, such commodities would naturally exchange for a greater
quantity of food in India than in Europe. But the mines which sup-
plied the Indian market with the precious metals seem to have been a
good deal less abundant, and those which supplied it with the precious
stones a good deal more so, than the mines which supplied the Euro-
pean. The precious metals, therefore, would naturally exchange in
India for somewhat a greater quantity of the precious stones, and for
a much greater quantity of food than in Europe. The money price of
diamonds, the greatest of all superfluities, would be somewhat lower,
and that of food, the first of all necessaries, a great deal lower in the
one country than in the other. But the real price of labour, the real
quantity of the necessaries of life which is given to the labourer, it has
already been observed, is lower both in China and Hindostan, the two
great markets of India, than it is through the greater part of Europe.
The wages of the labourer will there purchase a smaller quantity of
food ; and as the money price of food is much lower in India than in
Europe, the money price of labour is there lower upon a double
account ; upon account both of the small quantity of food which it will
purchase, and of the low price of that food. But in countries of equal
art and industry, the money price of the greater part of manufacture
will be in proportion to the money price of labour ; and in manufac
turing art and industry, China and Hindostan, though inferior, seem
not to be much inferior to any part of Europe. The money price of
the greater part of manufactures, therefore, will naturally be much
lower in those great empires than it is anywhere in Europe. Through
the greater part of Europe, too, the expense of land-carriage increases
very much both the real and nominal price of most manufactures. It
costs more labour, and therefore more money, to bring first the mate-
rials, and afterwards the complete manufacture to market. In China
and Hindostan, the extent and variety of inland navigations save the
greater part of this labour, and consequently of this money, and thereby
reduce still lower both the real and the nominal price of the greater
part of their manufactures. Upon all these accounts, the precious
metals are a commodity which it always has been, and still continues
to be, extremely advantageous to carry from Europe to India. 2 There
12
 178 THE MEDIUM OF EXCHANGE BETWEEN EUROPE AND INDIA.

is scarce any commodity which brings a better price there ; or which,

in proportion to the quantity of labour and commodities which it costs
in Europe, will purchase or command a greater quantity of labour and
commodities in India. It is more advantageous, too, to carry silver
thither than gold ; because in China, and the greater part of the other
markets of India, the proportion between fine silver and fine gold is
but as ten, or at most as twelve, to one ; whereas in Europe it is as
fourteen or fifteen to one. In China, and the greater part of the other
markets of India, ten, or at most twelve, ounces of silver will purchase
an ounce of gold : in Europe it requires from fourteen to fifteen ounces
In the cargoes, therefore, of the greater part of European ships which
sail to India, silver has generally been one of the most valuable articles.
It is the most valuable article in the Acapulco ships which sail to
Manilla. The silver of the new continent seems in this manner to be
one of the principal commodities by which the commerce between the
two extremities of the old one is carried on, and it is by means of it, in
a great measure, that those distant parts of the world are connected
with one another. 83
In order to supply so very widely extended a market, the quantity of
silver annually brought from the mines must not only be sufficient to
support that continual increase both of coin and of plate which is re-
quired in all thriving countries, but to repair that continual waste and
consumption of silver which takes place in all countries where that
precious metal is used.
The continual consumption of the precious metals in coin by wear-
ing, and in plate both by wearing and cleaning, is very sensible ; and
in commodities of which the use is so very widely extended, would
alone require a very great annual supply. The consumption of those
metals in some particular manufactures, though it may not perhaps be
greater upon the whole than this gradual consumption, is, however,
much more sensible, as it is much more rapid. In the manufactures
of Birmingham alone, the quantity of gold and silver annually em-
ployed in gilding and plating, and thereby disqualified from ever after-
wards appearing in the shape of those metals, is said to amount to
more than fifty thousand pounds sterling. We may from thence form
some notion how great must be the annual consumption in all the
ifferent parts of the world, either in manufactures of the same kind
with those of Birmingham, or in laces, embroideries, gold and silver
stuffs, the gilding of books, furniture, etc. A considerable quantity,
too, must be annually lost in transporting those metals from one place
to another both by sea and by land. In the greater part of the govern-
ments of Asia, besides, the almost universal custom of concealing
treasures in the bowels of the earth, of which the knowledge frequently
dies with the person who makes the concealment, must occasion the
loss of a still greater quantity.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 179

The quantity of gold and silver imported at both Cadiz and Lisbon
(including not only what comes under register, but what may be sup、
posed to be smuggled) amounts, according to the best acounts, te
about six millions sterling a year.
According to Mr. Meggens the annual importation of the precious
metals into Spain, at an average of six years, viz. from 1748 to 1753,
both inclusive ; and into Portugal, at an average of seven years, viz.
om 1747 to 1753, both inclusive ; amounted in silver to 1,101,107
pounds weight ; and in gold to 49,940 pounds weight. The silver at
sixty-two shillings the pound Troy, amounts to 3,413,431%. 10s. sterling.
The gold, at forty-four guineas and a half the pound Troy, amounts to
2,333,446%. 14s. sterling. Both together amount to 5,746,878 %. 4s. ster-
ling. The account of what was imported under register, he assures us
is exact. He gives us the detail of the particular places from which
the gold and silver were brought, and of the particular quantity of
each metal which, according to the register, each of them afforded.
He makes an allowance too for the quantity of each metal which he
supposes may have been smuggled. The great experience of this
judicious merchant renders his opinion of considerable weight.
According to the eloquent, and sometimes well-informed author of
the ' Philosophical and Political History of the Establishment of the
' Europeans in the two Indies,' the annual importation of registered
gold and silver into Spain, at an average of eleven years ; viz. from
1754 to 1764, both inclusive ; amounted to 13,984,1853 piastres of ten
reals. On account of what may have been smuggled, however, the
whole annual importation, he supposes, may have amounted to seven-
teen millions of piastres ; which, at 4s. 6d. the piastre, is equal to
3,825,000l. sterling. He gives the detail too of the particular places
from which the gold and silver were brought, and of the particular
quantities of each metal which , according to the register, each of them
afforded. He informs us too, that if we were to judge of the quantity
of gold annually imported from the Brazils into Lisbon by the amount
of the tax paid to the King of Portugal, which it seems is one-fifth of
the standard metal, we might value it at eighteen millions of cruzadoes,
or forty-five millions of French livres, equal to about two millions ster、
ling. On account of what may have been smuggled, however, we may
safely, he says, add to this sum an eighth more, or 250,000l. sterling,
so that the whole will amount to 2,250,000l. sterling. According to
this account, therefore, the whole annual importation of the precious
metals into both Spain and Portugal, amounts to about 6,075,000%.
sterling.
Several other very well authenticated though manuscript accounts,
* Postscript to the Universal Merchant, pp. 15 and 16. This was not printed till 1756, three
years after the publication of the book, which has never had a second edition, and is found
in few copies. It corrects several errors in the book,
1
180 ANNUAL CONSUMPTION OF GOLD, SILVER, COPPER, AND IRON.

I have been assured, agree, in making this whole annual importation

amount at an average to about six millions sterling ; sometimes a little
more, sometimes a little less.
The annual importation of the precious metals into Cadiz and
Lisbon, indeed, is not equal to the whole annual produce of the mines
of America. Some part is sent annually by the Acapulco ships to
Manilla ; some part is employed in the contraband trade which the
Spanish colonies carry on with those of other European nations ; and
some part, no doubt, remains in the country. The mines of America,
sesides, are by no means the only gold and silver mines in the world.
They are, however, so far the most abundant. The produce of all the
other mines which are known, is insignificant, it is acknowledged, ir
comparison with theirs ; and the far greater part of their produce, it is
likewise acknowledged, is annually imported into Cadiz and Lisbon.
But the consumption of Birmingham alone, at the rate of fifty thou-
sand pounds a year, is equal to the hundred-and-twentieth part of
this annual importation at the rate of six millions a year. The whole
annual consumption of gold and silver, therefore, in all the different
countries of the world where those metals are used, may perhaps be
nearly equal to the whole annual produce. The remainder may be no
more than sufficient to supply the increasing demand of all thriving
countries. It may even have fallen so far short of this demand as
to raise the price of those metals in the European market. "
The quantity of brass and iron annually brought from the mine to
the market is out of all proportion greater than that of gold and silver.
We do not, however, upon this account, imagine that those coarse
metals are likely to multiply beyond the demand, or to become gra-
dually cheaper and cheaper. Why should we imagine that the pre-
cious metals are likely to do so ? The coarse metals, indeed, though
harder, are put to much harder uses, and, as they are of less value,
'ess care is employed in their preservation. The precious metals,
however, are not necessarily immortal any more than they, but are
liable to be lost, wasted, and consumed in a variety of ways.
The price of all metals, though liable to slow and gradual variations,
varies less from year to year than that of almost any other part of the
rude produce of land ; and the price of the precious metals is even
less liable to sudden variations than that of the coarse ones. The
durableness of metals is the foundation of this extraordinary steadi-
ness of price. The corn which was brought to market last year, will
be all or almost all consumed long before the end of this year. But
some part of the iron which was brought from the mine two or three
hundred years ago, may be still in use, and perhaps some part of the
gold which was brought from it two or three thousand years ago. The
different masses of corn which in different years must supply the con-
sumption of the world, will always be nearly in proportion to the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 181

respective produce of those different years. But the proportion be-

tween the different masses of iron which may be in use in two different
years, will be very little affected by any accidental difference in the
produce of the iron mines of those two years ; and the proportion
between the masses of gold will be still less affected by any such
difference in the produce of the gold mines. Though the produce of
the greater part of metallic mines, therefore, varies perhaps still
more from year to year than that of the greater part of corn-fields,
those variations have not the same effect upon the price of the one
species of commodities, as upon that of the other.

Variations in the Proportion between the respective Values of

Gold and Silver.
BEFORE the discovery of the mines of America, the value of fine
gold to fine silver was regulated in the different mints of Europe, be-
tween the proportions of one to ten and one to twelve ; that is, an
ounce of fine gold was supposed to be worth from ten to twelve ounces
of fine silver. About the middle of the last century it came to be re-
gulated between the proportions of one to fourteen and one to fifteen :
that is, an ounce of fine gold came to be supposed worth between four-
teen and fifteen ounces of fine silver. Gold rose in its nominal value,
or in the quantity of silver which was given for it. Both metals sunk
in their real value, or in the quantity of labour which they could pur-
chase ; but silver sunk more than gold. Though both the gold and
silver mines of America exceeded in fertility all those which had ever
been known before, the fertility of the silver mines had, it seems, been
proportionably still greater than that of the gold ones.
The great quantities of silver carried annually from Europe to India,
have, in some of the English settlements, gradually reduced the value
of that metal in proportion to gold. In the mint of Calcutta, an
ounce of fine gold is supposed to be worth fifteen ounces of fine silver,
in the same manner as in Europe. In is in the mint perhaps rated
too high for the value which it bears in the market of Bengal. In
China, the proportion of gold to silver still continues as one to ten, or
one to twelve. In Japan, it is said to be as one to eight.
The proportion between the quantities of gold and silver annually
imported into Europe, according to Mr. Meggens's account, is as one
to twenty-two nearly ; that is, for one ounce of gold there are imported
a little more than twenty-two ounces of silver. The great quantity of
silver sent annually to the East Indies, reduces, he supposes, the
quantities of those metals which remain in Europe to the proportion of
one to fourteen or fifteen, the proportion of their values. The propor-
tion between their values, he seems to think, must necessarily be the

1
182 IN THE COIN OF MANY COUNTRIES THE SILVER PREPONDERATES.

same as that between their quantities, and would therefore be as one

to twenty-two, were it not for this greater exportation of silver.
But the ordinary proportion between the respective values of two
commodities is not necessarily the same as that between the quantities
85
of them which are commonly in the market. The price of an ox,
reckoned at ten guineas, is about threescore times the price of a lamb,
reckoned at 3s. 6d. It would be absurd, however, to infer from thence,
that there are commonly in the market three-score lambs for one ox ;
and it would be just as absurd to infer, because an ounce of gold
will commonly purchase from fourteen to fifteen ounces of silver, that
there are commonly in the market only fourteen or fifteen ounces of
silver for one ounce of gold.
The quantity of silver commonly in the market, it is probable, is
much greater in proportion to that of gold, than the value of a certain
quantity of gold is to that of an equal quantity of silver. The whole
quantity of a cheap commodity brought to market, is commonly not
only greater, but of greater value, than the whole quantity of a dear
one. The whole quantity of bread annually brought to market, is not
only greater, but of greater value than the whole quantity of butcher's-
meat ; the whole quantity of butcher's-meat, than the whole quantity
of poultry ; and the whole quantity of poultry, than the whole quantity
of wild fowl. There are so many more purchasers for the cheap than
for the dear commodity, that, not only a greater quantity of it, but a
greater value, can commonly be disposed of. The whole quantity,
therefore, of the cheap commodity must commonly be greater in pro-
portion to the whole quantity of the dear one, than the value of a
certain quantity of the dear one, is to the value of an equal quantity of
the cheap one. When we compare the precious metals with one
another, silver is a cheap and gold a dear commodity. We ought
naturally to expect, therefore, that there should always be in the
market, not only a greater quantity, but a greater value of silver than
of gold. Let any man, who has a little of both, compare his own silver
with his gold plate, and he will probably find , that, not only the quantity,
but the value of the former greatly exceeds that of the latter. Many
people, besides, have a good deal of silver who have no gold plate,
which, even with those who have it, is generally confined to watch-
cases, snuff-boxes, and such like trinkets, of which the whole amount
is seldom of great value. In the British coin, indeed, the value of the
gold preponderates greatly, but it is not so in that of all countries. In
the coin of some countries the value of the two metals is nearly equal.
In the Scotch coin, before the union with England, the gold prepon-
derated very little, though it did somewhat,* as it appears by the
accounts of the mint. In the coin of many countries the silver pre-
ponderates. In France, the largest sums are commonly paid in that
* Ruddiman's Preface to Anderson's Diplomata, etc., Scotia .
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 183

metal, and it is there difficult to get more gold than what is necessary
to carry about in your pocket. The superior value, however, of the
silver plate above that of the gold, which takes place in all countries,
will much more than compensate the preponderancy of the gold coin
above the silver, which takes place only in some countries.
Though, in one sense of the word, silver always has been, and pro-
bably always will be, much cheaper than gold ; yet in another sense,
gold may, perhaps, in the present state of the Spanish market, be said
to be somewhat cheaper than silver. A commodity may be said to be
dear or cheap, not only according to the absolute greatness or small-
ness of its usual price, but according as that price is more or less above
the lowest for which it is possible to bring it to market for any con-
siderable time together. This lowest price is that which barely
replaces, with a moderate profit, the stock which must be employed
in bringing the commodity thither. It is the price which affords
nothing to the landlord, of which rent makes not any component part,
but which resolves itself altogether into wages and profit. But, in the
present state of the Spanish market, gold is certainly somewhat nearer
to this lowest price than silver. The tax of the King of Spain upon
gold is only one-twentieth part of the standard metal, or five per cent. ;
whereas his tax upon silver amounts to one-tenth part of it, or to ten
per cent. In these taxes too, it has already been observed , consists
the whole rent of the greater part of the gold and silver mines of
Spanish America ; and that upon gold is still worse paid than that
upon silver. The profits of the undertakers of gold mines too, as they
more rarely make a fortune, must, in general, be still more moderate
than those of the undertakers of silver mines. The price of Spanish
gold, therefore, as it affords both less rent and less profit, must, in the
Spanish market, be somewhat nearer to the lowest price for which it is
possible to bring it thither, than the price of Spanish silver. When all
expenses are computed, the whole quantity of the one metal, it would
seem, cannot, in the Spanish market, be disposed of so advantageously
as the whole quantity of the other. The tax, indeed, of the King of
Portgual upon the gold of the Brazils, is the same with the ancient tax
ofthe King of Spain upon the silver of Mexico and Peru ; or one-fifth
part ofthe standard metal. It may, therefore, be uncertain whether to
the general market of Europe the whole mass of American gold comes
at a price nearer to the lowest for which it is possible to bring it thither,
than the whole mass of American silver.
The price of diamonds and other precious stones, may, perhaps, be
still nearer to the lowest price at which it is possible to bring them to
market, than even the price of gold.
Though it is not very probable, that any part of a tax which is not
only imposed upon one of the most proper subjects of taxation, a mere
luxury and superfluity, but which affords so verv important a revenue,
184 WHETHER THE VALUE OF SILVER HAS RISEN OR NOT.

as the tax upon silver, will ever be given up as long as it is possible to

pay it ; yet the same impossibility of paying it, which in 1736 made it
necessary to reduce it from one-fifth to one-tenth, may in time make it
necessary to reduce it still further ; in the same manner as it made it
necessary to reduce the tax upon gold to one-twentieth. That the
silver mines of Spanish America, like all other mines, become gradually
more expensive in the working, on account of the greater depths at
which it is necessary to carry on the works, and of the greater expense
of drawing out the water and of supplying them with fresh air at those
depths, is acknowledged by everybody who may have inquired into the
state of those mines.
These causes, which are equivalent to a growing scarcity of silver
(for a commodity may be said to grow scarcer when it becomes more
difficult and expensive to collect a certain quantity of it), must, in time,
produce one or other of the three following events. The increase of
the expense must either, first be compensated altogether by a propor-
tionable increase in the price of the metal ; or, secondly, it must be
compensated altogether by a proportionable diminution of the tax upon
silver ; or, thirdly, it must be compensated partly by the one, and partly
by the other of those two expedients. This third event is very possible.
As gold rose in its price in proportion to silver, notwithstanding a great
diminution of the tax upon gold, so silver might rise in its price in
proportion to labour and commodities, notwithstanding an equal dimi-
nution of the tax upon silver.
Such successive reductions of the tax, however, though they may not
prevent altogether, must certainly retard, more or less, the rise of the
value of silver in the European market. In consequence of such
reductions, many mines may be wrought which could not be wrought
before, because they could not afford to pay the old tax ; and the
quantity of silver annually brought to market must always be some-
what greater, and, therefore, the value of any given quantity somewhat
less, than it otherwise would have been. In consequence of the reduc-
tion in 1736, the value of silver in the European market, though it may
not at this day be lower than before that reduction, is, probably, at
least ten per cent. lower than it would have been, had the Court of
Spain continued to exact the old tax.
That, notwithstanding this reduction, the value of silver has, during
the course of the present century, begun to rise somewhat in the Euro-
pean market, the facts and arguments which have been alleged above
dispose me to believe, or more properly to suspect and conjecture ; for
the best opinion which I can form upon this subject scarce, perhaps,
deserves the name of belief. The rise, indeed, sup, osing there has
been any, has hitherto been so very small, that after a that has been
said, it may, perhaps, appear to many people uncer、 in, not only
whether this event has actually taken place ; but whether the contrary
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 185

may not have taken place, or whether the value of silver may not still
continue to fall in the European market.
It must be observed, however, that whatever may be the supposed
annual importation of gold and silver, there must be a certain period
at which the annual consumption of those metals will be equal to that
annual importation. Their consumption must increase as their mass
increases, or rather in a much greater proportion. As their mass in-
creases, their value diminishes. They are more used, and less cared
for, and their consumption consequently increases in a greater propor.
tion than their mass. After a certain period, therefore, the annual
consumption of those metals must, in this manner, become equal to
their annual importation, provided that importation is not continually
increasing ; which at present is not supposed to be the case.
If, when the annual consumption has become equal to the annual
importation, the annual importation should gradually diminish , the
annual consumption may, for some time, exceed the annual importation.
The mass of those metals may gradually and insensibly diminish, and
their value gradually and insensibly rise, till the annual importation
becoming again stationary, the annual consumption will gradually and
insensibly accommodate itself to what that annual importation can
maintain.

Grounds ofthe Suspicion that the Value of Silver still continues to

decrease.
THE increase of the wealth of Europe, and the popular notion that, as
the quantity of the precious metals naturally increases with the in-
crease of wealth, so their value diminishes as their quantity increases,
may, perhaps, dispose many people to believe that their value still
continues to fall in the European market ; and the still gradually in-
creasing price of many parts of the rude produce of land may confirm
them still further in this opinion.
That that increase in the quantity of the precious metals, which
arises in any country from the increase of wealth, has no tendency to
diminish their value, I have endeavoured to show already. Gold and
silver naturally resort to a rich country, for the same reason that all
sorts of luxuries and curiosities resort to it ; not because they are
cheaper there than in poorer countries, but because they are dearer, or
because a better price is given for them. It is the superiority of price
which attracts them, and as soon as that superiority ceases, they
necessarily cease to go thither.
If you except corn and such other vegetables as are raised altogether
by human industry, that all other sorts of rude produce, cattle, poultry,
game of all kinds, the useful fossils and minerals of the earth, etc,
186 SOME ARTICLES OF PRODUCE WHICH CANNOT BE INCREASED.

naturally grow dearer as the society advances in wealth and improve-

ment, I have endeavoured to show already. Though such commodities,
therefore, come to exchange for a greater quantity of silver than before,
it will not from thence follow that silver has become really cheaper, or
will purchase less labour than before, but that such commodities have
become really dearer, or will purchase more labour than before. It is
not their nominal price only, but their real price, which rises in the
progress of improvement. The rise of their nominal price is the effect,
not of any degradation of the value of silver, but of the rise in their
real price.

Different Effects ofthe Progress ofImprovement upon three different

Sorts of Rude Produce.
THESE different sorts of rude produce máy be divided into three classes.
The first comprehends those which it is scarce in the power of human
industry to multiply at all. The second, those which it can multiply in
proportion to the demand. The third, those in which the efficacy of
industry is either limited or uncertain. In the progress of wealth and
improvement, the real price of the first may rise to any degree of ex-
travagance, and seems not to be limited by any certain boundary,
That of the second, though it may rise greatly, has, however, a certain
boundary beyond which it cannot well pass for any considerable time
together. That of the third , though its natural tendency is to rise in
the progress of improvement, yet in the same degree of improvement it
may sometimes happen even to fall, sometimes to continue the same,
and sometimes to rise more or less, according as different accidents
render the efforts of human industry, in multiplying this sort of rude
produce, more or less successful.

FIRST SORT.- The first sort of rude produce of which the price rises
in the progress of improvement, is that which it is scarce in the power
of human industry to multiply at all. It consists in those things which
ature produces only in certain quantities, and which being of a very
perishable nature, it is impossible to accumulate together the produce
of many different seasons. Such are the greater part of rare and
singular birds and fishes, many different sorts of game, almost all wild
fowl, all birds of passage in particular, as well as many other things.
When wealth and the luxury which accompanies it increase, the de-
mand for these is likely to increase with them, and no effort of human
industry may be able to increase the supply much beyond what it was
before this increase of the demand. The quantity of such commodities,
 :
SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 187

therefore, remaining the same, or nearly the same, while the competi-
tion to purchase them is continually increasing, their price may rise to
any degree of extravagance, and seems not to be limited by any certain
boundary. If woodcocks should become so fashionable as to sell for
twenty guineas a-piece, no effort of human industry could increase the
number of those brought to market much beyond what it is at present.
The high price paid by the Romans, in the time of their greatest
grandeur, for rare birds and fishes, may in this manner be easily ac-
counted for. These prices were not the effects of the low value of silver
in those times, but of the high value of such rarities and curiosities as
human industry could not multiply at pleasure. The real value of silver
'was higher at Rome, for some time before and after the fall of the re-
public, than it is through the greater part of Europe at present. Three
sestertii, equal to about sixpence sterling, was the price which the re
public paid for the modius or peck of the tithe wheat of Sicily. This
price, however, was probably below the average market price, the obli-
gation to deliver their wheat at this rate being considered as a tax upon
the Sicilian farmers. When the Romans, therefore, had occasion to
order more corn than the tithe of wheat amounted to, they were bound
by capitulation to pay for the surplus at the rate of four sestertii, or
eightpence sterling, the peck ; and this had probably been reckoned
the moderate and reasonable, that is, the ordinary or average contract
price of those times ; it is equal to about one-and-twenty shillings the
quarter. Eight-and-twenty shillings the quarter was, before the late
years of scarcity, the ordinary contract price of English wheat, which
in quality is inferior to the Sicilian, and generally sells for a lower price
in the European market. The value of silver, therefore, in those ancient
times, must have been to its value in the present, as three to four in-
versely ; that is, three ounces of silver would then have purchased the
same quantity of labour and commodities which four ounces will do at
present. When we read in Pliny, therefore, that Seius ( Lib. x. c. 29.)
bought a white nightingale, as a present for the Empress Agrippina, at
the price of six thousand sesterii, equal to about fifty pound of our
present money and that Asinius Celer (Lib. ix. c. 17.) purchased a
surmullet at the price of eight thousand sestertii, equal to about sixty-six
pounds thirteen shillings and fourpence of our present money ; the ex-
travagance of those prices, how much soever it may surprise us, is apt,
notwithstanding, to appear to us about one-third less than it really was.
Their real price, the quantity of labour and subsistence which was given
away for them, was about one-third more than their nominal price is
apt to express to us in the present times. Seius gave for the nightingale
the command of a quantity of labour and subsistence equal to what
667. 13s. 4d. would purchase in the present times ; and Asinius Celer
gave for the surmullet the command of a quantity equal to what
887. 175. 91d. would purchase. What occasioned the extravagance of
188 PRODUCE WHICH CAN BE INCREASED TO MEET THE DEMAND.

those high prices was, not so much the abundance of silver, as the
abundance of labour and subsistence, of which those Romans had the
disposal, beyond what was necessary for their own use. The quantity
of silver, of which they had the disposal, was a good deal less than
what the command of the same quantity of labour and subsistence
would have procured to them in the present times. 8°

SECOND SORT. -The second sort of rude produce of which the

price rises in the progress of improvement, is that which human indus-
try can multiply in proportion to the demand. It consists in those.
useful plants and animals, which, in uncultivated countries, nature pro-
duces with such profuse abundance that they are of little or no value,
and which, as cultivation advances, are therefore forced to give place
to some more profitable produce. During a long period in the progress
of improvement, the quantity of these is continually diminishing, while
at the same time the demand for them is continually increasing. Their
real value, therefore, the real quantity of labour which they will pur-
chase or demand gradually rises, till at last it gets so high as to render
them as profitable a produce as anything else which human industry
can raise upon the most fertile and best cultivated land. When it has
got so high it cannot well go higher. If it did, more land and more
industry would soon be employed to increase their quantity.
When the price of cattle for example, rises so high that it is as profit-
able to cultivate land in order to raise food for them, as in order to
raise food for man, it cannot well go higher. If it did, more corn land
would soon be turned into pasture. The extension of tillage by dimin-
ishing the quantity of wild pasture, diminishes the quantity of butcher's-
meat which the country naturally produces without labour or cultiva-
tion, and by increasing the number of those who have either corn, or,
what comes to the same thing, the price of corn, to give in exchange for
it, increases the demand. The price of butcher's-meat, therefore, and
consequently of cattle, must gradually rise till it gets so high that it
becomes as profitable to employ the most fertile and best cultivated
lands in raising food for them as in raising corn. But it must always
be late in the progress of improvement before tillage can be so far ex-
tended as to raise the price of cattle to its height ; and till it has got to
this height, if the country is advancing at all, their price must be con-
tinually rising. There are, perhaps, some parts of Europe in which the
price of cattle has not yet got to its height. It had not got to its height
in any part of Scotland before the union. Had the Scotch cattle been
always confined to the market of Scotland, in a country in which the
quantity of land which can be applied to no other purposes but the
feeding of cattle, is great in proportion to what can be applied to
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 189

other purposes, it is scarce possible perhaps, that their price could ever
have risen so high as to render it profitable to cultivate land for the sake
of feeding them. In England, the price of cattle, it has already been
observed, seems in the neighbourhood of London, to have got to its
height about the beginning of the last century ; but it was much later
probably before it got to it through the greater part of the remoter
counties ; in some of which perhaps, it may scarce yet have got to it.
Of all the different substances, however, which compose this second
sort of rude produce, cattle is perhaps, that of which the price, in the
progress of improvement, first rises to this height.
Till the price of cattle, indeed, has got to this height, it seems scarce
possible that the greater part even of those lands which are capable of
the highest cultivation, can be completely cultivated. In all farms too
distant from any town to carry manure from it, that is, in the far greater
part of those of every extensive country, the quantity of well- cultivated
land must be in proportion to the quantity of manure which the farm
itself produces ; and this again must be in proportion to the stock of
cattle which is maintained upon it. The land is manured either by
pasturing the cattle upon it or by feeding them in the stable, and from
thence carrying out their dung to it. But unless the price of the cattle
be sufficient to pay both the rent and profit of cultivated land, the far-
mer cannot afford to pasture them upon it, and he can still less afford
to feed them in the stable. It is with the produce of improved and
cultivated land only that cattle can be fed in the stable, because to
collect the scanty and scattered produce of waste and unimproved
lands would require too much labour and be too expensive. If the
price of the cattle, therefore, is not sufficient to pay for the produce of
improved and cultivated land when they are allowed to pasture it, that
price will be still less sufficient to pay for that produce when it must be
collected with a good deal of additional labour, and brought into the
stable to them. In these circumstances, therefore, no more cattle can
with profit be fed in the stable than what are necessary for tillage.
But these can never afford manure enough for keeping constantly in
good condition all the lands which they are capable of cultivating.
What they afford being insufficient for the whole farm, will naturally be
reserved for the lands to which it can be most advantageously or con-
veniently applied ; the most fertile, or those perhaps in the neighbour-
hood of the farm -yard. These, therefore, will be kept constantly in
good condition and fit for tillage. The rest will, the greater part of
them, be allowed to lie waste, producing scarce anything but some
miserable pasture, just sufficient to keep alive a few straggling, half-
starved cattle ; the farm, though much understocked in proportion to
what would be necessary for its complete cultivation, being very
frequently overstocked in proportion to its actual produce. A portion
ofthis waste land, however, after having been pastured in this wretched
190 ADVANTAGES REAPED BY SCOTLAND FROM THE UNION.

manner for six or seven years together may be ploughed up, when it
will yield perhaps, a poor crop or two of bad oats, or of some other
foarse grain, and then being entirely exhausted, it must be rested and
pastured again as before, and another portion ploughed up to be in the
same manner exhausted and rested again in its turn. Such accordingly
was the general system of management all over the low country of
Scotland before the union. The lands which were kept constantly well
manured and in good condition, seldom exceeded a third or a fourth
part of the whole farm, and sometimes did not amount to a fifth or a
sixth part of it. The rest were never manured, but a certain portion
of them was in its turn, notwithstanding, regularly cultivated and
exhausted. Under this system of management it is evident even that
part of the lands of Scotland which is capable of good cultivation,
could produce but little in comparison of what it may be capable of
producing. But how disadvantageous soever this system may appear,
yet before the union the low price of cattle seems to have rendered it
almost unavoidable. If, notwithstanding a great rise in their price, it
still continues to prevail through a considerable part of the country, it
is owing, in many places, no doubt, to ignorance and attachment to old
customs, but in most places to the unavoidable obstructions which the
natural course of things opposes to the immediate or speedy establish-
of a better system : first, to the poverty of the tenants, to their not
having yet had time to acquire a stock of cattle sufficient to cultivate
their lands more completely, the same rise of price which would render
it advantageous to them to maintain a greater stock, rendering it more
difficult for them to acquire it ; and secondly, to their not having yet
had time to put their lands in condition to maintain this greater stock
properly, supposing they were capable of acquiring it. The increase
of stock and the improvement of land are two events which must go
hand in hand, and of which the one can nowhere much outrun the
other. Without some increase of stock, there can be scarce any im-
provement of land, but there can be no considerable increase of stock
but in consequence of a considerable improvement of land ; because
otherwise the land could not maintain it. These natural obstructions
to the establishment of a better system, cannot be removed but by a
long course of frugality and industry ; and half a century or a century
more perhaps, must pass away before the old system, which is wearing
out gradually, can be completely abolished through all the different
parts of the country. Of all the commercial advantages, however,
which Scotland has derived from the union with England, this rise in
he price of cattle is perhaps, the greatest. It has not only raised the
value of all highland estates, but it has perhaps, been the principal
87
cause of the improvement of the low country.
In all new colonies the great quantity of waste land, which can for
many years be applied to no other purpose but the feeding of cattle,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 191

soon renders them extremely abundant, and in everything great cheap-

ness is the necessary consequence of great abundance. Though all the
cattle of the European colonies in America were originally carried from
Europe, they soon multiplied so much there, and became of so little
value, that even horses were allowed to run wild in the woods without
any owner thinking it worth while to claim them. It must be a long
time after the first establishment of such colonies, before it can become
profitable to feed cattle upon the produce of cultivated land. The
same causes, therefore, the want of manure, and the disproportion be-
tween the stock employed in cultivation, and the land which it is des-
tined to cultivate, are likely to introduce there a system of husbandry
not unlike that which still continues to take place in so many parts of
Scotland. Mr. Kalm, the Swedish traveller, when he gives an account
of the husbandry of some of the English colonies in North America, as
he found it in 1749, observes, accordingly, that he can with difficulty
discover there the character of the English nation, so well skilled in all
the different branches of agriculture. They make scarce any manure
for their corn-fields, he says ; but when one piece of ground has been
exhausted by continual cropping, they clear and cultivate another piece
of fresh land ; and when that is exhausted , proceed to a third. Their
cattle are allowed to wander through the woods and other uncultivated
grounds, where they are half-starved ; having long ago extirpated
almost all the annual grasses by cropping them too early in the spring,
before they had time to form their flowers, or to shed their seeds.
(Travels, vol. i. p. 343.) The annual grasses were, it seems, the best
natural grasses in that part of North America ; and when the Euro-
peans first settled there, they used to grow very thick, and to rise three
or four feet high. A piece of ground which, when he wrote, could not
maintain one cow, would in former times, he was assured, have main-
tained four, each of which would have given four times the quantity of
milk which that one was capable of giving. The poorness of the pas-
ture had, in his opinion, occasioned the degradation of their cattle,
which degenerated sensibly from one generation to another. They
were probably not unlike that stunted breed which was common all
over Scotland thirty or forty years ago, and which is now so much
mended through the greater part of the low country, not so much by a
change of the breed, though that expedient has been employed in some
places, as by a more plentiful method of feeding them.
Though it is late, therefore, in the progress of improvement before
cattle can bring such a price as to render it profitable to cultivate land
for the sake of feeding them, yet of all the different parts which com-
pose this second sort of rude produce, they are perhaps the first which
bring this price ; because till they bring it, it seems impossible that
improvement can be brought near even to that degree of perfection to
which it has arrived in many parts of Europe.
192 FEEDING OF POULTRY A BRANCH OF INDUSTRY IN FRANCE.

As cattle are among the first, so perhaps venison is among the last
parts of this sort of rude produce which bring this price. The price of
venison in Great Britain, how extravagant soever it may appear, is not
near sufficient to compensate the expense of a deer park, as is well
known to all those who have had any experience in the feeding of deer.
If it was otherwise, the feeding of deer would soon become an article
of common farming ; in the same manner as the feeding of those small
birds called Turdi was among the ancient Romans. Varro and Colu-
mella assure us that it was a most profitable article. The fattening of
ortolans, birds of passage which arrive lean in the country, is said to t
so in some parts of France. If venison continues in fashion, and the
wealth and the luxury of Great Britain increase as they have done
for some time past, its price may very probably rise still higher than it
is at present.
Between that period in the progress of improvement which brings to
its height the price of so necessary an article as cattle, and that which
brings to it the price of such a superfluity as venison, there is a very
long interval, in the course of which many other sorts of rude produce
gradually arrive at their highest price, some sooner and some later,
according to different circumstances.
Thus in every farm the offals of the barn and stables will maintain a
certain number of poultry. These, as they are fed with what would
otherwise be lost, are a mere save-all ; and as they cost the farmer
scarce anything, so he can afford to sell them for very little. Almost
all that he gets is pure gain, and their price can scarce be so low as to
discourage him from feeding this number. But in countries ill culti-
vated, and therefore but thinly inhabited, the poultry, which are thus
raised without expense, are often fully sufficient to supply the whole
demand. In this state of things, therefore, they are often as cheap as
butcher's-meat, or any other sort of animal food. But the whole quan-
tity of poultry which the farm in this manner produces without expense,
must always be much smaller than the whole quantity of butcher's-
meat which is reared upon it ; and in times of wealth and luxury what
is rare, with only nearly equal merit, is always preferred to what is
common. As wealth and luxury increase, therefore, in consequence of
improvement and cultivation, the price of poultry gradually rises above
that of butcher's-meat, till at last it gets so high that it becomes pro-
fitable to cultivate land for the sake of feeding them. When it has got
to this height it cannot well go higher. If it did, more land would soon
be turned to this purpose. In several provinces of France, the feeding
of poultry is considered as a very important article in rural economy,
and sufficiently profitable to encourage the farmer to raise a consider-
able quantity of Indian corn and buck-wheat for this purpose. A
middling farmer will there sometimes have four hundred fowls in his
yard. The feeding of poultry seems scarce yet to be generally con-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 193

sidered as a matter of so much importance in England. They are cer-

tainly, however, dearer in England than in France, as England re-
ceives considerable supplies from France. In the progress ofimprove
ment, the period at which every particular sort of animal food is
dearest, must naturally be that which immediately precedes the general
practice of cultivating land for the sake of raising it. For some time
before this practice becomes general, the scarcity must necessarily raise
the price. After it has become general, new methods of feeding are
commonly fallen upon, which enable the farmer to raise upon the same
quantity of ground a much greater quantity of that particular sort of
animal food. The plenty not only obliges him to sell cheaper, but in
consequence of these improvements he can afford to sell cheaper ; for
if he could not afford it, the plenty would not be of long continuance.
It has been probably in this manner that the introduction of clover,
turnips, carrots, cabbages, etc. , has contributed to sink the common
price of butcher's-meat in the London market somewhat below what it
was about the beginning of the last century.
The hog, that finds his food among ordure, and greedily devours
many things rejected by every other useful animal, is, like poultry,
originally kept as a save-all. As long as the number of such animals,
which can thus be reared at little or no expense, is fully sufficient to
supplythedemand, this sort of butcher's-meat comes to market at a much
lower price than any other. But when the demand rises beyond what
this quantity can supply, when it becomes necessary to raise food on pur-
pose for feeding and fattening hogs, in the same manner as for feeding and
fattening other cattle, the price necessarily rises, and becomes propor-
tionably either higher or lower than that of other butcher's-meat, accord-
ing as the nature of the country, and the state of its agriculture, happen
to render the feeding of hogs more or less expensive than that of other
cattle. In France, according to Mr. Buffon, the price of pork is nearly
equal to that of beef. In most parts of Great Britain it is at present
somewhat higher.
The great rise in the price both of hogs and poultry has in Great
Britain been frequently imputed to the diminution of the number of
cottagers and other small occupiers of land ; an event which has in
every part of Europe been the immediate forerunner of improvement
and better cultivation, but which at the same time may have con-
tributed to raise the price of those articles, both somewhat sooner and
somewhat faster than it would otherwise have risen. As the poorest
family can often maintain a cat or a dog, without any expense, so the
poorest occupiers of land can commonly maintain a few poultry, or
sow and a few pigs, at very little. The little offals of their own table
their whey, skimmed milk, and buttermilk, supply those animals with
a part of their food, and they find the rest in the neighbouring fields
without doing any sensible damage to anybody. By diminishing the
13
194 BUSINESS OF THE DAIRY ORIGINALLY SUPPLEMENTARY.

number of those small occupiers, therefore, the quantity of this sort of

provisions which is thus produced at little or no expense, must cer-
tainly have been a good deal diminished, and their price must con-
sequently have been raised both sooner and faster than it would other-
wise have risen. Sooner or later, however, in the progress of im-
provement, it must at any rate have risen to the utmost height to
which it is capable of rising ; or to the price which pays the labour
and expense of cultivating the land which furnishes them with food
as well as these are paid upon the greater part of other culti-
vated land.
The business of the dairy, like the feeding of hogs and poultry, is
originally carried on as a save-all. The cattle necessarily kept upon
the farm, produce more milk than either the rearing of their own young,
or the consumption of the farmer's family requires ; and they produce
most at one particular season. But of all the productions of land,
milk is perhaps the most perishable. In the warm season, when it is
most abundant, it will scarce keep four-and-twenty hours. The farmer,
by making it into fresh butter, stores a small part of it for a week ; by
making it into salt butter, for a year ; and by making it into cheese, he
stores a much greater part of it for several years. Part of all these is
reserved for the use of his own family. The rest goes to market, in
order to find the best price which is to be had, and which can scarce be
so low as to discourage him from sending thither whatever is over and
above the use of his own family. If it is very low, indeed, he will be
likely to manage his dairy in a very slovenly and dirty manner, and
will scarce perhaps think it worth while to have a particular room or
building on purpose for it, but will suffer the business to be carried on
amidst the smoke, filth, and nastiness of his own kitchen ; as was the
case of almost all the farmers' dairies in Scotland thirty or forty years
ago, and as is the case of many of them still. The same causes which
gradually raise the price of butcher's-meat, the increase of the demand,
and, in consequence of the improvement of the country, the diminu-
tion of the quantity which can be fed at little or no expense, raise, in
the same manner, that of the produce of the dairy, of which the
price naturally connects with that of butcher's-meat, or with the
expense of feeding cattle. The increase of price pays for more labour,
care, and cleanliness. The dairy becomes more worthy of the farmer's
attention, and the quality of its produce gradually improves. The
price at last gets so high that it becomes worth while to employ some of
the most fertile and best cultivated lands in feeding cattle merely for
the purpose of the dairy ; and when it has got to this height, it cannot
well go higher. If it did, more land would soon be turned to this
purpose. It seems to have got to this height through the greater part
of England, where much good land is commonly employed in this
manner. If you except the neighbourhood of a few considerable towns,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 195

it seems not yet to have got to this height anywhere in Scotland, where
common farmers seldom employ much good land in raising food for
cattle merely for the purpose of the dairy. The price of the produce,
though it has risen very considerably within these few years, is pro-
bably still too low to admit of it. The inferiority of the quality,
indeed, compared with that of the produce of English dairies, is fully
equal to that of the price. But this inferiority of quality is, perhaps,
rather the effect of this lowness of price than the cause ofit. Though
the quality was much better, the greater part of what is brought to
market could not, I apprehend, in the present circumstances of the
country, he disposed of at a much better price ; and the present price,
it is probable, would not pay the expense of the land and labour
necessary for producing a much better quality. Through the greater
part of England, notwithstanding the superiority of price, the dairy is
not reckoned a more profitable employment of and than the raising of
corn, or the fattening of cattle, the two great objects of agriculturé.
Throughout the greater part of Scotland, therefore, it cannot yet be
even so profitable.
The lands of no country, it is evident, can ever be completely culti-
vated and improved, till once the price of every produce, which human
industry is obliged to raise upon them, has got so high as to pay for
the expense of complete improvement and cultivation. In order to do
this, the price of each particular produce must be sufficient, first, to pay
the rent of good corn land, as it is that which regulates the rent of the
greater part of other cultivated land ; and secondly, to pay the labour
and expense of the farmer as well as they are commonly paid upon
good corn land ; or, in other words, to replace with the ordinary profits
the stock which he employs about it. This rise in the price of each
particular produce, must evidently be previous to the improvement and
cultivation of the land which is destined for raising it. Gain is the
end of all improvement, and nothing could deserve that name of
which loss was to be the necessary consequence. But loss must be the
necessary consequence of improving land for the sake of a produce of
which the price could never bring back the expense. If the complete
improvement and cultivation of the country be, as it most certainly is,
the greatest of all public advantages, this rise in the price of all those
different sorts of rude produce, instead of being considered as a public
calamity, ought to be regarded as the necessary forerunner and attend-
ant of the greatest of all public advantages.
This rise too in the nominal or money price of all those different
sorts of rude produce has been the effect, not of any degradation in
the value of silver, but of a rise in their real price. They have become
worth, not only a greater quantity of silver, but a greater quantity of
labour and subsistence than before. As it costs a greater quantity
of labour and subsistence to bring them to market, so when they
13 *
196 MARKET FOR BEEF LIMITED TO COUNTRY PRODUCING IT.

are brought thither, they represent or they are equivalent to

greater quantity.

THIRD SORT.- The third and last sort of rude produce, of whic
the price naturally rises in the progress of improvement, is that in
which the efficacy of human industry, in augmenting the quantity, is
either limited or uncertain. Though the real price of this sort of rude
produce, therefore, naturally tends to rise in the progress of improve-
ment, yet, according as different accidents happen to render the efforts
of human industry more or less successful in augmenting the quantity,
it may happen sometimes even to fall, sometimes to continue the same
in very different periods of improvement, and sometimes to rise more
86
or less in the same period.
There are some sorts of rude produce which nature has rendered a
kind of appendages to other sorts ; so that the quantity of the one
which any country can afford, is necessarily limited by that of the
other. The quantity of wool or of raw hides, for example, which any
country can afford, is necessarily limited by the number of great and
small cattle that are kept in it. The state of its improvement, and the
nature of its agriculture, again, necessarily determine this number.
The same causes which, in the progress of improvement, gradually
raise the price of butcher's-meat, should have the same effect, it may
be thought, upon the prices of wool and raw hides, and raise them too
nearly in the same proportion. It probably would be so, if in the rude
beginnings of improvement the market for the latter commodities was
confined within as narrow bounds as that for the former. But the
extent of their respective markets is commonly extremely different.
The market for butcher's-meat is almost everywhere confined to the
country which produces it. Ireland, and some part of British America
indeed, carry on a considerable trade in salt provisions ; but they are,
I believe, the only countries in the commercial world which do so, or
which export to other countries any considerable part of their butcher's-
meat.
The market for wool and raw hides, on the contrary, is in the rude
beginnings of improvement very seldom confined to the country which
produces them . They can easily be transported to distant countries,
wool without any preparation, and raw hides with very little : and as
they are the materials of many manufactures, the industry of other
countries may occasion a demand for them, though that of the country
which produces them might not occasion any.
In countries ill cultivated, and therefore but thinly inhabited, the
price of the wool and the hide bears always a much greater proportion
to that of the whole beast, than in countries where, improvemen'
and population being further adyanced, there is more demand fo
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 197

butcher's-meat. Mr. Hume observes, that in the Saxon times, the

fleece was estimated at two-fifths of the value of the whole sheep, and
that this was much above the proportion of its perfect estimation. In
some provinces of Spain, I have been assured the sheep is frequently
killed merely for the sake of the fleece and the tallow. The carcase is
often left to rot upon the ground, or to be devoured by beasts and birds
of prey . If this sometimes happens even in Spain, it happens almost
constantly in Chili, at Buenos Ayres, and in many other parts of
Spanish America, where the horned cattle are almost constantly killed
merely for the sake of the hide and the tallow. This too used to hap-
pen almost constantly in Hispaniola, while it was infested by the
Buccaneers, and before the settlement, improvement, and populousness
of the French plantations (which now extend round the coast of almost
the whole western half of the island) had given some value to the
cattle of the Spaniards, who still continue to possess, not only the
eastern part of the coast, but the whole inland and mountainous part of
the country .
Though in the progress of improvement and population, the price of
the whole beast necessarily rises, yet the price of the carcase is likely
to be much more affected by this rise than that of the wool and the
hide. The market for the carcase, being in the rude state of society
confined always to the country which produces it, must necessarily be
extended in proportion to the improvement and population of that
country. But the market for the wool and the hides even of a barbar-
ous country, often extending to the whole commercial world , it can very
seldom be enlarged in the same proportion. The state of the whole
commercial world can seldom be much affected by the improvement of
any particular conntry ; and the market for such commodities may
remain the same, or very nearly the same, after such improvements as
before. It should, however, in the natural course of things rather upon
the whole be somewhat extended in consequence of them. If the
manufactures especially, of which those commodities are the materials,
should ever come to flourish in the country, the market, though it might
not be much enlarged, would at least be brought much nearer to the
place of growth than before ; and the price of those materials might
at least be increased by what had usually been the expense of trans-
porting them to distant countries. Though it might not rise therefore
in the same proportion as that of butcher's-meat, it ought naturally t
rise somewhat, and it ought certainly not to fall.
In England, however, notwithstanding the flourishing state of its
woollen manufacture, the price of English wool has fallen very consi-
derably since the time of Edward III. There are many authentic
records which demonstrate that during the reign of that prince (towards
the middle of the fourteenth century, or about 1339) what was reckoned
the moderate and reasonable price of the tod or twenty- eight pounds of
198 RELATIVE PRICES OF WOOL NOW, AND IN TIME OF FDWARD III.

English wool, was not less than ten shillings of the money of those
times,* containing, at the rate of twenty-pence the ounce, six ounces
af silver Tower-weight, equal to about thirty shillings of our present
money. In the present times, one-and-twenty shillings the tod may be
reckoned a good price for very good English wool. The money price
of wool, therefore, in the time of Edward III. , was to its money price
in the present times as ten to seven. The superiority of its real price
was still greater. At the rate of six shillings and eightpence the quarter,
ten shillings was in those ancient times the price of twelve bushels of
wheat. At the rate of twenty-eight shillings the quarter, one-and-twenty
shillings is in the present times the price of six bushels only. The
proportion between the real prices of ancient and modern times there-
fore, is as twelve to six, or as two to one. In those ancient times a tod
of wool would have purchased twice the quantity of subsistence which it
will purchase at present ; and consequently twice the quantity of labour,
if the real recompense of labour had been the same in both periods.
This degradation both in the real and nominal value of wool could
never have happened in consequence of the natural course of things. It
has accordingly been the effect of violence and artifice : First, of the
absolute prohibition of exporting wool from England ; Secondly, of
the permission of importing it from Spain duty free ; Thirdly, of the
prohibition of exporting it from Ireland to any other country but
England. In consequence of these regulations the market for Eng-
lish wool, instead of being somewhat extended in consequence of the
improvement of England, has been confined to the home market
where the wool of several other countries is allowed to come into com-
petition with it, and where that of Ireland is forced into competition
with it. 89 As the woollen manufactures too of Ireland are fully as much
discouraged as is consistent with justice and fair dealing, the Irish can
work up but a small part of their own wool at home, and are therefore
obliged to send a greater proportion of it to Great Britain, the only
market they are allowed. (Prohibitory export duties partially repealed
in 1825, andfinally, in 1833, and on imports in 1844.
I have not been able to find any such authentic records concerning
the price of raw hides in ancient times. Wool was commonly paid as
a subsidy to the king, and its valuation in that subsidy ascertains, at
least in some degree, what was its ordinary price. But this seems not
to have been the case with raw hides. Fleetwood, however, from an
account in 1425, between the prior of Burcester Oxford and one of his
canons , gives us their price, at least as it was stated upon that particu-
lar occasion, viz. five ox hides at twelve shillings ; five cow hides at
seven shillings and threepence ; thirty-six sheep skins of two years old
at nine shillings ; sixteen calf skins at two shillings. In 1425, twelve
shillings contained about the same quantity of silver as four-and-twenty
* Smith's Memoirs of Wool, vol. i. c. 5, 6, 7 ; vol. ii. c. 176.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 199

shilings of our present money. An ox hide therefore, was in this

account valued at the same quantity of silver as 41ths. of our present
money. Its nominal price was a good deal lower than at present. But
at the rate of six shillings and eight-pence the quarter, twelve shillings
would in those times have purchased eighteen bushels and four-fifths of
a bushel ofwheat, which, at three and sixpence the bushel, would in the
present time cost 51s. 4d. An ox hide, therefore, would in those times
have purchased as much corn as ten shillings and threepence would
purchase at present. Its real value was equal to ten shillings and
threepence of our present money. " In those ancient times, when the
cattle were half starved during the greater part of the winter, we can-
not suppose that they were of a very large size. An ox hide which
weighs four stone of sixteen pounds avoirdupois, is not in the present
times reckoned a bad one ; and in those ancient times would probably
have been reckoned a very good one. But at half a crown the stone,
which at this moment (February 1773) I understand to be the common
price, such a hide would at present cost only ten shillings. Though its
nominal price, therefore, is higher in the present than it was in those
ancient times, its real price, the real quantity of subsistence which it
will purchase or command, is rather somewhat lower. The price of cow
hides, as stated in the above account, is nearly in the common propor-
tion to that of ox hides. That of sheep skins is a good deal above it.
They had probably been sold with the wool. That of calves' skins, on
the contrary, is greatly below it. In countries where the price of cattle
is very low, the calves, which are not intended to be reared in order to
keep up the stock, are generally killed very young ; as was the case in
Scotland twenty or thirty years ago. It saves the milk, which their
price would not pay for. The skins of the calves, therefore, are com-
monly good for little.
The price of raw hides is a good deal lower at present than it was a
few years ago ; owing probably to the taking off the duty upon seal
skins, and to the allowing, for a limited time, the importation of raw
hides from Ireland and from the plantations, duty free, which was done
in 1769. Take the whole of the present century at an average, their
real price has probably been somewhat higher than it was in those
ancient times. The nature of the commodity renders it not quite so
proper for being transported to distant markets as wool. It suffers
more by keeping. A salted hide is reckoned inferior to a fresh one, and
sells for a lower price. This circumstance must necessarily have some
tendency to sink the price of the raw hides produced in a country
which does not manufacture them, but is obliged to export them ; and
comparatively to raise that of those produced in a country which does
manufacture them . It must have some tendency to sink their price in a
barbarous, and to raise it in an improved and manufacturing country.
It must have had some tendency therefore, to sink it in ancient and to
200 WHAT THE HIDE BRINGS NOT, THE CARCASÉ MUST MAKE GOOD.

raise it in modern times. Our tanners, besides, have not been quite so
successful as our clothiers in convincing the wisdom of the nation, that
the safety of the commonwealth depends upon the prosperity of their
particular manufacture. They have accordingly been much less.
favoured. The exportation of raw hides has, indeed, been prohibited
and declared a nuisance, but their importation from foreign countries
has been subjected to a duty ; and though this duty has been taken off
from those of Ireland and the plantations (for the limited time of five
years only), yet Ireland has not been confined to the market of Great
Britain for the sale of its surplus hides, or of those which are not manu-
factured at home. The hides of common cattle have but within these
few years been put among the enumerated commodities which the
plantations can send nowhere but to the mother country ; neither has
the commerce of Ireland been in this case oppressed hitherto, in order
to support the manufactures of Great Britain.
Whatever regulations tend to sink the price either of wool or raw
hides below what it naturally would be, must, in an improved and cul-
tivated country, have some tendency to raise the price of butcher's-
meat. The price both of the great and small cattle, which are fed on
improved and cultivated land, must be sufficient to pay the rent which
the landlord, and the profit which the farmer, has reason to expect
from improved and cultivated land. If it is not, they will soon cease
to feed them. Whatever part of this price, therefore, is not paid by
the wool and the hide, must be paid by the carcase. The less there is
paid for the one, the more must be paid for the other. In what manner
this price is to be divided upon the different parts of the beast, is
indifferent to the landlords and farmers, provided it is all paid to them.
In an improved and cultivated country, therefore, their interest as land-
lords and farmers cannot be much affected by such regulations, though
their interest as consumers may, by the rise in the price of provisions,
It would be quite otherwise, however, in an unimproved and unculti-
vated country, where the greater part of the lands could be applied to
no other purpose but the feeding of cattle, and where the wool and the
hide made the principal part of the value of those cattle. Their in-
terest as landlords and farmers would in this case be very deeply
affected by such regulations, and their interest as consumers very
little. The fall in the price of wool and the hide would not in thi
case raise the price of the carcase, because the greater part of the
lands of the country being applicable to no other purpose but the
feeding of cattle, the same number would still continue to be fed. The
same quantity of butcher's-meat would still come to market. The
demand for it would be no greater than before. Its price, therefore,
would be the same as before. The whole price of cattle would fall, and
along with it both the rent and the profit of all those lands of whic
cattle was the principal produce, that is, of the greater part of the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 201

lands of the country. The perpetual prohibition of the exportation of

wool, which is commonly, but very falsely, ascribed to Edward III.,
would, in the then circumstances of the country, have been the most
destructive regulation which could well have been thought of. It
would not only have reduced the actual value of the greater part of the
lands of the kingdom, but by reducing the price of the most important
species of small cattle, it would have retarded very much its subse-
quent improvement.
The wool of Scotland fell very considerably in its price in conse-
quence of the union with England, by which it was excluded from the
great market of Europe, and confined to the narrow one of Great
Britain. The value of the greater part of the lands in the southern
counties of Scotland, which are chiefly a sheep country, would have
been very deeply affected by this event, had not the rise in the price of
butcher's-meat fully compensated the fall in the price of wool.
As the efficacy of human industry, in increasing the quantity either
of wool or of raw hides, is limited, so far as it depends upon the pro-
duce of the country where it is exerted, so it is uncertain so far as it
depends upon the produce of other countries. It so far depends, not
so much upon the quantity which they produce, as upon that which
they do not manufacture ; and upon the restraints which they may or
may not think proper to impose upon the exportation of this sort of
rude produce. These circumstances, as they are altogether indepen-
dent of domestic industry, so they necessarily render the efficacy of its
efforts more or less uncertain. In multiplying this sort of rude pro-
duce, therefore, the efficacy of human industry is not only limited,
but uncertain.
In multiplying another very important sort of rude produce, the
quantity of fish that is brought to market, it is likewise both limited
and uncertain. It is limited by the local situation of the country, by
the proximity or distance of its different provinces from the sea, by the
number of its lakes and rivers, and by what may be called the fertility
or barrenness of those seas, lakes, and rivers, as to this sort of rude
produce. As population increases, as the annual produce of the land
and labour of the country grows greater and greater, there come to be
more buyers of fish, and those buyers, too, have a greater quantity and
variety of other goods, or, what is the same thing, the price of a greater
quantity and variety of other goods, to buy with. But it will generally
be impossible to supply the great and extended market without employ
ing a quantity of labour greater than in proportion to what has been
requisite for supplying the narrow and confined one. A market which,
from requiring only one thousand, comes to require annually ten thou-
sand tons of fish, can seldom be supplied without employing more than
ten times the quantity of labour which had before been sufficient to
supply it. The fish must generally be sought for at a greater distance,
202 REAL PRICES RISE WITH THE PROGRESS OF IMPROVEMENT.

larger vessels must be employed, and more extensive machinery of

every kind made use of. The real price of this commodity, therefore,
naturally rises in the progress of improvement. It has accordingly
done so, I believe, more or less in every country.
Though the success of a particular day's fishing may be a very
uncertain matter, yet, the local situation of the country being sup-
posed, the general efficacy of industry in bringing a certain quantity of
fish to market, taking the course of a year, or of several years together,
it may perhaps be thought, is certain enough ; and it, no doubt, is so.
As it depends more, however, upon the local situation of the country,
than upon the state of its wealth and industry ; as upon this account it
may in different countries be the same in very different periods of im-
provement, and very different in the same period ; its connection with
the state of improvement is uncertain, and it is of this sort of uncer-
tainty that I am here speaking.
In increasing the quantity of the different minerals and metals which
are drawn from the bowels of the earth, that of the more precious ones
particularly, the efficacy of human industry seems not to be limited,
but to be altogether uncertain.
The quantity of the precious metals which is to be found in any
country is not limited by anything in its local situation, such as the
fertility or barrenness of its own mines. Those metals frequently
abound in countries which possess no mines. Their quantity in every
particular country seems to depend upon two different circumstances ;
first, upon its power of purchasing, upon the state of its industry, upon
the annual produce of its land and labour, in consequence of which it
can afford to employ a greater or a smaller quantity of labour and sub-
sistence in bringing or purchasing such superfluities as gold and silver,
either from its own mines or from those of other countries ; and,
secondly, upon the fertility or barrenness of the mines which may
happen at any particular time to supply the commercial world with
those metals. The quantity of those metals in the countries most
remote from the mines, must be more or less affected by this fertility
or barrenness, on account of the easy and cheap transportation of
those metals, of their small bulk and great value. Their quantity in
China and Hindostan must have been more or less affected by the
abundance of the mines of America.
So far as their quantity in any particular country depends upon the
former of those two circumstances (the power of purchasing), their real
price, like that of all other luxuries and superfluities, is likely to rise with
the wealth and improvement of the country, and to fall with its poverty
and depression. Countries which have a great quantity of labour and
subsistence to spare, can afford to purchase any particular quantity of
those metals at the expense of a greater quantity of labour and sub-
sistence, than countries which have less to spare.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 203

So far as their quantity in any particular country depends upon the

latter of those two circumstances (the fertility or barrenness of the
mines which happen to supply the commercial world), their real price,
the real quantity of labour and subsistence which they will purchase or
exchange for, will, no doubt, sink more or less in proportion to the
fertility, and rise in proportion to the barrenness, of those mines.
The fertility or barrenness of the mines, however, which may hap-
pen at any particular time to supply the commercial world, is a circum-
stance which, it is evident, may have no sort of connection with the
state of industry in a particular country. It seems even to have no
very necessary connection with that of the world in general. As arts
-
and commerce, indeed, gradually spread themselves over a greater and
a greater part of the earth, the search for new mines, being extended
over a wider surface, may have somewhat a better chance for being
successful than when confined within narrower bounds. The dis-
covery of new mines, however, as the old ones come to be gradually
exhausted, is a matter of the greatest uncertainty, and such as no
human skill or industry can ensure. All indications, it is acknow-
ledged, are doubtful, and the actual discovery and successful working
of a new mine can alone ascertain the reality of its value, or even of
its existence. In this search there seem to be no certain limits either
to the possible success, or to the possible disappointment of human
industry. In the course of a century or two, it is possible that new
mines may be discovered more fertile than any that have ever yet been
known ; and it is just equally possible that the most fertile mine then
known may be more barren than any that was wrought before the dis-
covery of the mines of America. Whether the one or the other of
those two events may happen to take place, is of very little import-
ance to the real wealth and prosperity of the world, to the real value
of the annual produce of the land and labour of mankind. Its
nominal value, the quantity of gold and silver by which this annual
produce could be expressed or represented, would, no doubt, be very
different ; but its real value, the real quantity of labour which it could
purchase or command, would be precisely the same. A shilling might
in the one case represent no more labour than a penny does at present ;
and a penny in the other might represent as much as a shilling does
now. But in the one case he who had a shilling in his pocket, would
be no richer than he who has a penny at present ; and in the other, he
who had a penny would be just as rich as he who has a shilling now.
The cheapness and abundance of gold and silver plate, would be the
sole advantage which the world could derive from the one event, and
dearness and scarcity of those trifling superfluities the only inco
veniency it could suffer from the other.
 204 PRECIOUS METALS HIGHER IN VALUE IN CHINA THAN EUROPE,

Conclusion of the Digression concerning the Variations in the Value

of Silver.
THE greater part of the writers who have collected the money prices
of things in ancient times, seem to have considered the low money
price of corn, and of goods in general, or, in other words, the high
value of gold and silver, as a proof, not only of the scarcity of those
metals, but of the poverty and barbarism of the country at the time when
it took place. This notion is connected with the system of political
economy which represents national wealth as consisting in the abun-
dance, and national poverty in the scarcity of gold and silver; a system
which I shall endeavour to explain and examine at great length in the
fourth book of this inquiry. I shall only observe at present, that the
high value of the precious metals can be no proof of the poverty or
barbarism of any particular country at the time when it took place.
It is a proof only of the barrenness of the mines which happened at
that time to supply the commercial world. A poor country, as it can-
not afford to buy more, so it can as little afford to pay dearer for gold
and silver than a rich one ; and the value of those metals, therefore, is
not likely to be higher in the former than in the latter. In China, a
country much richer than any part of Europe, the value of the pre-
cious metals is much higher than in any part of Europe.* As the
wealth of Europe, indeed, has increased greatly since the discovery of
the mines of America, so the value of gold and silver has gradually
diminished. This diminution of their value, however, has not been
owing to the increase of the real wealth of Europe, of the annual pro-
duce of its land and labour, but to the accidental discovery of more
abundant mines than any that were known before. The increase of
the quantity of gold and silver in Europe, and the increase of its manu-
factures and agriculture, are two events which, though they have hap
pened nearly about the same time, yet have arisen from very different
causes, and have scarce any natural connection with one another.
The one has arisen from a mere accident, in which neither prudence
nor policy either had or could have any share : the other from the fall
of the feudal system, and from the establishment of a government
which afforded to industry the only encouragement which it requires,
some tolerable security that it shall enjoy the fruits of his own labour.
Poland, where the feudal system still continues to take place, is at this
day as beggarly a country as it was before the discovery of America.
The money price of corn, however, has risen ; the real value of the
precious metals has fallen in Poland, in the same manner as in other
parts of Europe. Their quantity, there, must have increased there as
in other places, and nearly in the same proportion to the annual
produce of its land and labour. This increase of the quantity of those
metals, however, has not, it seems, increased that annual produce, has
* See ante, p. 164.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 205

neither improved the manufactures and agriculture of the country,

nor mended the circumstances of its inhabitants. Spain and Portugal,
the countries which possess the mines, are, after Poland, perhaps, the
two most beggarly countries in Europe. The value of the precious
metals, however, must be lower in Spain and Portugal than in any
other part of Europ as they come from those countries to all other
parts of Europe, loaded, not only with a freight and an insurance, but
with the expense of smuggling, their exportation being either prohibited
or subjected to a duty. In proportion to the annual produce of the
land and labour, therefore, their quantity must be greater in those
countries than in any other part of Europe : those countries, however,
are poorer than the greater part of Europe. Though the feudal
system has been abolished in Spain and Portugal, it has not been
succeeded by a much better.
As the low value of gold and silver, therefore, is no proof of the
wealth and flourishing state of the country where it takes place ; so
neither is their high value, or the low money price either of goods in
general, or of corn in particular, any proof of its poverty and
its barbarism.
But though the low money price either of goods in general, or of
corn in particular, be no proof of the poverty or barbarism of the
times, the low money price of some particular sorts of goods, such as
cattle, poultry, game of all kinds, etc., in proportion to that of corn, is
a most decisive one. It clearly demonstrates, first, their great abun-
dance in proportion to that of corn, and consequently the great extent
of the land which they occupied in proportion to what was occupied
by corn ; and, secondly, the low value of this land in proportion to that
of corn land, and consequently the uncultivated and unimproved state
of the far greater part of the lands of the country. It clearly demon-
strates that the stock and population of the country did not bear the
same proportion to the extent of its territory, which they commonly do
in civilized countries, and that society was at that time, and in that
country, but in its infancy. From the high or low money price either
of goods in general, or of corn in particular, we can infer only that the
mines which at that time happened to supply the commercial world
with gold and silver, were fertile or barren, not that the country was
rich or poor. But from the high or low money price of some sorts of
goods in proportion to that of others, we can infer, with a degree of
probability that approaches almost to certainty, that it was rich or
poor, that the greater part of its lands were improved or unimproved,
and that it was either in a more or less barbarous state, or in a more
or less civilized one.
Any rise in the money price of goods which proceeded altogether
from the degradation of the value of silver, would affect all sorts of
goods equally, and raise their price universally a third, or a fourth, or
206 THE OPINION THAT SILVER SINKS IN VALUE IS UNFOUNDED.

a fifth part higher, according as silver happened to lose a third, or a

fourth, or a fifth part of its former value. But the rise in the price of
provisions, which has been the subject of so much reasoning and con-
versation, does not affect all sorts of provisions equally. Taking the
course of the present century at an average, the price of corn, it is
acknowledged even by those who account for this rise by the degrada-
tion of the value of silver, has risen much less than that of some
other sorts of provisions. The rise in the price of those other sorts of
provisions, therefore, cannot be owing altogether to the degradation of
the value of silver. Some other causes must be taken into the account,
and those which have been above assigned, will, perhaps, without
having recourse to the supposed degradation of the value of silver,
sufficiently explain this rise in those particular sorts of provisions of
which the price has actually risen in proportion to that of corn.
As to the price of corn itself, it has, during the sixty-four first years
of the present century, and before the late extraordinary course of bad
seasons, been somewhat lower than it was during the sixty-four last
years of the preceding century. This fact is attested, not only by the
accounts of Windsor market, but by the public fiars of all the different
counties of Scotland, and by the accounts of several different markets
in France, which have been collected with great diligence and fidelity
by Mr. Messance and by Mr. Duprè de St. Maur. The evidence is
more complete than could well have been expected in a matter which
is naturally so very difficult to be ascertained.
As to the high price of corn during these last ten or twelve years, it
can be sufficiently accounted for from the badness of the seasons, with-
out supposing any degradation in the value of silver.
The opinion, therefore, that silver is continually sinking in its value,
seems not to be founded upon any good observations, either upon the
prices of corn, or upon those of other provisions.
The same quantity of silver, it may perhaps be said, will in the
present times, even according to the account which has been here
given, purchase a much smaller quantity of several sorts of provisions
than it would have done during some part of the last century ; and to
ascertain whether this change be owing to a rise in the value of those
goods, or to a fall in the value of silver, is only to establish a vain and
useless distinction, which can be of no sort of service to the man who
has only a certain quantity of silver to go to market with, or a certain
fixed revenue in money. I certainly do not pretend that the knowledge
of this distinction will enable him to buy cheaper. It may not, how-
ever, upon that account be altogether useless.
It may be of some use to the public by affording an easy proof of
the prosperous condition of the country. If the rise in the price of
some sorts of provisions be owing altogether to a fall in the value of
silver, it is owing to a circumstance from which nothing can be inferred
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 207

but the fertility of the American mines. The real wealth of the country,
the annual produce of its land and labour, may, notwithstanding this
circumstance, be either gradually declining, as in Portugal and Poland ;
or gradually advancing, as in most other parts of Europe. But if this
rise in the price of some sorts of provisions be owing to a rise in the
real value of the land which produces them, to its increased fertility ;
or, in consequence of more extended improvement and good cultivation,
to its having been rendered fit for producing corn ; it is owing to a cir-
cumstance which indicates in the clearest manner the prosperous and
advancing state of the country. The land constitutes by far the great-
est, the most important, and the most durable part of the wealth of
every extensive country. It may surely be of some use or, at least, it
may give some satisfaction to the public, to have so decisive a proof of
the increasing value of by far the greatest, the most important, and the
most durable part of its wealth.
It may too be of some use to the public in regulating the pecuniary
reward of some of its inferior servants. If this rise in the price of some
sorts of provisions be owing to a fall in the value of silver, their pecu-
niary reward, provided it was not too large before, ought certainly to
be augmented in proportion to the extent of this fall. If it is not aug-
mented, their real recompense will evidently be so much diminished.
But if this rise of price is owing to the increased value, in consequence
of the improved fertility of the land which produces such provisions, it
becomes a much nicer matter to judge either in what proportion any
pecuniary reward ought to be augmented, or whether it ought to be
augmented at all. The extension of improvement and cultivation, as
is necessarily raises more or less, in proportion to the price of corn,
that of every sort of animal food, so it as necessarily lowers that of, I
believe, every sort of vegetable food. It raises the price of animal food,
because a great part of the land which produces it, being rendered fit
for producing corn, must afford to the landlord and farmer the rent and
profit of corn land. It lowers the price of vegetable food, because, by
increasing the fertility of the land, it increases its abundance. The
improvements of agriculture too introduce many sorts of vegetable
food which, requiring less land and not more labour than corn, come
much cheaper to market. Such are potatoes and maize, or what is
called Indian corn, the two most important improvements which the
agriculture of Europe, perhaps which Europe itself, has received from
the great extension of its commerce and navigation. Many sorts of
vegetable food, besides, which in the rude state of agriculture are con-
fined to the kitchen-garden, and raised only by the spade, come in its
improved state to be introduced into common fields, and to be raised
by the plough : such as turnips, carrots, cabbages, etc. If in the pro-
gress of improvement, therefore, the real price of one species of food
necessarily rises, that of another as necessarily falls, and it becomes a
 208 NATURAL RISE OF PRICES DOES NOT MUCH AFFECT THE POOR.

matter of more nicety to judge how far the rise in the one may be com-
pensated by the fall in the other. When the real price of butcher's-
neat has once got to its height (which, with regard to every sort, ex-
cept, perhaps, that of hog's flesh, it seems to have done through a great
part of England more than a century ago), any rise which can after-
wards happen in that of any other sort of animal food, cannot much
affect the circumstances of the inferior ranks of people. The circum-
stances of the poor through a great part of England cannot surely be
so much distressed by any rise in the price of poultry, fish, wild fowl,
or venison, as they must be relieved by the fall in that of potatoes.
In the present season of scarcity the high price of corn no doubt
distresses the poor. But in times of moderate plenty, when corn is at
its ordinary or average price, the natural rise in the price of any other
sort of rude produce cannot much affect them. They suffer more, per-
haps, by the artificial rise which has been occasioned by taxes in the
price of some manufactured commodities ; as of salt, soap, leather,
candles, malt, beer, and ale, etc.

Effects of the Progress of Improvement upon the real Price of

Manufactures.
It is the natural effect of improvement, however, to diminish gradually
the real price of almost all manufactures. That of the manufacturing
workmanship diminishes, perhaps, in all of them without exception.
In consequence of better machinery, of greater dexterity, and of a more
proper division and distribution of work, all of which are the natural
effects of improvement, a much smaller quantity of labour becomes re-
quisite for executing any particular piece of work ; and though, in con-
sequence of the flourishing circumstances of the society, the real price
of labour should rise very considerably, yet the great diminution of the
quantity will generally much more than compensate the greatest rise
which can happen in the price.
There are, indeed, a few manufactures, in which the necessary rise
in the real price of. the rude materials will more than compensate all
the advantages which improvement can introduce into the execution of
the work. In carpenters' and joiners' work, and in the coarser sort of
cabinet work, the necessary rise in the real price of barren timber, in
consequence of the improvement of land, will more than compensate
all the advantages which can be derived from the best machinery, the
greatest dexterity, and the most proper division and distribution of
work.
But in all cases in which the real price of the rude materials either
does not rise at all, or does not rise very much, that of the manufactured
commodity sinks very considerably.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 209

This diminution of price has, in the course of the present and pre-
ceding century, been most remarkable in those manufactures of which
the materials are the coarser metals. A better movement of a watch,
than about the middle of the last century could have been bought for
twenty pounds, may now perhaps be had for twenty shillings. In the
work of cutlers and locksmiths, in all the toys which are made of the
coarser metals, and in all those goods which are commonly known by
the name of Birmingham and Sheffield ware, there has been, during
the same period, a very great reduction of price, though not altogether
so great as in watch-work. It has, however, been sufficient to astonish
the workmen of every other part of Europe, who in many cases ac-
knowledge that they can produce no work of equal goodness for double,
or even for triple the price. There are perhaps no manufactures in
which the division of labour can be carried further, or in which the
machinery employed admits of a greater variety of improvements, than
those of which the materials are the coarser metals.
In the clothing manufacture there has, during the same period, been
no such sensible reduction of price. The price of superfine cloth, I
have been assured, on the contrary, has, within these five-and-twenty
or thirty years, risen somewhat in proportion to its quality ; owing, it
was said, to a considerable rise in the price of the material, which con-
sists altogether of Spanish wool. That of the Yorkshire cloth, which
is made altogether of English wool, is said indeed, during the course
of the present century, to have fallen a good deal in proportion to its
quality. Quality, however, is so very disputable a matter, that I look
upon all information of this kind as somewhat uncertain. In the cloth-
ing manufacture, the division of labour is nearly the same now as it
was a century ago, and the machinery employed is not very different.
There may, however, have been some small improvements in both,
which may have occasioned some reduction of price.
But the reduction will appear much more sensible and undeniable, if
we compare the price of this manufacture in the present times with
what it was in a much remoter period, towards the end of the fifteenth
century, when the labour was probably much less subdivided, and the
machinery employed much more imperfect, than it is at present.
In 1487, being the 4th of Henry VII. , it was enacted, that ' whoso-
ever shall sell by retail a broad yard of the finest scarlet grained, or
' of other grained cloth of the finest making, above sixteen shillings,
' shall forfeit forty shillings for every yard so sold.' Sixteen shillings,
therefore, containing about the same quantity of silver as four-and-
twenty shillings of our present money, was, at that time, reckoned not
an unreasonable price for a yard of the finest cloth ; and as this is a
sumptuary law, such cloth, it is probable, had usually been sold some-
what dearer. A guinea may be reckoned the highest price in the pre-
sent times. Even though the quality of the cloths, therefore, should be
14
 210 REDUCTION IN PRICE OF COARSE CLOTH LESS THAN ÎN FINE.

supposed equal, and that of the present times is most probably much
superior, yet, even upon this supposition, the money price of the finest
cloth appears to have been considerably reduced since the end of the
fifteenth century. But its real price has been much more reduced. Six
shillings and eightpence was then, and long afterwards, reckoned the
average price of a quarter of wheat. Sixteen shillings, therefore, was
the price of two quarters and more than three bushels of wheat.
Valuing a quarter of wheat in the present times at eight-and-twenty
shillings, the real price of a yard of fine cloth must, in those times,
have been equal to at least three pounds six shillings and sixpence of our
present money. The man who bought it must have parted with the
command of a quantity of labour and subsistence equal to what that
sum would purchase in the present times.
The reduction in the real price of the coarse manufacture, though
considerable, has not been so great as in that of the fine.
In 1463 , being the 3rd of Edward IV., it was enacted, that ' no
' servant in husbandry, nor common labourer, nor servant to any
' artificer inhabiting out of a city or burgh, shall use or wear in their
' clothing any cloth above two shillings the broad yard.' In the 3rd of
Edward IV. two shillings contained very nearly the same quantity of
silver as four of our present money. But the Yorkshire cloth which is
now sold at four shillings the yard, is probably much superior to any
that was then made for the wearing of the very poorest order of com
mon servants. Even the money price of their clothing, therefore, may,
in proportion to the quality, be somewhat cheaper in the present than
it was in those ancient times. The real price is certainly a good deal
cheaper. Tenpence was then reckoned what is called the moderate
and reasonable price of a bushel of wheat. Two shillings, therefore,
was the price of two bushels and near two pecks of wheat, which in the
present times, at three shillings and sixpence the bushel, would be
worth eight shillings and ninepence. For a yard of this cloth the poor
servant must have parted with the power of purchasing a quantity of
subsistence equal to what eight shillings and ninepence would purchase
in the present times. This is a sumptuary law too, restraining the
luxury and extravagance of the poor. Their clothing, therefore, had
commonly been much more expensive.
The same order of people are, by the same law, prohibited from
wearing hose, of which the price should exceed fourteen-pence the pair,
equal to about eight-and-twenty pence of our present money. But
fourteen-pence was in those times the price of a bushel and near two
pecks of wheat ; which, in the present times, at three and sixpence the
bushel, would cost five shillings and threepence. We should in the
present times consider this as a very high price for a pair of stockings
to a servant of the poorest and lowest order. He must, however, in
those times have paid what was really equivalent to this price for them.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 211

In the time of Edward IV. the art of knitting stockings was pro-
bably not known in any part of Europe. Their hose were made of
common cloth, which may have been one of the causes of their dear-
ness. The first person that wore stockings in England is said to have
been Queen Elizabeth. She received them as a present from the
Spanish ambassador.
Both in the coarse and in the fine woollen manufacture, the ma-
chinery employed was much more imperfect in those ancient, than it is
in the present times. It has since received three very capital improve-
ments, besides, probably, many smaller ones of which it may be difficult
to ascertain either the number or the importance. The three capital
improvements are ; first, the exchange of the rock and spindle for the
spinning-wheel, which, with the same quantity of labour, will perform
more than double the quantity of work. Secondly, the use of several
very ingenious machines which facilitate and abridge in a still greater
proportion the winding of the worsted and woollen yarn, or the proper
arrangement of the warp and woof before they are put into the loom ;
an operation which, previous to the invention of those machines, must
have been extremely tedious and troublesome. Thirdly, the employ-
inent of the fulling mill for thickening the cloth, instead of treading it
in water. Neither wind . nor water mills of any kind were known in
England so early as the beginning of the sixteenth century, nor, so far
as I know, in any other part of Europe north of the Alps. They had
been introduced into Italy some time before.
The consideration of these circumstances may, perhaps, in some
measure explain to us why the real price both of the coarse and of the
fine manufacture , was so much higher in those ancient, than it is in the
present times. It cost a greater quantity of labour to bring the goods
to market. When they were brought thither, therefore , they must have
purchased or exchanged for the price of a greater quantity .
The coarse manufacture probably was, in those ancient times, carried
on in England, in the same manner as it always has been in countries
where arts and manufactures are in their infancy. It was probably a
household manufacture, in which every different part of the work was
occasionally performed by all the different members of almost every
private family; but so as to be their work only when they had nothing
else to do, and not to be the principal business from which any ofthe
derived the greater part of their subsistence. The work which is pc、 ·
formed in this manner, it has already been observed, comes always
much cheaper to market than that which is the principal or sole fund
of the workman's subsistence. The fine manufacture, on the other
hand, was not in those times carried on in England, but in the rich and
commercial country of Flanders ; and it was probably conducted then,
in the same manner as now, by people who derived the whole or the
principal part of their subsistence from it. It was besides a foreign
14 *
212 IMPROVEMENT IN CONDITION OF SOCIETY RAISES RENT OF LAND.

manufacture, and must have paid some duty, the ancient custom of
tonnage and poundage at least, to the king. This duty, indeed, would
not probably be very great. It was not then the policy of Europe to
restrain, by high duties, the importation of foreign manufactures, but
rather to encourage it, in order that merchants might be enabled to
supply, at as easy a rate as possible, the great men with the conve-
niencies and luxuries which they wanted, and which the industry of
their own country could not afford them.
The consideration of these circumstances may perhaps in some
measure explain to us why, in those ancient times, the real price of the
coarse manufacture was, in proportion to that of the fine, so much
lower than in the present times. "¹

CONCLUSION OF THE CHAPTER.

I SHALL conclude this very long chapter with observing, that every
improvement in the circumstances of the society tends either directly
or indirectly to raise the real rent of land, to increase the real wealth
of the landlord, his power of purchasing the labour, or the produce of
the labour of other people.
The extension of improvement and cultivation tends to raise it
directly. The landlord's share of the produce necessarily increases
with the increase of the produce.
That rise in the real price of those parts of the rude produce of land,
which is first the effect of extended improvement and cultivation, and
afterwards the cause of their being still further extended, the rise in the
price of cattle, for example, tends too to raise the rent of land directly,
and in a still greater proportion. The real value of the landlord's share
his real command of the labour of other people, not only rises with the
real value of the produce, but the proportion of his share to the whole
produce rises with it. That produce, after the rise in its real price,
requires no more labour to collect it than before. A smaller proportion
of it will, therefore, be sufficient to replace, with the ordinary profit, the
stock which employs that labour. A greater proportion of it must,
consequently, belong to the landlord.
All those improvements in the productive powers of labour, which
tend directly to reduce the real price of manufactures, tend indirectly
to raise the real rent of land. The landlord exchanges that part of his
rude produce, which is over and above his own consumption, or what
comes to the same thing, the price of that part of it, for manufactured
produce. Whatever reduces the real price of the latter, raises that of
the former. An equal quantity of the former becomes thereby equiva-
lent to a greater quantity of the latter ; and the landlord is enabled to
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 213

purchase a greater quantity of the conveniencies, ornaments, or luxu-

ries, which he has occasion for. 92
Every increase in the real wealth of the society, every increase in the
quantity of useful labour employed within it tends indirectly to raise
the real rent of land. A certain proportion of this labour naturally
goes to the land. A greater number of men and cattle are employed
in its cultivation, the produce increases with the increase of the stock
which is thus employed in raising it, and the rent increases with the
produce.
The contrary circumstances, the neglect of cultivation and improve
ment, the fall in the real price of any part of the rude produce of land,
the rise in the real price of manufactures from the decay of manufac-
turing art and industry, the declension of the real wealth of the society,
all tend, on the other hand, to lower the real rent of land, to reduce the
real wealth of the landlord, to diminish his power of purchasing either
the labour, or the produce of the labour of other people.
The whole annual produce of the land and labour of every country,
or what comes to the same thing, the whole price of that annual
produce, naturally divides itself, it has already been observed, into
three parts,—the rent of land, the wages of labour, and the profits of
stock ; and constitutes a revenue to three different orders of people,—
to those who live by rent, to those who live by wages, and to those who
live by profit. These are the three great original and constituent orders
of every civilized society, from whose revenue that of every other order
is ultimately derived.
The interest of the first of those three great orders, it appears from
what has been just now said, is strictly and inseparably connected with
the general interest of the society. " Whatever either promotes or
obstructs the one, necessarily promotes or obstructs the other. When
the public deliberates concerning any regulation of commerce or police,
the proprietors of land never can mislead it, with a view to promote
the interest of their own particular order ; at least, if they have
any tolerable knowledge of that interest. They are, indeed, too
often defective in this tolerable knowledge. They are the only one
of the three orders whose revenue costs them neither labour nor carc,
but comes to them, as it were, of its own accord, and independent of
any plan or project of their own. That indolence, which is the natural
effect of the ease and security of their situation, renders them too often,
not only ignorant, but incapable of that application of mind which is
necessary in order to foresee and understand the consequences of any
public regulation.
The interest of the second order, that of those who live by wages, is
as strictly connected with the interest of the society as that of the first.
The wages of the labourer, it has already been shown, are never so
high as when the demand for labour is continually rising. or when the
214 STOCK EMPLOYED FOR PROFIT PROMOTES USEFUL LABOUR.

quantity employed is every year increasing considerably. When this

real wealth of the society becomes stationary, his wages are soon
reduced to what is barely enough to enable him to bring up a family,
or to continue the race of labourers. When the society declines, they
fall even below this. The order of proprietors may, perhaps, gain
more by the prosperity of the society than that of labourers ; but there
is no order that suffers so cruelly from its decline. But though the
interest of the labourer is strictly connected with that of the society,
he is incapable either of comprehending that interest, or of understand-
ing its connexion with his own. His condition leaves him no time to
receive the necessary information, and his education and habits are
commonly such as to render him unfit to judge even though he was
95
fully informed. " In the public deliberations, therefore, his voice is little
heard and less regarded, except upon some particular occasions, when
his clamour is animated, set on, and supported by his employers, not
for his, but their own particular purposes.
His employers constitute the third order, that of those who live by
profit. It is the stock that is employed for the sake of profit, which
puts into motion the greater part of the useful labour of every society.
The plans and projects of the employers of stock regulate and direct
all the most important operations of labour, and profit is the end pro-
posed by all those plans and projects. But the rate of profit does
not, like rent and wages, rise with the prosperity and fall with the
declension of the society. On the contrary, it is naturally low in rich
and high in poor countries, and it is always highest in the countries
which are going fastest to ruin. 96 The interest of this third order, there-
fore, has not the same connexion with the general interest of the society
as that of the other two. Merchants and master manufacturers are, in
this order, the two classes of people who commonly employ the largest
capitals, and who by their wealth draw to themselves the greatest share
of the public consideration. As during their whole lives they are
engaged in plans and projects, they have frequently more acuteness
of understanding than the greater part of country gentlemen. As
their thoughts, however, are commonly exercised rather about the
interest of their own particular branch of business, than about that of
the society, their judgment, even when given with the greatest candour
(which it has not been upon every occasion), is much more to be
depended upon with regard to the former of those two objects than
with regard to the latter. Their superiority over the country gentle-
man is, not so much in their knowledge of the public interest, as in
their having a better knowledge of their own interest than he has of
his. It is by this superior knowledge of their own interest that they
have frequently imposed upon his generosity, and persuaded him to
give up both his own interest and that of the public, from a very
simple but honest conviction, that their interest, and not bis, was the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 215

interest of the public. The interest of the dealers, however, in any

particular branch of trade or manufactures, is always in some respects
different from , and even opposite to, that of the public. To widen the
market and to narrow the competition is always the interest of the
dealers. To widen the market may frequently be agreeable enough to
the interest of the public ; but to narrow the competition must always
be against it, and can serve only to enable the dealers, by raising their
profits above what they naturally would be, to levy, for their own
benefit, an absurd tax upon the rest of their fellow-citizens. The
proposal of any new law or regulation of commerce which comes from
this order, ought always to be listened to with great precaution, and
ought never to be adopted till after having been long and carefully ex-
amined, not only with the most scrupulous, but with the most suspicious
attention. It comes from an order of men, whose interest is never
exactly the same with that of the public, who have generally an interest
to deceive and even to oppress the public, and who accordingly have,
upon many occasions, both deceived and oppressed it.

Average of The average ge ent The average

Price of the
Years Quarter ofWheat the different Price of each Years Price of the
Year in Mo- XII. Quarter of Wheat the differof
Avera Price of each
Year in Mo-
XII. each Year. Prices ofthe ney ofthe each Year. Prices of the ney of the
same Year. present times . same Year, present times.
£ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d.
I202 Ο 12 O I 16 O Bt. fwd. 14 14 3
10046 OO
0400020

O 12 O
2 0 3 1258
40040

1205 O 13 4 0 13 5 0 17 0 2 II O
O 15
6000002
1000223

1223 I 16 O
Ο ΙΟ 1270 5. 12 o 16 16 097
1237
1243 O 2 8
O 2 1286 O 9 4 I 8 0
1244 O 16
040

1246 O 16
1247 0 13 4 Total £35 9 3
1257 I 4 3 12
Average Price £2 19 1
Carried forward £14 14 3
216 TABULAR STATEMENT AS TO AVERAGE PRICES OF WHEAT.

Average of The average The average

Price ofthe Price of each Average of Price of each
Years Quarter
XII. ofWheat the differen t Year in Mo- Years Price of the the different Yearin Mo-
each Year. Prices of the
same Year. ney of the XII. Quarter
each of Wheat
Year. Prices ofthe ney the
same Year. presentoftim
present times .) es.
£ S. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d.
1287 0 3 4 Ο ΙΟ O Bt. fwd. 7 17 5

7OO2O ++ 3062M
20000 oo ooo∞ ∞ +
8 I I

OHHHH 2 2 ON 4000
1309
I O 1315 I 3
O I 4 I
O I 6 6 I IO
1288 о I 8 08131 I 12 I 10 6 4 II 6
O 2 .0
3 4
9
O 12 1317 2 I 19 6 5 18 6
O 6 o
1289 O 2 O O IO II 10 4
Ο ΙΟ 8 1336 O 6 O
I о 1338 4 O IO O
220

1290 O 16 8 O
1294 O 16 O 8 Total £23 4 II
1302 O 4 O 12
Average Price £1 18 8
Carried forward £7 17 5

average Theaverage
Average of The Average of
Years Price of the Price ofeach Years Price of the
the differ nt Year the different Price ofeach
Mo-
XII. Quarter of heat
each Year Prices ofthe ney of in Mo- XII. Quarter ofWheat
the each Year. Prices ofthe Yearin
ney of the
2000
+0000

same Year. present times. same Year. present times.

4OONON - HOOOoooo
400100 - HOOOO 。。。。。

41030
200∞ ∞ ∞ 0 0 0 0 +
SANON5o +

175245 a at

500 +06506 ++++ ∞

+0

£ s. d. £ s. d.
£ s. d. £ s. d. £ s. d. £ s. d.
I 7 01423 8 O 16 O
.

1339 9
1349 2 O 0 5 2 1425 4 O 8 O
1359 I 2 1434 2 13 4
1361 2 81435 5 4 Ο ΙΟ
I 15 O I
600000

1363 O 15
3/ +

2 2
+ | 2

3 4 68
T

1439
‫علم‬

I
+ 4∞

1369 2 -
O

I 1440 8 0
1379 O 8 4
1444
о

1387 4
O 13 1445 9 O
1390 O 14 0 14 5 I 13 7 1447 0 16 0
0 16 1448 O 13
1401 Ο 16 I 17 41449 Ο ΙΟ
∞

4 42 O 16
1407 3 10 O 8 II 14511
•

O 3 4
1416 O 16 I 12 о Total 12 15 4
Total 15 9 4 Average Price LII 31
Average Price £159
 ∞ow∞∞∞∞∞OCAS
SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 217
The average Average of The average
Years Price of the Average of Price ofeach Price of the Price of each
XII. Quarter ofWheat the different Year in Mo- Years the differen
Prices ofthet Year in Mo-
each Year. Prices ofthe
sam Year. ney of the XIL Quarte rof Wheat
each Year. same Year. ney of the
ent
pres time s. present times
142800∞∞∞∞∞∞0 +0

400000 oooooO 2000

40000 oooo
420000 OOOOOOOO

20∞oooooo0 0 0 + 000
cour
45-758 216 +++ 30

400002∞∞∞∞
£ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d.

∞
+
1453 0 5 4 Ο ΙΟ 8 1499 о
1455 I O 2 41504
1457 O 15 4 1521|
1459 Ο ΙΟ O 1551
1460 - o 16 o 1553
8 1554 O
m

1463 I IO O 3
O

1555
1464 6 8 Ο ΙΟ o 1556
1486 I 4 I 17 0
1491 0 14 8 I 2
1494 1557 O 6 0 1780 1781
1495 0 о 5

∞∞∞
OO O

OOO
14971 I O 1558 I II 8
1559 8
Total £8 9 01560
Average Price £o 14 I Total £60 21
Average Price £0.0

Average of The average The average

Years Price of the the different Price of each Price of the Average of Price ofeach
Year in Mo- Years er ofWheat the different Year in Mo-
XII. Quarter
eachofWheat
Year. Prices ofthe
same Year. ney of the XII. Quarteach Year. Prices ofthe
same Year. ney ofthe
present times. present times.
£ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d.
1561 o 8 O 0 8 0 Bt. fwd. 15 9 O
1562 o 8 O o 8 o 5 4
2 16 1597 4 12 O 4 12 O
2
w

1574 I 4 1598 2 16 8 2 16 8
1587 3 4 O 3 4 O 1599 I 19 2 I 19 2
1594 2 16 O 2 16 o 1600 I 17 8 I 17 8
1595 2 13 O 2 13 O 1601 I 14 10 I 14 10
1596 4 O O 4 O O Total £28 94
Carried forward £15 9 0 Average Price £275
Prices ofthe Quarter ofnine Bushels ofthe best or highest priced Wheat at WindsorMarket,
on Lady-Day and Michaelmas, from 1595 to 1764, both inclusive ; the Price ofeach Year
being the Medium between the highest Prices of those two Market days.
200400∞∞

Years £ s. d. Years. £ s. d. Years. s. d. | Years. £ s. d.

1595 - 2 O
OI I -
Bt. fd. 29 3 4 1621 4 Bt. fd. 22 12
1596 2 8 O 1609 - 2 10 O 1622 - 2 18 8 1631 - 38 0
1597 - 396 1610 -I 15 10 1623 - 2 12 O 1632 - 2 13
1598 2 16 8 1611 - 1 18 8 1624 - 2 8 O 1633 2 18
1599 - I 19 2 1612 - 2 2 4 1625 2 12 O 1634 2 16
1600 -117 8 1613 - 2 8 8 1626 - 2 9 4 1635 2 16
+ 000∞

1601 -I 14 IO 1614 2 I 81 1627 I 16 1636 2 16 8

1602 - I 9 4 1615 I 18 8 1628 I 8
1603 I 15 1616 - 2 O 4 1629 - 2 2 16)40 0
1604 I IO 1617 2 8 8 1630 - 2 15
1605 I 15 10 1618 2 6 8 £2 10
O

1606 -I 13 O 1619 I 15 4 Cd. fd. 22 12

1607 - 1 16 8 1620 I IO 4
1608 - 2 16 8 26) 540 6
Cd. fd. 29 ? 4 £2 163
218 TABULAR STATEMENTS OF AVERAGE PRICES OF WHEAT.

Wheat per Quarter. Wheat per Quarter.

Wheat per Quarter. Wheat per Quarter.
Years. £ s. d. Years. £ s. d. Years. £ s. d. Years. £ s. d.
1637 2 13 0 Bt. fwd.79 14 101701 I 17 8 Bt. fwd.71 7 6
1638 2 17 4 1671 2 2 о 1702 - I 9 6 1735 2 3
1639 - 2. 4 IO 1672 2 I о 1703 I 16 1736 2
1640 -- 2 4 8 1673 - 2 6 8 1704 2 6 6 1737 I 18
1641 - 2 8 O 1674 38 8 1705 I IO O 1738 I 15
1642) Wanting in The
the 1675 - 3 4 8 1706 - I 6 1739 - I 18 6
1643 acco
yearunt. sup-
1646 1676 I 18 O1707 I 8 6 1740 2 10 8
1644 pliedby Bishop 1677 2 2 1708 2 1.6 1741 - 2 6 8
Fleetwood.
1645 1678 2 19 01709 3 18 6 1742 - I 14 O
1646 - 2 8 0 1679 3 0 1710 3 18 O 1743 I 4 10
1647 3 13 8 1680 - 2 1711 2 14 0 1744 - I 4 IO
1648 - 4 5 1681 2 1712 2 6 4 1745 - I 7 6
1649 - 4 O O 1682 - 2 1713 2 II O 1746 I 19 0
1650 - 3 16 1683 - 2 1714 - 2 10 4 1747 - I 14 10
1651 3 13 4 1684 - 2 1715 2 3 O 1748 I 17 O
1652 2 9 1685 2 1716 2 O 1749 - I 17 O
1653 - I 15 6 1686 I 14 O1717 2 5 8 1750 - I 12 6
1654 I 6 1687 I 1718 1 18 10 1751 - I 18 6
1655 I 13 4 1688 2 6 0 1719 I 15 O 1752 2 I IO
1656 2 3 1689 I IO O1720 I 17 1753 2 4 8
1657 2 6 8 1690 I 14 8 1721 I 17 6 1754 I 14 8
1658 350 1691 - I 14 1722 I 16 0 1755 I 13 10
1659 3 6 1692 2 6 8 1723 I 14 8 1756 2 5 3
1660 2 16 6 1693 37 8 1724 I 17 0 1757 3 O
1694 - 340
2 22

1661 3 10 1725 28 6 17 58 2 10 O
1662 www 3 14 0 1695 - 2 13 01726 2 6 0 1759 I 19 10
1663 - 2 17 1696 3 II 1727 2 2 1760 - I 16 6
1664 - 2 O 6 1697 3 1728 2 14 6 1761 I IO 3
1665 2 9 4 1698 3 1729 2 6 10 1762 I 19 O
1666 I 16 1699 3 1730 I 16 6 1763 2 0 9
1667 I 16 O 1700 - 2 1731 I 12 IO 1764 - 269
1668 2 O 1732 I 6 8
1669 2 4 60) 153 I 8 1733 I 8 4 64) 129 13 6
1670 - 2 I 1734 ― 1 18 10
£2 11 01 £20 61
Cd. fd. 79 14 10 Cd. fd. 717 6
Wheat per Quarter. Wheat per Quarter.
Years. £ s. d. Years. £ s. d.
1731 I 12 10 1741 2 6 8
1732 I 6 8 1742 I 14 O
1733 I 8 4 1743 I 4 IO
1734 1 18 10 1744 I 4 IO
1735 2 3 1745 I 7 6
1736 2 O 1746 I 19
1737 I 18 1747 I 14 10
1738 I 15 6 1748 I 17
1739 I 18 6 1749 I 17
1740 2 10 8 1750 I 12
10) 18 12 8 10) 16 18 2
£ 1 17 3 £1 13 91
For a continuation of this table, see end of note on Corn Laws in Appendix,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 219

BOOK II.- OF THE NATURE, ACCUMULATION, AND EMPLOYMENT

OF STOCK.
INTRODUCTION.-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 everything for himself, it is not necessary that any
stock should be accumulated or stored up beforehand, 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 pro-
duce or, what is the same thing, with the price of the produce of his
own. But this purchase cannot be made till such time as the produce
of his own labour has not only been completed, but sold. A stock of
goods of different kinds, therefore, must be stored up somewhere
sufficient to maintain him, and to supply him with the materials and
tools of his work, till such time, at least, as both these events can be
brought about. A weaver cannot apply himself entirely to his peculiar
business, unless there is beforehand stored up somewhere, either in his
own 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 accumu
lation 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 pre-
vious to the division of labour, so labour can be more and more sub-
divided 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 mors 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 beforehand. But the number of workmen in every
branch of business generally increases with the division of labour in
220 THE STATE OF THE LABOURING POOR IN ALL COUNTRIES.

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 pos-
sible. 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 capitals of different kinds,
and the effects of the different employments of those capitals. This
book is divided into five chapters. In the first chapter, I have endea-
voured to show 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.

CHAP. I.- 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. "
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 221

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 im-
mediate 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 may be 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 exchanges, 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 circu-
lating 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 tar greater part of the capital of all such master artificers, how-
 222 STOCK OF A COUNTRY SAMF AS OF ITS INHABITANTS.

ever, is circulated, either in the wages of their workmen, or in the

price of their materials, and to be repaid with a profit by the price
of the work.
In other works a much greater fixed capital is required. In a great
iron-work for example, the furnace for melting the ore, the forge, the
slitt-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 pur-
poses, 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 posses-
sion, 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
bought in, neither for labour nor for sale, but in order to make a profit
by their wcol, 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 consump-
·
tion, 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 any one time in the country, make a part of
this first portion. The stock that is laid out in a house, if it is to be
the dwelling-house of the proprietor, ceases from that moment to serve
in the function of a capital, or to afford any revenue to its owner. A
• Soe ante, p. 2 .
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 223

dwelling-house, as such, contributes nothing to the revenue of its inha-

bitant ; 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 func
tion of a capital to it, and the revenue of the whole body of the people
cn never be in the smallest degree increased by it. Clothes and house-
hold 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 our mas-
querade dresses for a night. Upholsterers frequently let furniture by
the month or by the year. Undertakers let the furniture for funerals
by the day and by the week. 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 imme-
diate consumption, what is laid out in houses is most slowly consumed.
A stock of clothes may last several years : a stock of furniture half a
century or a century : but a stock of houses, well built and properly
taken care of, may last many centuries. Though the period of total
consumption, however, is more distant, they are still as really a
stock reserved for immediate consumption as are either clothes or
household furniture.
The second of the three portions into which the general stock of the
society divides itself, is the fixed capital ; of which the characteristic is,
that it affords a revenue or profit without circulating or changing mas-
ters. 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 their proprietor who lets them for a
rent, but to the person who possesses them and pays that rent for them ,
such as shops, warehouses, workshops, farmhouses, with all their neces-
sary 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 profitab
laid out in clearing, draining, enclosing, 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
224 THE COMPONENT PARTS OF CIRCULATING CAPITAL.

which facilitate and abridge labour, and by means of which an equal

circulating capital can afford a much greater revenue to its employer
in 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 which is employed in
cultivating it.
Fourthly, of the acquired and useful abilities of all the inhabitants or
members of the society. The acquisition of such talents by the main-
tenance of the acquirer during his education, study, or apprenticeship,
always costs a real expense, which is a capital fixed and realised as it
were, in his person. Those talents, as they make a part of his fortune,
so do they likewise of 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 circu-
lated 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 or manufacturer, and
1.ot 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-mer-
chant, etc. The circulating capital consists in this manner, of the pro-
visions, 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.
Ofthese 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 225

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 mainte-
nance 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 pro-
duce 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 may be reserved for
immediate consumption, is the sole end and purpose both of the fixed
and circulating capitals. It is this stock which feeds, clothes, and
lodges the people. Their riches or poverty depends upon the abundant
or sparing supplies which those two capitals can afford to the stock
reserved for immediate consumption.
So great a part of the circulating capital being continually 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 princi-
pally 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 con-
tinually 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.
Land, mines, and fisheries, require all both a fixed and a 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
Yonsumed 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
15
226 THE TREASURE-TROVE OF THE MIDDLE AGES.

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
chooses to purchase the clothes, furniture, and instruments of trade
which he wants. He sells, therefore, his rude produce for money, with
which he can 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 pro-
duce 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 tolerable security, every man of com-
mon 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 tolerable
security, does not employ all the stock which he commands, whether
it be his own or has been 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 and con-
ceal 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 threat-
ened with any of those disasters to which they consider themselves as
at all times exposed. This is said to be a common practice in Turkey,
in Hindostan, and, I believe, in most other governments of Asia. It
seems to have been a common practice among our ancestors during
the violence of the feudal government. Treasure-trove was in those
times considered as no contemptible part of the revenue of the greatest
covereigns in Europe. It consisted in such treasure as was found con-
cealed 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 char-
ter. It was put upon the same footing with gold and silver mines,
which, without a special clause in the charter, were never supposed to
De comprehended in the general grant of the lands, though mines of
lead, copper, tin, and coal, were, as things of smaller consequence,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 227

CHAP. II.- 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 the stock ; and a very few in which it consists alto-
gether in one, the wages of labour ; but that the price of every commo-
dity necessarily resolves itself into some one, or other, or all of these
three parts ; every part of it which goes neither to rent nor to wages,
being necessarily profit to somebody.
Since this is the case, it has been observed, with regard to every
particular commodity, taken separately : it must be so with regard to
all the commodities which compose the whole annual produce of the
land and labour of every country, taken complexly. The whole price
or exchangeable value of that annual produce, must resolve itself into
the same three parts, and be parcelled out among the different inhabit-
ants of the country, either as the wages of their labour, the profits of
their stock, or the rent of their land.
But though the whole value of the annual produce of the land and
labour of every country is thus divided among and constitutes a
revenue to its different inhabitants, yet as in the rent of a private
estate we distinguish between the gross rent and the nett rent, so may
we likewise in the revenue of all the inhabitants of a great country.
The gross rent of a private estate comprehends whatever is paid by
the farmer; the nett rent, what remains free to the landlord, after
deducting the expense of management, of repairs, and all other neces-
sary 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 nett rent.
The gross revenue of all the inhabitants of a great country, compre-
hends the whole annual produce of their land and labour ; the nett
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 sub-
sistence, conveniencies, and amusements. Their real wealth, too, is
in proportion, not to their gross, but to their nett revenue.
The whole expense of maintaining the fixed capital, must evidently
15 *
228 COST EXPENDED ON FIXED CAPITAL ALWAYS VIELDS A PROFIT,

be excluded from the nett revenue of the society. Neither the mate-
rials 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 instru-
ments 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 conveniences 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 ofwork-
men, 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, there-
fore, 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 229

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 pro-
duce of the estate, and consequently both the gross and the nett rent
of the landlord. When by a more proper direction, however, it can be
diminished without occasioning any diminution of produce, the gross
rent remains at least the same as before, and the nett rent is neces-
sarily augmented.
But though the whole expense of maintaining the fixed capital is thus
necessarily excluded from the nett revenue of the society, it is not the
same case with that of maintaining the circulating capital. Ofthe four
parts of which this latter capital is composed,-money, provisions, mate-
rials, 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 main-
taining the former, goes all to the latter, and makes a part of the nett
revenue of the society. The maintenance of those three parts of1 the
circulating capital, therefore, withdraws no portion of the annual pro-
duce from the nett 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 nett 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 nett
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
nett revenue .
The fixed capital, and that part of the circulating capital which con-
sists 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 deduc-
tions from the nett 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 nett
 230 MONEY, AS THE CIRCULATING MEDIUM, ADDS NOT TO REVENUE.
·
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, conveni-
encies, 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, conveniences, and amuse-
ments, regularly distributed to him in their proper proportions.
Secondly, as the machines and instruments of trade, etc. , which com-
pose the fixed capital either of an individual or of a society, make no
part either of the gross or of the nett revenue of either ; so money, by
means of which the whole 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 con-
sists altogether in those goods, and not in the wheel which circulates
them. In computing either the gross or the nett revenue of any society,
we must always, from their whole annual circulation of money and
goods, deduct the whole value of the money, of which not a single
farthing can ever make any part of either.
It is the ambiguity of language only which can make this 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 the quality
of the necessaries and conveniences of life in which he can with pro-
priety 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 pro
perly than to the former, to the money's worth more properly than to
the money.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 231

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, conveniences, and amusement. In proportion as this
quantity is great or small, so are his real riches, his real weekly revenue.
His weekly revenue is certainly not equal both to the guinea, and to
what can be purchased with it, but 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
conveniences 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 ofpurchas-
ing, 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 expres-
sion 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 there-
after, 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
232 MONEY IS THE GREAT WHEEL OR INSTRUMENT OF COMMERCE.

money pensions as they are successively paid, must always be pre-

cisely of the same value with those pensions ; as must likewise be the
revenue ofthe 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 circula-
tion, distribute to every man the revenue which properly belongs to
him, they make themselves no part of that revenue.
Thirdly, and lastly, the machines and instruments of trade, etc.,
which compose the fixed capital, bear this further resemblance to that
part of the circulating capital which consists in money ; that as every
saving in the expense of erecting and supporting those machines,
which does not diminish the productive powers of labour, is an im-
provement of the nett 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 nett revenue of the society. The
whole capital of the undertaker of every work is necessarily divided
betwixt his fixed and his circulating capital. While his whole capital
remains the same, the smaller the one part, the greater must necessarily
be the other. It is the circulating capital which furnishes the materials
and wages of 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 main-
tain than the old one. But in what manner this operation is performed,
and in what manner it tends to increase either the gross or the nett
revenue of the society, is not altogether so obvious, and may therefore
require some further explication.
There are several different sorts of paper money ; but the circulat-
ing notes of banks and bankers are the species which is best known,
and which seems best adapted for this purpose.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 233

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 circula-
tion, therefore, notes to the extent of a hundred thousand pounds,
twenty thousand pounds in gold and silver may, frequently, be a suffi-
cient 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 thou-
sand pounds of gold and silver, therefore, can, in this manner, be
spared from the circulation of the country ; and if different operations
of the same kind should, at the same time, be carried on by many
different banks and bankers, the whole circulation may thus be con-
ducted with a fifth part only of the gold and silver which would other-
wise 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, pay-
able 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 suffi-
cient 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
234 SUPERIOR ADVANTAGES OF PAPER OVER METALLIC CURRENCY.

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 in it, but must overflow.100 One million eight hundred thousand
pounds are poured into it. Eight hundred thousand pounds, there-
fore, 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 em-
ployment 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 cannot 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 the million of those metals which filled it before.
But though so great a quantity of gold and silver is thus sent abroad,
we must not imagine that it is sent abroad for nothing, or that its pro-
prietors 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 an addition to the
nett revenue of their own country. It is like a new fund, created for
carrying on a new trade ; domestic business being now transacted by
the medium of paper, and the gold and silver being converted into a
fund for this new trade.
If they employ it is 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. 101
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 con-
sume reproducing, with a profit, the whole value of their annual con-
sumption. The gross revenue of the society, the annual produce of
their land and labour, is increased by the whole value which the labour
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 235

of those workmen adds to the materials upon which they are employed ;
and their nett revenue by what remains of this value, after deducting
what is necessary for supporting the tools and the instruments of
their trade.
That the greater part of the gold and silver which, being forced
abroad by those operations of banking, is employed in purchasing
foreign goods for home consumption, is and must be employed in pur-
chasing those of this second kind, seems not only probable, but almost
unavoidable. Though some particular men may sometimes increase
their expense very considerably, though their revenue does not increase
at all, we may be assured that no class or order of men ever does so ;
because, though the principles of common prudence do not always
govern the conduct of every individual, they always influence that of
the majority of every class or order. But the revenue of idle people,
considered as a class or order, cannot, in the smallest degree, be in-
creased by those operations of banking. Their expense in general,
therefore, cannot be much increased by them, though that of a few in-
dividuals 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 purchas-
ing 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
ofidleness.
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 in-
dustry into motion, three things are requisite ; materials to work upon,
tools to work with, and the wages or recompense 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 com-
monly 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, evi-
dently, 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
236 PROPORTION OF MONEY IN CIRCULATION TO VALUE OF PRODUCE.

of those two values, and to the latter value more properly than
to the former.
When paper is substituted in the room of gold and silver money, the
quantity ofthe materials, tools, and maintenance, which the whole cir
culating 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 substi-
tution 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 con-
siderable 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 de-
scribed. 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-shillings 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 as-
serted, 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 ; the other,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 237

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 pro-
portion, 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 of issue 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 re-coined, amounted to 411,1177.
10s. 9d. 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 bave
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
* Ruddiman's Preface to Anderson's Diplomata, etc., Scotia.
238 GREAT VALUE OF BANK CREDIT TO THE TRADER. **

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 bills of exchange. They
invented, therefore, another method of issuing their promissory notes ;
by granting, what they called, cash accounts, that is by giving credit to
the extent of a certain sum (two or three thousand pounds, for example)
to any 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
piecemeal, by twenty and thirty pounds at a time, the company dis-
counting 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 conveniences and luxu-
ries with which they supply them, and the merchants again return
them to the banks in order to balance their cash accounts, or to replace
what they may have borrowed of them ; and thus almost the whole
money business ofthe country is transacted by means ofthem. Hence
the great trade of those companies.
By means of those cash accounts every merchant can, without im-
prudence, 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 239

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
byfive 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 em-
ployed in preparing his goods for the market, must be less by all those
that five hundred pounds more stock could have employed. The mer-
chant 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 ware-
house a larger quantity of goods than the London merchant ; and can
thereby both make a greater profit himself, and give constant employ-
ment 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 in-
deed, 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
heir cash accounts. 104
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. Saruld 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 im-
mediately 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
246 PROPORTION OF GOLD BANKS OUGHT TO HOLD IN RESERVE.

payment of it from the banks. When this superfluous paper was

converted into gold and silver, they could easily find a use for it by
sending it abroad ; but they could find none while it remained in the
shape of paper. There would 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 upon the banks.
Over and above the expenses which are common to every branch of
trade ; such as the expense of house-rent, the wages of servants, clerks,
accountants, etc.; the expenses peculiar to a bank consist chiefly in
two articles : first, in 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 exporta-
tion of gold and silver, by enhancing the difficulty, must necessarily
enhance still further the expense of the bank, in finding new gold and
silver in order to replenish those coffers, which empty themselves so
very rapidly. Such a company, therefore, must, in proportion to this
forced increase of their business, increase the second article of their
expense still more than the first.
Let us suppose that all the paper of a particular bank, which the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 241

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 oc-
casional 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 con-
tinually going out of its coffers as fast as they are brought into them.
Had every particular banking company always understood and at-
tended 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 (in consequence of the worn and
degraded state into which the gold coin had fallen a few years ago)
was frequently obliged to purchase gold bullion at the high price of
four pounds an ounce, which it soon after issued in coin at 37. 175. 10½d.
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 the coinage, this liberality of government did not pre-
vent altogether the expense of the bank. 106
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 bank 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 a commission, some of those banks, from the distress into which
16
242 COMMISSIONS EXACTED ON DISCOUNTS AND REMITTANCES.

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 circula-
tion, was sometimes sent abroad in the shape of coin, sometimes
melted down and sent abroad in the shape of bullion, and sometimes
melted down and sold to the bank of England at the high price of four
pounds an ounce. It was the newest, the heaviest, and the best pieces
only which were carefully picked out of the whole coin, and either sent
abroad or melted down. At home, and while they remain in the shape
of coin, those heavy pieces were of no more value than the light : but
they were of more value abroad, or when melted down into bullion at
home. The bank of England, notwithstanding their great annual
coinage, found to their astonishment, that there was every year the same
scarcity of coin as there had been the year before ; and that notwith-
standing 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 Englisk
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 ofsome bold projectors in both parts of the United
Kingdom, has been the original cause of this excessive circulation of
paper money,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 243

What a bank can with propriety advance to a merchant or under-

taker 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 necessary 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
regularly employ.
When a bank discounts to a merchant a real bill of exchange draws
by a real creditor upon a real debtor, and which, as soon as it becomes
due is really paid by that debtor ; it only advances to him a part of the
value which he would otherwise be obliged to keep by him unemployed
and in ready money for answering occasional demands. The payment
of the bill when it becomes due, replaces to the bank the value of what
it had advanced, together with the interest. The coffers of the bank,
so far as its dealings are confined to such customers, resemble a water-
pond, from which, though a stream is continually running out, yet
another is continually running in, fully equal to that which runs out ; so
that, without any further care or attention, the pond keeps always
equally, or very nearly equally full. Little or no expense can ever be
necessary for replenishing the 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
occasicns, such sums upon his cash account, and accepts of a piece-
meal re payment 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 con-
tinue to deal with such customers. Though the stream which is in this
case continually running out from its coffers may be very large, that
which is continually running into them must be at least equally large :
so that without any further care or attention those coffers are likely to
be always equally or very near equally full ; and scarce ever to require
16 *
244 RULE OF TRADE WITH SCOTCH BANKERS.

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 fre-
quent 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.
I. By this attention they were enabled to make some tolerable judg-
ment 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 payments, according as their circum-
stances 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 care-
fully into the conduct and situation of each of them. But a banking
company which lends money to perhaps five hundred different people,
and of which the attention is continually occupied by objects of a very
different kind, can have no regular information concerning the conduct
and circumstances of the greater part of its debtors beyond what its
own books can afford it. In requiring frequent and regular repayments
from all their customers, the banking companies of Scotland had pro-
bably this advantage in view.
II. 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, ha there been no paper money. The frequency, regu-
larity and amount of his repayments would sufficiently demonstrate
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 245

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 byhim
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 continu-
ally 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 cir-
culated in the country had there been no paper money ; and conse-
quently 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 of Scotland as the first.
When, partly by the conveniency of discounting bills, and partly by
that of cash accounts, the creditable traders of any country can be dis-
pensed 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 banks and
bankers, who, when they have gone thus far, cannot, consistently with
⚫heir 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 ofthe
returns is too distant from the whole of the outgoings, and the sum of
his repayment could not equal the sum of its advances within such
moderate periods of time as suit the conveniency of a bank. Still less
could a bank afford to advance him any considerable part of his fixed
capital ; of the capital which the undertaker of an iron forge, for exam-
ple, employs in erecting his forge and smelting-house, his workhouses
and warehouses, the dwelling-houses of his workmen, etc.; of the capi-
tal which the undertaker of a mine employs in sinking his shafts, in
erecting engines for drawing out the water, in making roads and
246 CAPITAL OUGHT TO BE ENOUGH TO ENSURE RISK OF CREDITORS.

waggon-ways, etc.; of the capital which the person who undertakes to

improve land employs in clearing, draining, enclosing, 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 under-
taker 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
ensure, 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 repaymen
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-tradin . 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 t
whatever sum might be wanted, without incurring any other expense
besides that of a few reams of paper. They complained of the con-
tracted views and dastardly spirit of the directors of those banks,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 247

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 capi-
tal 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 an
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 dis-
tinctly as I can.
The customs of merchants, which were established when the bar-
barous laws of Europe did not enforce the performance of their con-
tracts, and which during the course of the two last centuries have been
adopted into the laws of all European nations, have given such extra-
ordinary 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
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 con-
tents 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
248 HOW COMMISSIONS OFTEN PAID ABSORB TRADE PROFITS.

order endorsed, that is, written their names upon the back of the bill ;
each endorser becomes in his turn liable to the owner of the bill for
those contents, and if he fails to pay, he becomes, too, from tha
moment a bankrupt. Though the drawer, acceptor, and endorsers of
the bill should, all of them, be persons of doubtful credit, yet still the
shortness of the date gives some security to the owner of the bill.
Though all of them may be very likely to become bankrupts, it is a
chance if 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 commis-
sion, another bill, payable likewise two months after date. B accord-
ingly, 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 must necessarily have cost him something more than eight
per cent. in the year, and sometimes a great deal more, when either
the price of the commission happened to rise, or when he was obliged
to pay compound interest upon the interest and commission of former
bills. This practice was called raising money by circulation. 106
In a country where the ordinary profits of stock in the greater part 4
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 sur-
plus profit to the projector. Many vast and extensive projects, how-
ever, were undertaken, and for several years carried on without any
other fund to support them besides what was raised at this enormous
expense. The projectors, no doubt, had in their golden dreams the
most distinct vision of this great profit. Upon their awaking, however,
either at the end of their projects, or when they were no longer able to
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 249

carry them on, they very seldom, I believe, had the good fortune to
find their dreams realized.*
The bills which A in Edinburgh drew upon B in London, he regu-
larly 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 bankers in London. Whatever was
advanced upon such circulating bills was, in Edinburgh, advanced in
the paper of the Scotch banks, and in London, when they were dis-
counted 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 carry-
ing on some vast and extensive project of agriculture, commerce, or
* 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 fre-
quently 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 B to discharge the first bill of exchange by drawing, a
ew days before it became due, a second bill at two months' date ; not upon B, but upon some
third person, C, for example, in London. This other bill was made payable to the order of B,
who, upon its being accepted by C, discounted it with some banker in London ; and A enabled
C to discharge it by drawing, a few days before it became due, a third bill, 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 com-
mission of at least one halfper 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 easy
to procure.
250 THE RISKS WHICH BANKS RUN IN SUPPORTING PROJECTORS.

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 de
mands. 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 art-
fully contrived to draw from those banks, not only without their know-
ledge 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 same two persons do not con-
stantly 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 those 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 251

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 coun-
try. 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.107The 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 dis-
counting 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 coun-
try could easily absorb and employ, returned upon it, in order to be
exchanged for gold and silver, 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 liber-
ality with which they treated all other men, allowed many of them to
borrow upon this cash account what they paid in upon all their subse-
quent 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
252 FAILURE OF DOUGLAS HERON & CO. , BANKERS, AYR, SCOTLAND.

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, notwith-
standing its too liberal conduct, enabled to carry on business for more
than two years . When it (Douglas Heron & Co., Ayr; 400,000l. lost,
but all covered by estates of the partners) 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 continu-
ally 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 stopped,
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 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 themselv , heir 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 253

which this bank afforded to those projectors, proved a real and per-
manent 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
ery 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 most effec-
tually 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
upon 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 by every such operation ; so that in the long run they must have
ruined themselves as a mercantile company, though, perhaps, not so
soon as by the more expensive practice of drawing and redrawing.
They could still have made nothing by the interest of the paper, which,
being over and above what the circulation of the country could absorb
and employ, returned upon them, in order to be exchanged for gold and
silver, as fast as they issued it ; and for the payment of which they
were themselves continually obliged to borrow money. On the con-
trary, the whole expense of this borrowing, of employing agents to look
out for people who had money to lend, or negociating with those
people, and of drawing the proper bond or assignment, must have
fallen upon them, and have been so much clear loss upon the balance
of their accounts. The projects of replenishing their coffers in this
manner may be compared to that of a man who had a water-pond
from which a stream was 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 the stream.
But though this operation had proved, not only practicable, but profit-
able to the bank as a mercantile company, yet the country could have
254 PROJECTS OF MR. LAW TO AID THE INDUSTRY OF SCOTLAND.

derived no benefit from it, but, on the contrary, must have suffered a
very considerable loss by it. This operation could not augment in the
smallest degree the quantity of money to be lent. It could only have
erected this bank into a sort of general loan office for the whole country.
Those who wanted to borrow must have applied to this bank instead of
applying to the private persons who had lent it their money. But a
bank which lends money, perhaps to five hundred different people, the
greater part of whom its directors can know very little about, is not
likely to be more judicious in the choice of its debtors than a private
person who lends out his money 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
ofexchange, 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 com-
pleted, 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 propor-
tioned to their capitals, and which, though they might have less of the
grand and the marvellous, would have more of the solid and the profit-
able, 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 increas-
ing 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 em.
ploy 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 pos-
sibility of multiplying paper money to almost any extent, was the real
foundation of what is called the Mississippi scheme, the most extrava
gant 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 255

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 ad-
vanced to government the sum of one million two hundred thousand
pounds, for an annuity of one hundred thousand pounds, or for
96,000l. a year interest, at the rate of eight per cent. , and 4,000l. a 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
engraftment of 1,001,1717. IOS. Its whole capital stock, therefore,
amounted at this time to 2,201,1717. 10s. This engraftment 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. During the great recoinage of the silver, which was going on
at this time, the bank had thought proper to discontinue the payment
of its notes, which necessarily occasioned their discredit.
In pursuance of the 7th Anne, c. vii. the bank advanced and paid
into the exchequer the sum of 400,000l.; making in all the sum of
1,600,000l. which it had advanced upon its original annuity of 96,000l.
interest and 4,000l. 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%. 175. 10d. at six per cent.
interest, and was at the same time allowed to take in subscriptions for
doubling its capital. In 1708, therefore, the capital of the bank
amounted to 4,402,343% ; and it had advanced to government the sum
of 3,375,027%. 175. 10d.
By a call of fifteen per cent. in 1709, there was paid in and made
stock 656,2047. Is. 9d.; and by another of ten per cent. in 1710,
501,4487. 12s. 11d. In consequence of those two calls, therefore, the
bank capital amounted to 5,559,9957. 14s. 8d.
In pursuance of the 3d George I. c. 8. the bank delivered up two
millions of Exchequer bills to be cancelled. It had at this time, there-
* James Postlethwaite's History of the Public Revenue, page 301.
256 INTEREST AND DIVIDENDS OF THE BANK OF ENGLAND.

fore, advanced to government, 5,375,027%. 17s. 1od. 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 ofthe
subscriptions which it had taken in for enabling it to make this pur-
chase, its capital stock was increased by 3,400,000l. At this time,
therefore, the bank had advanced to the public, 9,375,0277. 17s. 10дd.;
and its capital stock amounted only to 8,959,9957. 14s. 8d. It was upon
this occasion that the sum which the bank had advanced to the public,
and for which it received interest, began first to exceed its capital
stock, or the sum for which it paid a dividend to the proprietors ofbank
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 11,686,800l. and its
divided capital had been raised by different calls and subscriptions to
10,780,000l. 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 repayment. This sum, therefore, did not increase
either of those two other sums. 108
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 cir-
cumstances. 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. 109
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 ofparliament, 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 greater110 part of the annuities
which are due to the creditors of the public, it circulates exchequer
bills, and it advances to government the annual amount of the land and
malt taxes, which are frequently not paid up till some years thereafter.
In those different operations, its duty to the public may sometimes have
obliged it, without any fault of its directors, to overstock the 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 1,600,000l. , 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, ш
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 257

It is not by augmenting the capital of the country, but by rendering

a greater part of that capital active and productive than would other-
wise 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 answer-
ing occasional demands, is so much dead stock, which, so long as it re-
mains 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, enables the
country to convert a great part of this dead stock into active and pro-
ductive 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 car-
ries 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-field, 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 ac-
knowledged, though they may be somewhat augmented, cannot be
altogether so secure, when they are thus, as it were, suspended upon
the Dædalian 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 pru-
dence 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 where-
withal either to pay his troope, or to furnish his magazines ; and the
17
258 CIRCULATION DIVIDED BETWEEN DEALERS AND CONSUMERS.

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 multi-
plication of it, which enables them to fill the greater part of the circu-
lation 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 parti.
cular 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 suffi-
cient. But small sums circulate much faster than large ones. A
shilling changes masters more frequently than a guinea, and a half-
penny more frequently than a shilling. Though the annual purchases
of all the consumers, therefore, are at least equal in value to those of
all the dealers, they can generally be transacted with a much smaller
quantity of money ; the same pieces of money, by a more rapid circu-
lation, 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 ten pounds value, as in
London, paper money confines itself very much to the circulation be-
tween 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 twenty shillings, as in Scotland, paper money ex-
tends itself to a considerable part of the circulation between dealers
and consumers. Before the act of parliament, which put a stop to the
circulation often and five shilling notes, it filled a still greater part of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 259

that circulation. In the currencies of North America, paper was com-

monly 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 en-
couraged to become bankers. A person whose promissory note for
five pounds, or even for twenty shillings, 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 consider-
able 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 five pounds. 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 ten pounds
value ; five pounds being, in most parts 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
ten pounds 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 al-
ways plenty of gold and silver. Where it extends itself to a consider-
able 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 sup-
pression of ten and five shilling bank notes, somewhat relieved the
scarcity of gold and silver in Scotland ; and the suppression of twenty
shilling notes would probably relieve it still more. Those metals are
said to have become more abundant in America, since the suppression
of some of their paper currencies. They are said, likewise, to have
been more abundant before the institution of those currencies.
Though paper money should be pretty much confined to the circula-
tion 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 be-
tween himself and the consumers, who are his customers, and who
bring ready money to him, instead of taking any from him. Though
17 *
260 RESTRICTION OF BANK OPERATIONS, A VIOLATION OF LIBERTY.

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 keep-
ing 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 pay-
ment the promissory notes of a banker, for any sum whether great or
small, when they themselves are willing to receive them ; or, to restrair
a banker from issuing such notes, when all his neighbours are willing to
accept ofthem , is a manifest violation of that natural liberty which it
is the proper business of law, not to infringe, but to support. Such
regulations may, no doubt, be considered as in some respects a viola-
tion of natural liberty. But those exertions of the natural liberty of a
few individuals, which might endanger the security of the whole society,
are, and ought to be, restrained by the laws of all governments ; of
the most free, as well as of the most despotical. The obligation of
building party walls, in order to prevent the communication of fire, is
a violation of natural liberty, exactly of the same kind with the regu-
lations 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 any time be had for it. Whatever is either bought or sold for such
paper, must necessarily be bought or sold as cheap as it could have
been for gold and 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
t necessarily increase the quantity of the whole currency. From
ne 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 pro-
visions 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.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 261

In 1751 and in 1752, when Mr. Hume published his Political Dis-
courses, and soon after the great multiplication of paper money in Scot-
land, 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 pro-
missory 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 some-
times 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 com-
panies constituted at that time the far greater part of the currency of
Scotland, which this uncertainty of payment necessarily degraded
below the value of gold and silver money. During the continuance of
this abuse (which prevailed chiefly in 1762, 1763, and 1764), while the
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
those bank notes exchanged for gold and silver coin had thus degraded
them four per cent. below the value of that coin. The same act of
parliament which suppressed ten and five shilling bank notes, sup-
pressed likewise this optional clause, and thereby restored the exchange
between England and Scotland to its natural rate, or to what the course
of trade and remittances might happen to make it.
In the paper currencies of Yorkshire, the payment of so small a
sum as a sixpence sometimes depended upon the condition that the
holder of the note should bring the change of a guinea to the person
262 GOVERNMENT PAPER WAS MADE CURRENT IN NORTH AMERICA,

who issued it ; a condition which the holders of such notes might fre-
quently 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 sup
pressed, in the same manner as in Scotland, all promissory notes, pay-
able to the bearer, under twenty shillings 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, a hundred pounds payable fifteen
years hence, for example, in a country where interest is at six per cent.
is worth little more than forty pounds ready money. To oblige a
creditor, therefore, to accept of this as full payment for a debt for a
hundred pounds actually paid down in ready money, was an act of such
violent injustice as has scarce, perhaps, been attempted by the govern-
ment of any other country which pretended to be free. It bears the
evident marks of having originally been, what the honest and down-
right Doctor Douglas assures us it was, a scheme of fraudulent debtors
to cheat their creditors. The government of Pennsylvania, indeed, pre-
tended, 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 a hundred pounds sterling was occasionally considered as
equivalent, in some of the colonies, to a hundred and thirty pounds,
and in others to so great a sum as eleven hundred pounds 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 parlia-
ment, 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 263

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 five shillings sterling to
pass in the colony for six and threepence, and afterwards for six and
eightpence. A pound colony currency, therefore, even when that
currency was gold and silver, was more than thirty per cent. below the
value of a pound 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 denomi-
nation of the colonial 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 pro-
vincial taxes, for the full value for which it had been issued, it neces-
sarily 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
116
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,
that 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
264 THE PROPORTION BETWEEN VALUE OF COIN AND OF GOODS.

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 or quantity of any particular paper money, which may be cur-
rent 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 pro-
portion between the quantity of labour which is necessary in order to
bring a certain quantity of gold and silver to market, and that which
may be 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 ex-
tending 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 cir
culation of each particular company within a narrower circle, and re-
duces 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 compe-
tition 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.

CHAP. III. Of the Accumulation ofCapital, or ofproductive 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 265

latter, unproductive labour. Thus the labour of a manufacturer adds,

generally, to the value of the materials which he works upon, that of
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 of 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 manu-
facturer 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. The services of the menial generally perish
in the very instant of their performance, and seldom leave any trace
or 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 quan-
tity of labour could afterwards be procured. The sovereign, for ex-
ample, 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 honour-
able, how useful, or how necessary soever, produces nothing for which
an equal quantity of service can afterwards be procured. The pro-
tection, 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 pro-
fessions : 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
* Some French authors of learning and ingenuity have used those words in a different sense.
In the last chapter of Book IV I shall endeavour to show that their sense is an improper
one.
266 ULTIMATE DESTINATION OF PRODUCE OF LAND AND LABOUR.

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. 118
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 manu-
factory, in the same manner, one part, and that always the largest, re-
places 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, there-
fore, 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 267

his capital, and placed in his stock reserved for immediate con
sumption.
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 particu-
lar 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 em-
ployed. 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 ofstock 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 be-
tween 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 con.
stituting 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
168 GREAT CAPITALS EMPLOYED IN TRADE AND MANUFACTURE.

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 culti-
vation. 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 produc ?.
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 bondmen, whose
persons and effects were equally his property. Those who were not
bondmen were tenants at will, and though the 1ent 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 house, they were equally dependent upon him as his
retainers who lived in it. But the whole produce of the land undoubt-
edly 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 im-
proved parts of the country, has been tripled and quadrupled since
those ancient times ; and this third or fourth part of the annual pro-
duce 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, yet 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, how-
ever, must have yielded very large profits. The rate of interest was
nowhere less than ten per cent., and their profits must have been suffi-
cient 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 269

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 produc-
tive 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 em-
ployed in the maintenance of idleness, than they were two or three
centuries ago. Our ancestors were idle for want of a sufficient encou
ragement 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 Fontain-
bleau. If you except Rouen and Bordeaux, 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 mem-
bers of the courts of justice, and of those who come to plead before
them, are in general idle and poor. The great trade of Rouen and
Bordeaux seems to be altogether the effect of their situation. Rouen
is necessarily the entrepôt of almost all the goods which are brought
either from foreign countries, or from the maritime provinces of
France, for the consumption of the great city of Paris. Bordeaux is
in the same manner the entrepôt of the wines which grow upon the
banks of the Garonne, and of the rivers which run into it, one of the
richest wine countries in the world, and which seems to produce the
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 em-
ployment 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 estab-
270 CAPITAL INCREASED BY PARSIMONY, BUT NOT BY PRODIGALITY.

lished at Paris, and its own consumption is the principal object of all
the trade which it carries on. London, Lisbon, and Copenhagen are,
perhaps, the only three cities in Europe which are both the constant
residence of a court, and can at the same time be considered as
trading cities, or as cities which trade not only for their own consump-
tion, but for that of other cities and countries. The situation of all the
three is extremely advantageous, and naturally fits them to be the
entrepôts 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 advan-
tageous 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 con-
tinues, 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 every-
where 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 pro-
ductive 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 271

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 main-
tenance of productive hands, tends to increase the number of those
hands whose labour adds to the value of the subject upon which it is
bestowed. It tends therefore to increase the exchangeable value of
the annual produce of the land and labour of the country. It puts
into motion an additional quantity of industry, which gives an addi- ·
tional 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 differ-
ent set of people. That portion of his revenue which a rich man an-
nually spends, is in most cases consumed by idle guests and menial
servants, who leave nothing behind them in return for their consump-
tion. 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, lodg-
ing, which the whole could have purchased, would have been distribu-
ted 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 or the ensuing
year, but, like the founder of a public workhouse, he establishes as it
were a perpetual fund for the maintenance of an equal number in all
times to come. The perpetual allotment and destination of this fund,
indeed, is not always guarded by any positive law, by any trust-right or
deed of mortmain. It is always guarded, however, by a very powerful
principle, the plain and 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 ex-
pense within his income, he encroaches upon his capital. Like him
 PRODIGALITY COMPENSATED BY FRUGALITY.

no 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 was not com-
pensated by the frugality of others, the conduct of every prodigal, by
feeding the idle with the bread of the industrious, tends not only to
beggar himself, but to impoverish his country.
Thoughthe expense ofthe prodigal should be altogether inhome-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 ofgold 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 in-
stead of one.
The same quantity of money besides, cannot long remain in any
country in which the value of the annual produce diminishes. The sole
use of money is to circulate consumable goods. By means of it, pro-
visions, materials, and finished work, are bought and sold, and distri-
buted 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
aomestic circulation, will not be allowed to lie idle. The interest of
whoever possesses it, requires that it should be employed . But having
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 273

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 con-
sumption 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 ex-
portation 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 natu-
rally 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 be long without the
quantity of those metals which it has occasion for ; and no country will
ever long retain a quantity which it has no occasion for.
Whatever, therefore, we may imagine the real wealth and revenue of
a country to consist in , whether in the value of the annual produce of
its land and labour, as plain reason seems to dictate, or in the quan-
tity 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, fish-
eries, 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
unds 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.
18
274 THE PRINCIPLE WHICH PROMPTS TO ŠAVE IŠ A LIFE-LONG ONE.

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 dis-
passionate, 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 maħ
is so perfectly and completely satisfied with his situation as to be with-
out any wish of alteration or improvement of any kind. An augment-
ation 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 regu-
larly and annually, or upon some extraordinary occasions. 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 bank-
ruptcies, the unhappy men who fall into this misfortune make but a very
small part of the whole number engaged in trade, and all other sorts of
business ; not much more perhaps than one in a thousand. Bankruptcy
is perhaps the greatest and most humiliating calamity which can befall
an innocent man. The greater part of men, 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 sonie-
times 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 ac-
quire 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 particu-
lar year consume so great a share of this produce, as not to leave a suf-
ficiency 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 275

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 ak
the frugality and good conduct of individuals may not be able to com-
pensate 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 uninter-
rupted effort of every man to better his condition, the principle from
which public and national, as well as private opulence is originally
derived, is frequently powerful enough to maintain the natural progress
of things toward improvement, in spite both of the extravagance of
government, and of the greatest errors of 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 product-
ive 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 a more proper division and dis-
tribution 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 be
tween 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 govern-
18 *
276 HOW TO FORM AN ESTIMATE OF THE COUNTRY'S PROGRESS.

ment. 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 pro-
gress 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 be 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,
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 publica-
tions 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 an hundred years before, at the accession of Elizabeth.
At this period too, we have all reason to believe, the country was much
more advanced in improvement than it had been about a century
before, towards the close of the dissensions between the houses of
York and Lancaster. Even then it was, probably, in a better condition
than it had been at the Norman conquest, and at the Norman conquest,
than during the confusion of the Saxon Heptarchy. Even at this early
period, it was certainly a more improved country than at the invasion
of Julius Cæsar, 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 for maintaining productive to main-
tain 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 accumula-
tion 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 277

many disorders and misfortunes have occurred, which, could they have
been foreseen, not only the impoverishment, but the total ruin of the
country would have been expected from them ? The fire and the
plague of London, the two Dutch wars, and disorders of the revolution,
the war in Ireland, the four expensive French wars of 1688, 1702,
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 a hundred and forty-five millions of debt, over and above all the
other extraordinary annual expense which they occasioned, so that the
whole cannot be computed at less than two hundred millions. So
great a share of the annual produce of the land and labour of the
country, has, since the revolution, been employed upon different occa-
sions, 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 year's 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 for us
even to imagine. 120
But though the profusion of government must, undoubtedly, have
retarded the natural progress of England towards wealth and improve-
ment, 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 govern-
ment, 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 pro-
gress 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 parsi-
monious government, so parsimony has at no time been the character-
istical virtue of its inhabitants. It is the highest impertinence and
presumption, therefore, in kings and ministers, to pretend to watch
278 SOME MODES OF EXPENSE SEEM TO PROMOTE PUBLIC WEALTH.

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 regal extravagance does not ruin the state, that of their subjects
never will.
As frugality increases, and prodigality diminishes the public capital,
so the conduct of those whose expense just equals their revenue, with-
out 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
more 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 build-
ings, 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 anni-
hilated 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 gen-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 279

eral 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 per-
fectly 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 the First 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 inhabi-
tants. 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 pos-
sesses, 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 favour-
able, 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 sup-
posed 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 ren-
dered unnecessary by former expense ; and when a person stops short,
he appears to do so, not because he has exceeded his fortune, but be-
cause 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
280 STOCK HELD AT INTEREST IS HELD AS CAPITAL OF LENDERS.

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, carpen-
ters, 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 penny-worths 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 pro-
duce 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 com-
panions ; but when he employs it in purchasing such durable commo-
dities, he often spends the whole upon his own person, and gives nothing
to anybody without an equivalent. The latter species of expense, there-
fore, especially when directed towards frivolous objects, the little orna-
ments of dress and furniture, jewels, trinkets, gewgaws, frequently indi-
cates 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 ac-
cumulation 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.

CHAP. IV.—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 meantime 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 immedi.te consumption. If he uses it as a capital,
ne employs it in the maintenance of productive labourers, who repro-
duce the value with a pret. He can, in this case, both restore the
capital and pay the interest without alienating or encroaching upon any
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 main-
tenance of the idle, what was destined for the support of the industri-
ous. 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.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 281

The stock which is lent at interest is, no doubt, occasionally em-

ployed 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 prodi-
gal 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 shopkeepers 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 shopkeepers 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 is borrowed 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 really 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
instruments 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
282 STOCK LENT EQUAL TO VALUE OF GOODS PURCHASED WITH IT,

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 moneyed 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 a thousand
pounds, with which W immediately purchases of B a thousand pounds
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 thousand pounds 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 dif
ferent 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, assign to the three borrowers, W, X, 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 instru-
ment 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 borrower in
return shall, during the continuance of the loan, annually assign to the
lender a smaller portion, called the interest ; and at the end of it, a
portion equally considerable with that which had originally been as-
signed 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.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 283

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 in-
crease 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 diffi-
cult to find within, the country a profitable method of employing any
new capital. There arises in consequence a competition between dif-
ferent 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 employ-
ment, 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. Law, 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 anything more about it. The following very short and plain argu-
ment, 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
 284 VALUE OF CAPITAL AND RATE OF INTEREST IN PROPORTION.

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 sup-
position it is utterly impossible that the lowering of the value of silver
could have the smallest tendency to lower the rate of interest. If a
hundred pounds are in those countries now of more value than fifty
pounds were then, ten pounds must now be of no more value than five
pounds were then. Whatever were the causes which lowered the value
of the capital, the same must necessarily have lowered that of the in-
terest, 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 neces-
sarily altered . If a hundred pounds now are worth no more than fifty
were then, five pounds now can be worth no more than two pounds
1 ten shillings 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.
Any 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 assign-
ment, 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 main-
taining 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 285

of silver which is paid to the labourer. When that is increased, there-

fore, 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 pro-
portion which those pieces bear to the whole capital employed. Thus
in a particular country five shillings a week are said to be the common
wages of labour, and ten per cent. the common profits of stock. But
the whole capital of the country being the same as before, the compe-
tition 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 re-
mained the same, would, on the contrary, produce many other impor-
tant 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 them-
selves 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 the money, or the quantity of goods
which any particular sum could purchase, was greatly augmented.
In some countries the interest of money has been prohibited by law,
But as something can everywhere be made by the use of money, some
thing 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 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.
285 LEGAL INTEREST OUGHT TO BE ABOVE LOWEST MARKET RATE.

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 some-
what 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 can-
not 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 pre-
ferred, as borrowers, to prodigals and projectors. The person who
lends money gets nearly as much interest from the former as he dares
to take from the latter, and his money is much safer in the hands of
the one set of people, than in those of the other. A great part of the
capital of the country is thus thrown into the 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. Notwith-
standing 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 287

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 com-
monly sold for ten and 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.

CHAP. V. Of the different Employment 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. 123
A capital may be employed in four different ways : either, first, in
procuring the rude produce annually required for the use and con-
sumption 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
vhere they abound to those where they are wanted ; or, lastly, in
lividing 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 the improvement of
cultivation of lands, mines, or fisheries ; in the second, those of alı
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
288 CAPITAL MUST AID THAT TRADE MAY PROSPER.

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 enjoy-
ments 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 in-
convenient 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 parti-
cular town, is limited by the demand of that town and its neighbour-
hood. The capital therefore, which can be employed in the grocery
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 289

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 com-
petition 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 mono-
polized by one or two persons. Some of them, perhaps, may some-
times decoy a weak customer to buy what he has no occasion for.
This evil, however, is of too little importance to deserve the public at-
tention, nor would it necessarily be prevented by restricting their
numbers. It is not the multitude of ale-houses, to give the most
suspicious example, that occasions a general disposition to drunken-
ness among the common people ; but that disposition arising from
other causes necessarily gives employment to a multitude of ale-houses.
The persons whose capitals are employed in any of those four ways
are themselves productive labourers. Their labour, when properly
directed, fixes and realizes itself in the subject or 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 differ-
ent 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 ofwhom 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 profits consists the
whole value which its employment adds to the annual produce of the
land and labour of the society.
The capital of the wholesale merchant replaces, together with their
profits, the capitals of the farmers and manufacturers of whom he pur-
chases 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
19
290 CAPITAL OF FARMER LARGELY EMPLOYS PRODUCTIVE LABOUR.

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
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 mate-
rials, 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 ex-
pense, its produce has its value, as well as that of the most expensive
workmen. The most important operations of agriculture seem in-
tended, not so much to increase, though they do that too, as to direct
the fertility of nature towards the production of the plants most profit-
able to man. A field overgrown with briers and brambles may fre-
quently 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 com-
pensating everything which can be regarded as the work of man. It
is seldom less than a fourth, and frequently more than a third of the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 291

whole produce. No equal quantity of productive labour employed in

manufactures can ever occasion so great a reproduction. In them
nature does nothing'; man does all ; and the reproduction must always
be in proportion to the strength of the agents that occasion it. The
capital employed in agriculture, therefore, not only puts into motion
a greater quantity of productive labour than any equal capital em-
ployed in manufactures, but in proportion, too, to the quantity of pro-
ductive labour which it employs, it adds a much greater value to
the annual produce of the land and labour of the country, to the
real wealth and revenue of its inhabitants. Of all the ways in
which a capital can be employed, it is by far the most advantageous
to the society. 124
The capitals employed in the agriculture and in the retail trade of
any society, must always reside within that society. Their employ-
ment 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 ex-
ceptions 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 neces-
sarily 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 neces-
sarily 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 foreign er
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 sur-
plus, and as effectually enables him to continue his business ; the ser-
vice 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.
19 *
292 CAPITAL EMPLOYED IN LAND, MANUFACTURE, OR EXPORT TRADE.

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 there, would be of no
value, and would soon cease to be produced. The merchants who ex-
port it replace the capitals of the people who produce it, and thereby
encourage them to continue the production ; and the British manufac-
turers 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 im-
mediate 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 capi-
tal 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 manu-
facturing 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 greater com-
mercial 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 agricul-
ture, 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
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 293

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 indivi-
dual, 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 of the country, as they will thus be enabled to make the
greatest savings. But the revenue of all the inhabitants of the country
is 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 manufac-
tures, those household and coarser manufactures excepted which neces-
sarily 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, par-
ticularly in Virginia and Maryland, belong many of them to merchants
who reside in the mother country, and afford one of the few intances
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 enable any great country to acquire
capital sufficient for all those three purposes ; unless, perhaps, we give
credit to the wonderful accounts of the wealth and cultivation of China,
ofthose of ancient Egypt, and of the ancient states of Hindostan. Even
those three countries, the wealthiest, according to all accounts, that ever
were in the world, are chiefly renowned for their superiority in agricul-
ture 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
294 ALL WHOLESALE TRADE IS OF THREE DIFFERENT SORTS.

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, ma-
nufactures, 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,
may be reduced to three different sorts. The home trade, the foreign
trade of consumption, and the carrying trade. The home trade is em-
ployed 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 consump-
tion 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 back in return at least an equal
value of other commodities. When both are the produce of domestic
industry, it necessarily replaces by every such operation two distinct
capitals, which had both been employed in supporting productive
labour, and thereby enables them to continue their support. The capi-
tal 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 em-
ployed in the agriculture or manufactures of Great Britain.
The capital employed in purchasing foreign goods for home con-
sumption, 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 the encouragement to the industry or productive labour of
the country. 125
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 295

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 consump-
tion 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 sup-
port to the industry of the country than the other. 126
The foreign goods for home consumption may sometimes be pur-
chased, 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 flax and hemp of Riga are
purchased with the tobacco of Virginia, which had been purchased
with British manufactures, the merchant must wait for the returns of
two 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 neces-
sary, had the manufactures and the flax and hemp been directly ex-
changed for one another. The whole capital employed, therefore, in
296 ADVANTAGES AND INCONVENIENCES OF FOREIGN TRADE.

such a round-about foreign trade of consumption, will generally give

less encouragement and support to the productive labour ofthe country,
than equal capital employed in more direct trade of the same kind.
Whatever be the foreign commodity with which the foreign goods
for home-consumption are purchased, it can occasion no essential
difference either in the nature of the trade, or in the encouragement
and support which it can give to the productive 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. 127 When, indeed, the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS 297

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 pro-
bably derived its name from it, the people of such countries being the
carriers to other countries. It does not, however, seem essential to the
nature of the trade that it should be so. A Dutch merchant may, for
example, employ his capital in transacting the commerce of Poland
and Portugal, by carrying part of the surplus produce of the one to
the other, not in Dutch, but in British bottoms. It may be presumed,
that he actually does so upon some particular occasions. It is upon
this 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 par-
ticular 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 encourage-
ments, 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 ulti-
mately be paid. But the great object of the political economy ofevery
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
298 ADVANTAGES OF SEA COAST AND BANKS OF NAVIGABLE RIVERS .

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 ofthe 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 sur-
plus 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 acquire a value sufficient to
compensate the labour and expense of producing it. The neighbour-
hood of the sea coast, and the banks of all navigable rivers, are ad-
vantageous 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 ninety-six thousand hogs-
heads 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 fourteen thou-
sand. If the remaining eighty-two thousand, 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 pro-
ductive labour of all those inhabitants of Great Britain who are at pre-
sent employed in preparing the goods with which these eighty-two
thousand 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 sup-
porting the productive labour of that particular country, the surplus
part of it naturally disgorges itself into the carrying trade, and is em-
ployed in performing the same offices to other countries. The carrying
trade is the natural effect and symptom of great national wealth ; but
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 299

it does not seem to be the natural cause of it. Those statesmen who
have been disposed to favour it with particular encouragements, seem
to have mistaken the effect and symptom for the cause. Holland, in
proportion to the extent of the land and the number of its inhabitants,
by far the 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 of it ; though what commonly passes for the carrying trade of
England, will frequently, perhaps, be found to be no more than a
round-about foreign trade of consumption. Such are, in a great mea-
sure, the trades which carry the goods of the East and West Indies
and of America, to 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 em-
ployed in it, is necessarily limited by the value of the surplus produce
of all those different places within the country which have occasion to
exchange their respective productions with one another. That of the
foreign trade of consumption, by the value of the 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 ab-
sorbing 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 em-
ployed in one or other of those different ways, never enter into his
thoughts. In countries, therefore, where agriculture is the most profit-
able 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
 AGRICULTUR
300 E SELDOM HAS CAPITAL ENOUGH DEVOTED TO IT .
and improvement of land. Without entering into any particular dis-
cussio of thei calculatio
n r ns, a very simple observation may satisfy us
that the result of them must be false. We see every day the most
splend
id fortunes that have been acquired in the course of a single life
by trade and manufactures, frequently from a very small capital, some-
times from no capital. A single instance of such fortun acquir by
a e ed
agricul
ture in the same time , and from such a capital, has not, perhaps,
occurr
ed in Europe during the course of the present century. In all
the great countries of Europe , however, much good land still remains
unculti
vated, and the greater part of what is cultivated, is far from
being improved to the degree of which it is capabl
therefo e. Agriculture,
re, is almost everywhere capable of absorbing a much greater
capita than ha ev ye be employ
l s er t en ed 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 advan-
tage to employ their capitals in the most distant carrying trades of
improvemen an cultivation of th
Asia and America, than in the t d e
neighbourhoo
most fertile fields in their own d, I shall endeavour to ex
plain at full length in the two following books.

BOOK III - OF THE DIFFERENT PROGRESS OF OPULENCE IN

DIFFEREN NATIONS.
T
CHAP. I. Of the natural Progress of Opulence.
THE great commerce of every civilized society is that carried on
between the inhabitants of the town and those of the country. It
consists in the exchange of rude for manufactured produce, either im-
medi ely, or by the intervention of money, or of some sort of paper
whicat
h represents money.
means of subsistence, and th e emaco
Th teun
ritr ofppma
alys su linu
esfath
cteurto
e. wnThwiethtothwne
repaysinthis supply by sending back a part of the manufactured produce
to the habitants of the country. The town , in which there neither is
nor can be any reproduction of substances, may very properly be said
to gain its whole wealth and subsistence from the country.
not, however, upon this account, imagine that the gain of the town is
the loss of the country. The gains of both are mutual and reW cieprmocual,
st
and the division of labour is in this, as in all other cases , advantageous
to all the different persons employed in the various occupations into
which it is subdivided. The inhabitants of the country purchase of the
town a greater quantity of manufactured goods, with the produce of a
much smaller quantity of their own labour, than they must have em-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 3ΟΙ

ployed had they attempted to prepare them themselves. The town

affords a market for the surplus produce of the country, or what is over
and above the maintenance of the cultivators, and it is there that the
inhabitants of the country exchange it for something else which is in
demand among them. The greater the number and revenue of the
inhabitants of the town, the more extensive is the market which it
affords to those of the country ; and the more extensive that market, it
is always the more advantageous to a great number. The corn which
grows within a mile of the town, sells there for the same price with that
which comes from twenty miles distance. But the price of the latter
must generally, not only pay the expense of raising and bringing it to
market, but afford too the ordinary profits of agriculture to the farmer.
The proprietors and cultivators of the country, therefore, which lies in
the neighbourhood of the town, over and above the ordinary profits of
agriculture, gain, in the price of what they sell, the whole value of the
carriage of the like produce that is brought from more distant parts,
and they save, besides, the whole value of this carriage in the price of
what they buy. Compare the cultivation of the lands in the neighbour-
hood of any considerable town, with that of those which lie at some
distance from it, and you will easily satisfy yourself how much the
country is benefited by the commerce of the town. Among all the
absurd speculations that have been propagated concerning the balance
of trade, it has never been pretended that either the country loses by
its commerce with the town, or the town by that with the country which
maintains it.
As subsistence is, in the nature of things, prior to conveniency and
luxury, so the industry which procures the former, must necessarily be
prior to that which ministers to the latter. The cultivation and improve-
ment of the country, therefore, which affords subsistence, must, neces-
sarily, be prior to the increase of the town, which furnishes only the
means of conveniency and luxury. It is the surplus produce of the
country only, or what is over and above the maintenance of the culti-
vators, that constitutes the subsistence of the town, which can there
fore increase only with the increase of this surplus produce. The town
indeed, may not always derive its whole subsistence from the country
in its neighbourhood, or even from the territory to which it belongs, but
from very distant countries ; and this, though it forms no exception
from the general rule, has occasioned considerable variations in the
progress of opulence in different ages and nations.
That order of things which necessity imposes in general, though not
in every particular country, is, in every particular country, promoted by
the natural inclinations of man. If human institutions had never
thwarted those natural inclinations, the towns could nowhere have
increased beyond what the improvement and cultivation of the territory
in which they were situated could support ; till such time at least as

‫י‬.
302 INHABITANTS OF TOWN AND COUNTRY SERVE EACH OTHER.

the whole of that territory was completely cultivated and improved.

Upon equal, or nearly equal profits, most men will choose to employ
their capitals rather in the improvement and cultivation of land, than
either in manufactures or in foreign trade. The man who employs his
capital in land, has it more under his view and command, and his for-
tune is much less liable to accidents than that of the trader, who is
obliged frequently to commit it, not only to the winds and the waves,
but to the inore uncertain elements of human folly and injustice, by
giving great credits in distant countries to men with whose character
and situation he can seldom be thoroughly acquainted. The capital of
the landlord, on the contrary, which is fixed in the improvement of his
land, seems to be as well secured as the nature of human affairs can
admit of. The beauty of the country besides, the pleasures of a
country life, the tranquillity of mind which it promises, and wherever
the injustice of human laws does not disturb it, the independency
which it really affords, have charms that more or less attract every-
body ; and as, to cultivate the ground was the original destination of
man, so in every stage of his existence he seems to retain a predilec-
tion for this primitive employment.
Without the assistance of some artificers, indeed, the cultivation of
land cannot be carried on, but with great inconveniency and continual
interruption. Smiths, carpenters, wheelwrights, and ploughwrights,
masons and bricklayers, tanners, shoemakers and tailors, are people
whose service the farmer has frequent occasion for. Such artificers,
too, stand occasionally in need of the assistance of one another, and as
their residence is not, like that of the farmer, necessarily tied down to
a precise spot, they naturally settle in the neighbourhood of one another,
and thus form a small town or village. The butcher, the brewer, and
the baker soon join them, together with many other artificers and
retailers, necessary or useful for supplying their occasional wants, and
who contribute still further to augment the town. The inhabitants of
the town and those of the country are mutually the servants of one
another. The town is a continual fair or market, to which the inhabit-
ants of the country resort, in order to exchange their rude for manufac-
tured produce. It is this commerce which supplies the inhabitants of
the town both with the materials of their work, and the means of their
subsistence. The quantity of the finished work which they sell to the
inhabitants of the country, necessarily regulates the quantity of their
materials and provisions which they buy. Neither their employment
nor subsistence, therefore, can augment, but in proportion to the aug-
mentation of the demand from the country for finished work ; and this
demand can augment only in proportion to the extension of improve-
ment and cultivation. Had human institutions, therefore, never dis-
turbed the natural course of things, the progressive wealth and increase
of the towns would, in every political society, be consequential, and in
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 303

proportion to the improvement and cultivation of the territory or

of the country.
In our North American colonies, where uncultivated land is still to
be had upon easy terms, no manufactures for distant sale have ever
yet been established in any of their towns. When an artificer has ac-
quired a little more stock than is necessary for carrying on his own
business in supplying the neighbouring country, he does not, in North
America, attempt to establish with it a manufacture for more distant
sale, but employs it in the purchase and improvement of uncultivated
land. From artificer he becomes planter, and neither the large wages
nor the easy subsistence which that country affords to artificers, can
bribe him rather to work for other people than for himself. He feels
that an artificer is the servant of his customers, from whom he derives
his subsistence ; but that a planter who cultivates his own land, and
derives his necessary subsistence from the labour of his own family, is
really a master, and independent of all the world.
In countries, on the contrary, where there is either no uncultivated
land, or none that can be had upon easy terms, every artificer who has
acquired more stock than he can employ in the occasional jobs of the
neighbourhood, endeavours to prepare work for more distant sale.
The smith erects some sort of iron, the weaver some sort of linen or
woollen manufactory. Those different manufactures come, in process
of time, to be gradually subdivided, and thereby improved and refined
in a great variety of ways which may easily be conceived, and which it
is therefore unnecessary to explain any further.
In seeking for employment to a capital, manufactures are, upon
equal, or nearly equal profits, naturally preferred to foreign commerce,
for the same reason that agriculture is naturally preferred to manu-
factures. As the capital of the landlord or farmer is more secure than
that of the manufacturer, so the capital of the manufacturer being at
all times more within his view and command, is more secure than that
of the foreign merchant. In every period, indeed, of every society, the
surplus part both of the rude and manufactured produce, or that for
which there is no demand at home, must be sent abroad, in order to be
exchanged for something for which there is some demand at home.
But whether the capital, which carries this surplus produce abroad be
a foreign or a domestic one, is of very little importance. If the society
has not acquired sufficient capital both to cultivate all its lands, and to
manufacture, in the completest manner, the whole of its rude produce,
there is even a considerable advantage that that rude produce should
be exported by a foreign capital, in order that the whole stock of the
society may be employed in more useful purposes. The wealth of
ancient Egypt, that of China and Hindostan, sufficiently demonstrate
that a nation may attain a very high degree of opulence, though the
greater part of its exportation trade be carried on by foreigners. The
304 MANUFACTURES AND FOREIGN TRADE AID AGRICULTURE.

progress of our North American and West Indian colonies would have
been much less rapid, had no capital but what belonged to themselves
been employed in exporting their surplus produce.
According to the natural course of things, therefore, the greater part
of the capital of every growing society is, first, directed to agriculture,
afterwards to manufactures, and last of all to foreign commerce. This
order of things is so very natural, that in every society that had any
territory, it has always, I believe, been in some degree, observed.
Some of their lands must have been cultivated before any considerable
towns could be established, and some sort of coarse industry of the
manufacturing kind must have been carried on in those towns, before
they could well think of employing themselves in foreign commerce.
But though this natural order of things must have taken place in
some degree in every such society, it has, in all the modern states of
Europe, been, in many respects, entirely inverted. The foreign com-
merce of some of their cities has introduced all their finer manufac-
tures, or such as were fit for distant sale ; and manufactures and foreign
commerce together, have given birth to the principal improvements of
agriculture. The manners and customs which the nature of their
original government introduced, and which remained after that govern-
ment was greatly altered, necessarily forced them into this unnatural
and retrograde order.

-
CHAP. II . Of the Discouragement of Agriculture in the ancient State
ofEurope after the Fall of the Roman Empire.
WHEN the German and Scythian nations overran the western pro-
vinces of the Roman empire, the confusions which followed so great a
revolution lasted for several centuries. The rapine and violence which
the barbarians exercised against the ancient inhabitants, interrupted
the commerce between the towns and the country. The towns were
deserted, and the country was left uncultivated, and the western pro-
vinces of Europe, which had enjoyed a considerable degree of opulence
under the Roman empire, sunk into the lowest state of poverty and
barbarism. During the continuance of those confusions, the chiefs
and principal leaders of those nations, acquired or usurped to them-
selves the greater part of the lands of those countries. A great part of
them was uncultivated ; but no part of them, whether cultivated cr
uncultivated, was left without a proprietor. All of them were engrossed,
and the greater part by a few great proprietors.
This original engrossing of uncultivated lands, though a great, might
have been but a transitory evil. They might soon have been divided
again, and broke into small parcels either by succession or by aliena-
tion. The law of primogeniture hindered them from being divided by
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 305

succession : the introduction of entails prevented their being broken into

small parcels by alienation.
When land, like movables, is considered as the means only of sub-
sistence and enjoyment, the natural law of succession divides it, like
them, among all the children of the family ; of all of whom the sub-
sistence and enjoyment may be supposed equally dear to the father.
This natural law of succession accordingly took place among the
Romans, who made no more distinction between elder and younger,
between male and female, in the inheritance of lands, than we do in
the distribution of movables. But when land was considered as the
means, not of subsistence merely, but of power and protection, it was
thought better that it should descend undivided to one. In those dis-
orderly times, every great landlord was a sort of petty prince. His
tenants were his subjects. He was their judge, and in some respects
their legislator in peace, and their leader in war. He made war ac-
cording to his own discretion, frequently against his neighbours, and
sometimes against his sovereign. The security of a landed estate,
therefore, the protection which its owner could afford to those who
dwelt on it, depended upon its greatness. To divide it was to ruin it,
and to expose every part of it to be oppressed and swallowed up by the
incursions of its neighbours. The law of primogeniture, therefore,
came to take place, not immediately, indeed, but in process of time,
in the succession of landed estates, for the same reason that it has
generally taken place in that of monarchies, though not always at their
first institution. That the power, and consequently the security of the
monarchy, may not be weakened by division, it must descend entire to
one of the children. To which of them so important a preference shall
be given, must be determined by some general rule, founded not upon
the doubtful distinctions of personal merit, but upon some plain and
evident difference which can admit of no dispute. Among the children
of the same family, there can be no indisputable difference but that of
sex, and that of age. The male sex is universally preferred to the
female ; and when all other things are equal, the elder everywhere takes
place of the younger. Hence the origin of the right of primogeniture,
and of what is called lineal succession.
Laws frequently continue in force long after the circumstances which
first gave occasion to them, and which could alone render them reason-
able, are no more. In the present state of Europe, the proprietor of 2
single acre of land is as perfectly secure of his possession as the pro-
prietor of a hundred thousand. The right of primogeniture, however,
still continues to be respected, and as of all institutions it is the fittest
to support the pride of family distinctions, it is still likely to endure for
many centuries. In every other respect, nothing can be more contrary
to the real interest of a numerous family, than a right which, in order
to enrich one, beggars all the rest of the children.
20
306 ENTAILS THE CONSEQUENCE OF PRIMOGENITURE.

Entails are the natural consequences of the law of primogeniture.

They were introduced to preserve a certain lineal succession, of which
the law of primogeniture first gave the idea, and to hinder any part of
the original estate from being carried out of the proposed line either by
gift, or devise, or alienation ; either by the folly or by the misfortune
of any of its successive owners. They were altogether unknown to the
Romans. Neither their substitutions nor fidei commisses bear any
resemblance to entails, though some French lawyers have thought
proper to dress the modern institution in the language and garb of
those ancient ones.
When great landed estates were a sort of principalities, entails might
not be unreasonable. Like what are called the fundamental laws of
some monarchies, they might frequently hinder the security of thou-
sands from being endangered by the caprice or extravagance of one
man. But in the present state of Europe, when small as well as great
estates derive their security from the laws of their country, nothing can
be more completely absurd. They are founded upon the most absurd
of all suppositions, the supposition that every successive generation of
men have not an equal right to the earth, and to all that it possesses ;
but that the property of the present generation should be restrained
and regulated according to the fancy of those who died perhaps five
hundred years ago. Entails, however, are still respected through the
greater part of Europe, in those countries particularly in which noble
birth is a necessary qualification for the enjoyment either of civil or
military honours. Entails are thought necessary for maintaining this
exclusive privilege of the nobility to the great offices and honours of
their country ; and that order having usurped one unjust advantage
over the rest of their fellow-citizens, lest their poverty should render it
ridiculous, it is thought reasonable that they should have another. The
common law of England, indeed, is said to abhor perpetuities, and they
are accordingly more restricted there than in any other European mon-
archy; though even England is not altogetherwithout them. In Scotland
more than one-fifth, perhaps more than one-third part of the whole lands
of the country, are at present supposed to be under strict entail, 128
Great tracts of uncultivated land were, in this manner, not only
engrossed by particular families, but the possibility of their being
divided again was as much as possible precluded for ever. It seldom
happens, however, that a great proprietor is a great improver. In the
disorderly times which gave birth to those barbarous institutions, the
great proprietor was sufficiently employed in defending his own terri-
tories, or in extending his jurisdiction and authority over those of his
neighbours. He had no leisure to attend to the cultivation and im-
provement of land. When the establishment of law and order afforded
him this leisure, he often wanted the inclination, and almost always the
requisite abilities. If the expense of his house and person either
OS
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 307

equalled or exceeded his revenue, as it did very frequently, he had no

stock to employ in this manner. If he was an economist, he generally
found it more profitable to employ his annual savings in new pur.
chases, than in the improvement of his old estate. To improve land
with profit, like all other commercial projects, requires an exact atten-
tion to small savings and small gains, of which a man born to a great
fortune, even though naturally frugal, is very seldom capable. The
situation of such a person naturally disposes him to attend rather to
ornament which pleases his fancy, than to profit for which he has so
little occasion. The elegance of his dress, of his equipage, of his
house, and household furniture, are objects which from his infancy he
has been accustomed to have some anxiety about. The turn of mind
which this habit naturally forms, follows him when he comes to think
of the improvement of land. He embellishes, perhaps, four or five
hundred acres in the neighbourhood of his house, at ten times the
expense which the land is worth after all his improvements, and finds
that if he was to improve his whole estate in the same manner, and
he has little taste for any other, he would be a bankrupt before he had
finished the tenth part of it. There still remain in both parts of the
United Kingdom some great estates which have continued without
interruption in the hands of the same family since the times of feudal
anarchy. Compare the present condition of those estates with the
possessions of the small proprietors in their neighbourhood, and you
will require no other argument to convince you how unfavourable such
extensive property is to improvement.
If little improvement was to be expected from such great proprietors,
still less was to be hoped for from those who occupied the land under
them. In the ancient state of Europe, the occupiers of land were all
tenants at will. They were all or almost all slaves ; but their slavery
was of a milder kind than that known among the ancient Greeks and
Romans, or even in our West Indian colonies. They were supposed
to belong more directly to the land than to their master. They could,
therefore, be sold with it, but not separately. They could marry, pro-
vided it was with the consent of their master ; and he could not after-
wards dissolve the marriage by selling the man and wife to different
persons. If he maimed or murdered any of them, he was liable to
some penalty, though generally but to a small one. They were not,
however, capable of acquiring property. Whatever they acquired was
acquired to their master, and he could take it from them at pleasure.
Whatever cultivation and improvement could be carried on by means
of such slaves, was properly carried on by their master. It was at his
expense. The seed, the cattle, and the instruments of husbandry were
all his. It was for his benefit. Such slaves could acquire nothing but
their daily maintenance. It was properly the proprietor himself, there-
fore, that, in this case, occupied his own lands, and cultivated them by
20
308 GREAT IMPROVEMENTS SELDOM MADE BY GREAT PROPRIETO RS

his own bondmen. This species of slavery still subsists in Russia,

Poland, Hungary, Bohemia, Moravia, and other parts of Germany. It
is only in the western and south-western provinces of Europe that it
has gradually been abolished altogether." (This slavery was abolished in
Scotland in 1795.)
But if great improvements are seldom to be expected from great
proprietors, they are least of all to be expected when they employ
slaves for their workmen. The experience of all ages and nations, I
believe, demonstrates that the work done by slaves, though it appears
to cost only their maintenance, is in the end the dearest of any. A
person who can acquire no property, can have no other interest but to
eat as much and to labour as little as possible. Whatever work he
does beyond what is sufficient to purchase his own maintenance, can
be squeezed out of him by violence only, and not by any interest of his
own. In ancient Italy, how much the cultivation of corn degenerated,
how unprofitable it became to the master when it fell under the
management of slaves, is remarked by both Pliny and Columella. In
the time of Aristotle it had not been much better in ancient Greece.
Speaking of the ideal republic described in the laws of Plato, to main-
tain five thousand idle men (the number of warriors supposed necessary
for its defence), together with their women and servants, would require,
he says, a territory of boundless extent and fertility, like the plains
of Babylon.
The pride of man makes him love to domineer, and nothing morti-
fies him so much as to be obliged to condescend to persuade his
inferiors. Wherever the law allows it, and the nature of the work can
afford it, therefore, he will generally prefer the service of slaves to that
offree men. The planting of sugar and tobacco can afford the expense
of slave cultivation. The raising of corn, it seems, in the present
times, cannot. In the English colonies, of which the principal pro-
duce is corn, the far greater part of the work is done by freemen. The
late resolution of the quakers in Pennsylvania to set at liberty all their
negro slaves, may satisfy us that their number cannot be very great.
Had they made any considerable part of their property, such a resolu- ›
tion could never have been agreed to. In our sugar colonies, on the
contrary, the whole work is done by slaves, and in our tobacco colonies
a very great part of it. The profits of a sugar plantation in any of our
West Indian colonies are generally much greater than those of any
other cultivation that is known either in Europe or America*: and the
profits of a tobacco plantation, thougn inferior to those of sugar, are
superior to those of corn, as has already been observed. Both can
afford the expense of slave cultivation, but sugar can afford it still
better than tobacco. The number of negroes, accordingly, is much
greater, in proportion to that of whites, in our sugar than in our
tobacco colonies.
• Bee note 70,
 SMITH ON HE CAUSES OF THE WEALTH OF NATIONS. 309

To the slave cultivators of ancient times, gradually succeeded a

species of farmers known at present in France by the name of
Metayers. They are called in Latin, Coloni Partiarii. They have
been so long in disuse in England that at present I know no English
name for them. The proprietor furnished them with the seed, cattle,
and instruments of husbandry, the whole stock, in short, necessary for
cultivating the farm. The produce was divided equally between the
proprietor and the farmer, after setting aside what was judged neces-
sary for keeping up the stock, which was restored to the proprietor
when the farmer either quitted or was turned out of the farm.
Land occupied by such tenants is properly cultivated at the expense
of the proprietor, as much as that occupied by slaves. There is, how-
ever, one very essential difference between them. Such tenants, being
freemen, are capable of acquiring property, and having a certain pro-
portion of the produce of the land, they have a plain interest that the
whole produce should be as great as possible, in order that their own
proportion may be so. A slave, on the contrary, who can acquire
nothing but his maintenance, consults his own ease by making the
land produce as little as possible over and above that maintenance.
It is probable that it was partly upon account of this advantage, and
partly upon account of the encroachments which the sovereign, always
jealous of the great lords, gradually encouraged their villeins to make
upon their authority, and which seems at last to have been such as
rendered this species of servitude altogether inconvenient, that tenure
in villenage gradually wore out through the greater part of Europe.
The time and manner, however, in which so important a revolution
was brought about, is one of the most obscure points in modern his-
tory. The church of Rome claims great merit in it ; and it is certain
that so early as the twelfth century, Alexander III. published a bull for
the general emancipation of slaves. It seems, however, to have been
rather a pious exhortation, than a law to which exact obedience was
required from the faithful. Slavery continued to take place almost
universally for several centuries afterwards, till it was gradually abo-
lished by the joint operation of the two interests above mentioned, that
of the proprietor on the one hand, and that of the sovereign on the
ther. A villein enfranchised , and at the same time allowed to con-
inue in possession of the land, having no stock of his own, could culti-
vate it only by means of what the landlord advanced to him, and must,
therefore, have been what the French call a metayer.
It could never, however, be the interest even of this last species of
cultivators to lay out, in the further improvement of the land, any part
of the little stock which they might save from their own share of the
produce, because the lord, who laid out nothing, was to get one-half of
whatever it produced. The tithe, which is but a tenth of the produce,
is found to be a very great hindrance to improvement, A tax, therefore,
31ɔ METAYERS IN FRANCE AND SIMILAR SCOTCH TENANTS.

which amounted to one-half, must have been an effectual bar to it. It

might be the interest of a metayer to make the land produce as much
as could be brought out of it by means of the stock furnished by the
proprietor, but it could never be his interest to mix any part of his
own with it. In France, where five parts out of six of the whole king-
dom are said to be still occupied by this species of cultivators, the
proprietors complain that their metayers take every opportunity of em-
ploying the master's cattle rather in carriage than in cultivation ; be-
cause in the one case they get the whole profits to themselves, in the
other they share them with their landlord. This species of tenants
still subsists in some parts of Scotland. They are called steel-bow
tenants. Those ancient English tenants, who are said by Chief Baron
Gilbert and Dr. Blackstone to have been rather bailiffs of the landlord
than farmers properly so called, were probably of the same kind.
To this species of tenancy succeeded, though by very slow degrees,
farmers properly so called, who cultivated the land with their own
stock, paying a certain rent to the landlord. When such farmers have
a lease for a term of years, they may sometimes find it for their interest
to lay out part of their capital in the further improvement of the farm ;
because they may sometimes expect to recover it, with a large profit,
before the expiration of the lease. The possession even of such farmers,
however, was long extremely precarious, and still is so in many parts
of Europe. They could before the expiration of their term be legally
outed of their lease, by a new purchaser ; in England, even by the ficti-
tious action of a common recovery. If they were turned out illegally
by the violence of their master, the action by which they obtained re-
dress was extremely imperfect. It did not always reinstate them in
the possession of the land, but gave them damages which never
amounted to the real loss. Even in England, the country perhaps of
Europe where the yeomanry has always been most respected, it was
not till about the 14th of Henry VII. that the action of ejectment was
invented, by which the tenant recovers, not damages only, but pos-
session, and in which his claim is not necessarily concluded by the
uncertain decision of a single assize. This action has been found so
effectual a remedy that, in the modern practice, when the landlord has
occasion to sue for the possession of the land, he seldom makes use of
the actions which properly belong to him as landlord, the writ of right
or the writ of entry, but sues in the name of his tenant, by the writ of
ejectment. In England, therefore, the security of the tenant is equal
to that of the proprietor. In England besides a lease for life of forty
shillings a year value is a freehold, and entitles the lessee to vote for a
member of parliament ; and as a great part of the yeomanry have free-
holds of this kind, the whole order becomes respectable to their land-
lords on account of the political consideration which this gives them.
There is, I believe, nowhere in Europe, except in England, any instance
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 311

of the tenant building upon the land of which he had no lease, and
trusting that the honour of his landlord would take no advantage of so
important an improvement. Those laws and those customs so favour-
able to the yeomanry, have perhaps contributed more to the present
grandeur of England, than all their boasted regulations of commerce
taken together.
The law which secures the longest leases against successors of every
kind is, so far as I know, peculiar to Great Britain. It was introduced
into Scotland so early as 1449, by a law of James II.130 Its beneficial
influence, however, has been much obstructed by entails ; the heirs of
entail being generally restrained from letting leases for any long term
of years, frequently for more than one year. A late act of parliament
has, in this respect, somewhat slackened their fetters, though they are
still by much too strait. In Scotland, besides, as no leasehold gives
a vote for a member of parliament, the yeomanry are upon this account
less respectable to their landlords than in England.
In other parts of Europe, after it was found convenient to secure
tenants both against heirs and purchasers, the term of their security
was still limited to a very short period ; in France, for example, to nine
years from the commencement of the lease. It has in that country,
indeed, been lately extended to twenty-seven, a period still too short to
encourage the tenant to make the most important improvements. The
proprietors of land were anciently the legislators of every part of
Europe. The laws relating to land, therefore, were all calculated for
what they supposed the interest of the proprietor. It was for his in-
terest, they had imagined, that no lease granted by any of his prede-
cessors should hinder him from enjoying, during a long term of years,
the full value of his land. Avarice and injustice are always short-
sighted, and they did not foresee how much this regulation must ob-
struct improvement, and thereby hurt in the long-run the real interest
of the landlord.
The farmers too, besides paying the rent, were anciently, it was sup-
posed, bound to perform a great number of services to the landlord,
which were seldom either specified in the lease, or regulated by any
precise rule, but by the use and wont of the manor or barony. These
services, therefore, being almost entirely arbitrary, subjected the tenant
to many vexations. In Scotland the abolition of all services, which are
not precisely stipulated in the lease, has in the course of a few
years very much altered for the better the condition of the yeomanry
of that country. 10
The public services to whi
whi ch the yeomanry were bound , were not
less arbitrary than the private ones. To make and maintain the high
roads, a servitude which still subsists, I believe, everywhere , though
with different degrees of oppression in different countries, was not the
only one. When the king's troops , when his household or his officers
312 THE OPPRESSION OF PURVEYANCE ABOLISHED IN BRITAIN.

of any kind passed through any part of the country , the yeomanry were
bound to provide them with horses , carriages , and provisions , at a
price regulated by the purveyor. Great Britain is, I believe , the only
monarchy in Europe where the oppression of purveyance has been
entirely abolished . It still subsists in France and Germany, 152
The public taxes to which they were subject were as irregular and
oppressive as the services. The ancient lords, though extremely un-
willing to grant themselves any pecuniary aid to their sovereign, easily
allowed him to tallage, as they called it, their tenants, and had not
knowledge enough to foresee how much this must in the end affect
their own revenue. The taille, as it still subsists in France, may serve
as an example of those ancient tallages. It is a tax upon the supposed
profits of the farmer, which they estimate by the stock that he has upon
the farm . It is his interest, therefore, to appear to have as little as
possible, and consequently to employ as little as possible in its cultiva-
tion, and none in its improvement. Should any stock happen to accu-
mulate in the hands of a French farmer, the taille is almost equal to a
prohibition of its ever being employed upon the land. This tax besides
is supposed to dishonour whoever is subject to it, and to degrade him
below, not only the rank of a gentleman, but that of a burgher, and
whoever rents the lands of another becomes subject to it. No gentle-
man, nor even any burgher who has stock, will submit to this degrada-
tion. This tax, therefore, not only hinders the stock which accumulates
upon the land from being employed in its improvement, but drives
away all other stock from it. The ancient tenths and fifteenths, so
usual in England in former times, seem, so far as they affected the
land, to have been taxes of the same nature with the taille, but all were
abolished at the Revolution.
Under all these discouragements, little improvement could be
expected from the occupiers of land. That order of people, with all
the liberty and security which law can give, must always improve under
great disadvantages. The farmer compared with the proprietor, is as a
merchant who trades with borrowed money compared with one who
trades with his own. The stock of both may improve, but that of the
one, with only equal good conduct, must always improve more slowly
than that of the other, on account of the large share of profits which is
consumed by the interest of the loan. The lands cultivated by the
farmer must, in the same manner, with only equal good conduct, be
improved more slowly than those cultivated by the proprietor ; on
account of the large share of the produce which is consumed in the
rent, and which, had the farmer been proprietor, he might have
employed in the further improvement of the land. The station of a
farmer besides is, from the nature of things, inferior to that of a pro-
prietor. Through the greater part of Europe the yeomanry are
regarded as an inferior rank of people, even to the better sort of

:
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 313

tradesmen and mechanics, and in all parts of Europe to the great 1

merchants and master manufacturers. It can seldom happen, there-
fore, that a man of any considerable stock should quit the superior, in
order to place himself in an inferior station. Even in the present
state of Europe, therefore, little stock is likely to go from any other
profession to the improvement of land in the way of farming. More
does perhaps in Great Britain than in any other country, though even
there the great stocks which are, in some places, employed in farming,
have generally been acquired by farming : the trade, perhaps, in which
of all others stock is commonly acquired most slowly. After small
proprietors, however, rich and great farmers are, in every country, the
principal improvers. There are more such perhaps in England than in
any other European monarchy. In the republican governments of
Holland and of Berne in Switzerland, the farmers are said to be not
inferior to those of England.
The ancient policy of Europe was, over and above all this, unfavour-
able to the improvement and cultivation of land, whether carried on by
the proprietor or by the farmer ; first, by the general prohibition of the
exportation of corn without a special licence, which seems to have been
a very universal regulation ; and secondly, by the restraints which were
laid upon the inland commerce, not only of corn but of almost every
other part of the produce of the farm, by the absurd laws against
engrossers, regraters, and forestallers, and by the privileges of fairs and
markets. It has already been observed in what manner the prohibition
of the exportation of corn, together with some encouragement given to
the importation of foreign corn, obstructed the cultivation of ancient
Italy, naturally the most fertile country in Europe, and at that time the
seat ofthe greatest empire in the world. To what degree such restraints
upon the inland commerce of this commodity, joined to the general
prohibition of exportation, must have discouraged the cultivation of
countries less fertile, and less favourably circumstanced, it is not per-
haps very easy to imagine.

CHAP. III. Of the Rise and Progress of Cities and Towns, after th
Fall of the Roman Empire.
THE inhabitants of cities and towns were, after the fall of the Koman
empire, not more favoured than those of the country. They consisted,
indeed, of a very different order of people from the first inhabitants of
the ancient republics of Greece and Italy. These last were composed
chiefly of the proprietors of lands, among whom the public territory
was originally divided, and who found it convenient to build their house
in the neighbourhood of one another, and to surround them with a wall
for the sake of common defence. After the fall of the Roman empire
314 TRADERS OF OLD WERE AS HAWKERS AND PEDLARS NOW ARE.

on the contrary, the proprietors of land seem generally to have lived in

fortified castles on their own estates, and in the midst of their own
tenants and dependents. The towns were chiefly inhabited by trades-
men and mechanics, who seem in those days to have been of servile
or very nearly of servile condition. The privileges which we find
granted by ancient charters to the inhabitants of some of the principal
towns in Europe, sufficiently show what they were before those grants,
The people to whom it is granted as a privilege, that they might give
away their own daughters in marriage without the consent of their lord,
that upon their death their own children, and not their lord, should
succeed to their goods, and that they might dispose of their own effects
by will, must, before those grants were made, have been either altogether
or very nearly in the same state of villenage with the occupiers of land
in the country.
They seem, indeed , to have been a very poor, mean set of people,
who used to travel about with their goods from place to place, and from
fair to fair, like the hawkers and pedlars of the present times. In all
the different countries of Europe then, in the same manner as in
several of the Tartar governments of Asia at present, taxes used to be
levied upon the persons and goods of travellers, when they passed
through certain manors, when they went over certain bridges, when
they carried about their goods from place to place in a fair, when they
erected in it a booth or stall to sell them in. These different taxes were
known in England by the names of passage, pontage, lastage, and
stallage. Sometimes the king, sometimes a great lord, who had, it seems,
upon some occasions, authority to do this, would grant to particular
traders, to such particularly as lived in their own demesnes, a general
exemption from such taxes. Such traders, though in other respects
of servile, or very nearly of servile condition, were upon this account
called Free-traders. They in return usually paid to their protector a
sort of annual poll-tax. In those days protection was seldom granted
without a valuable consideration, and this tax might, perhaps, be con-
sidered as compensation for what their patrons might lose by their
exemption from other taxes. At first, both those poll-taxes and those
exemptions seem to have been altogether personal, and to have affected
only particular individuals, during either their lives, or the pleasure of
their protectors. In the very imperfect accounts which have been pub-
lished from Domesday-book, of several of the towns of England, men-
tion is frequently made sometimes of the tax which particular burghers
paid, each of them, either to the king or to some other great lord, for
this sort of protection ; and sometimes of the general amount only of
all those taxes.*
But how servile soever may have been originally the condition of the
inhabitants of the towns, it appears evidently, that they arrived at lib-
* Brady'sHistorical Treatise of Cities and Boroughs, p. 3.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 315

erty and independency much earlier than the occupiers of land in the
country. That part of the king's revenue which arose from such poll-
taxes in any particular town used commonly to be let in farm, during a
term of years for a rent certain, sometimes to the sheriff of the county
and sometimes to other persons. The burghers themselves frequently
got credit enough to be admitted to farm the revenues of this sort which
arose out of their own town, they becoming jointly and severally answer-
ablefor the whole rent. * To let a farm in this manner was quite agree-
able to the usual economy of, I believe, the sovereigns of all the different
countries of Europe, who used frequently to let whole manors to all the
tenants of those manors, they becoming jointly and severally answer-
able for the whole rent ; but in return being allowed to collect it in their
own way, and to pay it into the king's exchequer by the hands of their
own bailiff, and being thus altogether freed from the insolence of the
king's officers ; a circumstance which in those days was regarded as of
the greatest importance.
At first, the farm of the town was probably let to the burghers, in the
same manner as it had been to other farmers, for a term of years only.
In process of time, however, it seems to have become the general
practice to grant it to them in fee, that is for ever, reserving a rent cer-
tain never afterwards to be augmented. The payment having thus
become perpetual, the exemptions, in return, for which it was made,
naturally become perpetual too. Those exemptions, therefore, ceased
to be personal, and could not afterwards be considered as belonging to
individuals as individuals, but as burghers of a particular burgh, which,
upon this account, was called a free burgh, for the same reason that
they had been called free-burghers or free-traders.
Along with this grant, the important privileges above mentioned, that
they might give away their own daughters in marriage, that their
children should succeed to them, and that they might dispose of their
own effects by will, were generally bestowed upon the burghers of the
town to whom it was given. Whether such privileges had before-been
usually granted along with the freedom of trade, to particular burghers,
as individuals, I know not. I reckon it not improbable that they were,
though I cannot produce any direct evidence of it. But however this
may have been, the principal attributes of villenage and slavery being
thus taken away from them, they now, at least, became really free in
our present sense of the word Freedom.
Nor was this all. They were generally at the same time erected into
a commonalty or corporation, with the privilege of having magistrates
and a town council of their own, of making bye-laws for their own
government, of building walls for their own defence, and of reducing
all their inhabitants under a sort of military discipline, by obliging
them to watch and ward ; that is, as anciently understood, to guard
* Madox Firma Burgi. p. 18. Hist: of Exchequer, ch. 10. sect. v. a23, first edit.
316 MUTUAL INTEREST BOUND KING AND BURGHERS TOGETHER,

and defend those walls against all attacks and surprises by night as
well as by day. In England they were generally exempted from suit
to the hundred and county courts ; and all such pleas as should arise
among them, the pleas of the crown excepted, were left to the decision
of their own magistrates. In other countries much greater and more
extensive jurisdictions were frequently granted to them. *
It might, probably, be necessary to grant to such towns as were
admitted to farm their own revenues, some sort of compulsive jurisdic-
tion to oblige their own citizens to make payment. In those disorderly
times it might have been extremely inconvenient to have left them to
seek this sort of justice from any other tribunal. But it must seem
extraordinary that the sovereigns of all the different countries of
Europe, should have exchanged in this manner for a rent certain ,
never more to be augmented, that branch of their revenue, which was,
perhaps, of all others the most likely to be improved by the natural
course of things, without either expense or attention of their own : and
that they should, besides, have in this manner voluntarily erected a
sort of independent republics in the heart of their own dominions.
In order to understand this, it must be remembered, that in those
days the sovereign of perhaps no country in Europe was able to pro-
tect, through the whole extent of his dominions, the weaker part of his
subjects from the oppression of the great lords. Those whom the law
could not protect, and who were not strong enough to defend them-
selves, were obliged either to have recourse to the protection of some
great lord, and in order to obtain it to become either his slaves or
vassals ; or to enter into a league of mutual defence for the common
protection of one another. The inhabitants of cities and burghs, con-
sidered as single individuals, had no power to defend themselves ; but
by entering into a league of mutual defence with their neighbours, they
were capable of making no contemptible resistance. The lords despised
the burghers, whom they considered not only as of a different order,
but as a parcel of emancipated slaves, almost of a different species
from themselves. The wealth of the burghers never failed to provoke
their envy and indignation, and they plundered them upon every occa-
sion without mercy or remorse. The burghers naturally hated and
feared the lords. The king hated and feared them too ; but though
perhaps he might despise, he had no reason either to hate or fear the
burghers. Mutual interest, therefore, disposed them to support the
king, and the king to support them against the lords. They were the
enemies of his enemies, and it was his interest to render them as
secure and independent of those enemies as he could. By granting
them magistrates of their own, the privilege of making bye-laws for
their own government, that of building walls for their own defence,
* Madox Firma Burgi ; also Pfeffel in the remarkable event under Frederick II. and his
surcessors of the House of Suabia.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 317

and that of reducing all their inhabitants under a sort of military dis-
cipline, he gave them all the means of security and independency of
the barons which it was in his power to bestow. Without the establish-
ment of some regular government of this kind, without some authority
to compel their inhabitants to act according to some certain plan or
system, no voluntary league of mutual defence could either have
afforded them any permanent security, or have enabled them to give
the king any considerable support. By granting them the farm of
their town in fee, he took away from those whom he wished to have
for his friends, and if one may say so, for his allies, all ground of
jealousy and suspicion that he was ever afterwards to oppress them,
either by raising the farm rent of their town, or by granting it to some
other farmer.
The princes who lived upon the worst terms with their barons, seem
accordingly to have been the most liberal in grants of this kind to their
burghs. King John of England, for example, appears to have been a
most munificent benefactor to his towns. (Madox.) Philip the First of
France lost all authority over his barons. Towards the end of his
reign, his son Lewis, known afterwards by the name of Lewis the Fat,
consulted, according to Father Daniel, with the bishops of the royal
demesnes, concerning the most proper means of restraining the
violence of the great lords. Their advice consisted of two different
proposals. One was to erect a new order of jurisdiction, by establish-
ing magistrates and a town council in every considerable town of his
demesnes. The other was to form a new militia, by making the in-
habitants of those towns, under the command of their own magistrates,
march out upon proper occasions to the assistance of the king. It is
from this period, according to the French antiquarians, that we are to
date the institution of the magistrates and councils of cities in France.
It was during the unprosperous reigns of the princes of the house of
Suabia that the greater part of the free towns of Germany received
the first grants of their privileges, and that the famous Hanseatic
league first became formidable. (Pfeffel. )
The militia of the cities seems, in those times, not to have been in-
ferior to that of the country, and as they could be more readily as -
sembled upon any sudden occasion, they frequently had the advantage
in their disputes with the neighbouring lords. In countries, such as
Italy and Switzerland, in which, on account either of their distance
from the principal seat of government, or of the natural strength of the
country itself, or of some other reason, the sovereign came to lose the
whole of his authority, the cities generally became independent re-
publics, and conquered all the nobility in their neighbourhood ; obliging
them to pull down their castles in the country, and to live, like other
peaceable inhabitants, in the city. This is the short history of the re-
public of Berne, as well as of several other cities in Switzerland. If
 318 ORIGIN OF REPRESENTATION OF BURGHS IN STATES GENERAL.

you except Venice, for of that city the history is somewhat different, it
is the history of all the considerable Italian republics, of which so great
a number arose and perished, between the end of the twelfth and the
beginning of the sixteenth century.
In countries such as France or England, where the authority of the
sovereign, though frequently very low, never was destroyed altogether,
the cities had no opportunity of becoming entirely independent. They
became, however, so considerable, that the sovereign could impose no
tax upon them, besides the stated farm-rent of the town, without their
own consent. They were, therefore, called upon to send deputies to
the general assembly of the states of the kingdom, where they might
join with the clergy and the barons in granting, upon urgent occasions,
some extraordinary aid to the king. Being generally too more favour-
able to his power, their deputies seem, sometimes, to have been em-
ployed by him as a counterbalance in those assemblies to the authority
of the great lords. Hence the origin of the representation of burghs in
the states general of all the great monarchies in Europe.
Order and good government, and along with them the liberty and
security of individuals, were, in this manner, established in cities, at a
time when the occupiers of land in the country were exposed to every
sort of violence. But men in this defenceless state naturally content
themselves with their necessary subsistence, because to acquire more
might only tempt the injustice of their oppressors. On the contrary,
when they are secure of enjoying the fruits oftheir industry, they naturally
exert it to better their condition, and to acquire not only the necessaries,
but the conveniencies and elegancies of life. That industry, therefore,
which aims at something more than necesssry subsistence, was estab-
lished in cities long before it was commonly practised by the occupiers
of land in the country. If in the hands of a poor cultivator, oppressed
with the servitude of villenage, some little stock should accumulate, he
would naturally conceal it with great care from his master, to whom it
would otherwise have belonged, and take the first opportunity of run-
ning away to a town. The law was at that time so indulgent to the
inhabitants of towns, and so desirous of diminishing the authority of
the lords over those ofthe country, that if he could conceal himself there
from the pursuit of his lord for a year, he was free for ever. Whatever
stock, therefore, accumulated in the hands of the industrious part of
the inhabitants of the country, naturally took refuge in cities, as the
only sanctuaries in which it could be secure to the person that
nad acquired it.
The inhabitants of a city, it is true, must always ultimately derive
their subsistence, and the whole materials and means of their industry,
from the country. But those of a city situated near either the sea-coast
or the banks of a navigable river, are not necessarily confined to derive
them from the country in their neighbourhood. They have a much wider
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 319

range, and may draw them from the most remote corners of the world,
either in exchange for the manufactured produce of their own industry,
or by performing the office of carriers between distant countries, and
exchanging the produce of one for that of another. A city might in
this manner grow up to great wealth and splendour, while not only the
country in its neighbourhood, but all those to which it traded, were in
poverty and wretchedness. Each of those countries, perhaps, taken
singly, could afford it but a small part either of its subsistence or of its
employment ; but all of them taken together could afford it both a
great subsistence and a great employment. There were, however,
within the narrow circle of the commerce of those times, some coun-
tries that were opulent and industrious. Such was the Greek empire as
long as it subsisted, and that of the Saracens during the reigns of the
Abassides. Such too was Egypt till it was conquered by the Turks,
some part of the coast of Barbary, and all those provinces of Spain
which were under the government of the Moors.
The cities of Italy seem to have been the first in Europe which were
raised by commerce to any considerable degree of opulence. Italy lay
in the centre of what was at that time the improved and civilized part
of the world. The crusades too, though by the great waste of stock
and destruction of inhabitants which they occasioned, they must neces-
sarily have retarded the progress of the greater part of Europe, were
extremely favourable to that of some Italian cities. The great armies
which marched from all parts to the conquests of the Holy Land, gave
extraordinary encouragement to the shipping of Venice, Genoa, and
Pisa, sometimes in transporting them thither, and always in supplying
them with provisions. They were the commissaries, if one may say
so, of those armies ; and the most destructive frenzy that ever befell the
European nations was a source of opulence to those republics.
The inhabitants of trading cities, by importing the improved manu-
factures and expensive luxuries of richer countries, afforded some food
to the vanity of the great proprietors, who eagerly purchased them
with great quantities of the rude produce of their own lands. The
commerce of the great part of Europe in those times, accordingly,
consisted chiefly in the exchange of their own rude, for the manufac-
tured produce of more civilised nations. Thus the wool of England
used to be exchanged for the wines of France and the fine cloths of
Flanders, in the same manner as the corn in Poland is at this day
exchanged for the wines and brandies of France, and for the silks and
velvets of France and Italy.
A taste for the finer and more improved manufactures, was in this
manner introduced by foreign commerce into countries where no such
works were carried on. But when this taste became so general as to
occasion a considerable demand, the merchants, in order to save the
expense of carriage, naturally endeavoured to establish some manu-
320 HOW MANUFACTURËS FOR DISTANT SALE FOUND A MARKET.

factures of the same kind in their own country. Hence the origin of
the first manufactures for distant sale that seem to have been estab-
lished in the western provinces of Europe, after the fall of the Roman
empire.
No large country, it must be observed, ever did or could subsist
without some sort of manufactures being carried on in it ; and when
it is said of any such country that it has no manufactures, it must
always be understood of the finer and more improved, or of such as
are fit for distant sale. In every large country, both the clothing and
household furniture of the far greater part of the people, are the pro-
duce of their own industry. This is even more universally the case in
those poor countries which are commonly said to have no manufac-
tures, than in those rich ones that are said to abound in them. In
the latter, you will generally find, both in the clothes and household
furniture of the lowest rank of people, a much greater proportion of
foreign productions than in the former.
Those manufactures which are fit for distant sale, seem to have been
introduced into different countries in two different ways.
Sometimes they have been introduced, in the manner above men-
tioned, by the violent operation, if one may say so, of the stocks of
particular merchants and undertakers, who established them in imita-
tion of some foreign manufactures of the same kind. Such manufac-
tures, therefore, are the offspring of foreign commerce, and such seem
to have been the ancient manufactures of silks, velvets, and brocades,
which flourished in Lucca, during the thirteenth century. They were
banished from thence by the tyranny of one of Machiavel's heroes,
Castruccio Castracani. In 1310, nine hundred families were driven
out of Lucca, of whom thirty-one retired to Venice, and offered to
introduce there the silk manufacture.* Their offer was accepted ;
many privileges were conferred upon them, and they began the manu-
facture with three hundred workmen. Such too seem to have been the
manufactures of fine cloths that anciently flourished in Flanders, and
which were introduced into England in the beginning of the reign of
Elizabeth ; and such are the present silk manufactures of Lyons and
Spitalfields. Manufactures introduced in this manner are generally
employed upon foreign materials, being imitations of foreign manu-
factures. When the Venetian manufacture was first established, the
materials were all brought from Sicily and the Levant. The more
ancient manufacture of Lucca was likewise carried on with foreign
materials. The cultivation of mulberry-trees and the breeding of silk-
worms seem not to have been common in the northern parts of Italy
before the sixteenth century. Those arts were not introduced into
France till the reign of Charles IX. The manufactures of Flanders
were carried on chiefly with Spanish and English wool. Spanish woOL
* Sandi Istor. Civ. de Vinezia, Part 2. vol. i. pp. 247, 256.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 321

was the material, not of the first woollen manufacture of England, but
of the first that was fit for distant sale. More than one half the
materials of the Lyons manufacture is at this day foreign silk ; when it
was first established, the whole or very nearly the whole was so. No
part of the materials of the Spitalfields manufacture is ever likely to
be the produce of England. The seat of such manufactures, as they
are generally introduced by the scheme and project of a few individuals,
is sometimes established in a maritime city, and sometimes in an
inland town, according as their interest, judgment, or caprice happens
to determine.
At other times manufactures for distant sale grow up naturally, and
as it were of their own accord, by the gradual refinement of those
household and coarser manufactures which must at all times be carried
on even in the poorest and rudest countries. Such manufactures are
generally employed upon the materials which the country produces,
and they seem frequently to have been first refined and improved in
such inland countries as were, not indeed at a very great, but at a con-
siderable distance from the sea coast, and sometimes even from all
water carriage. An inland country naturally fertile and easily culti-
vated, produces a great surplus of provisions beyond what is necessary
for maintaining the cultivators, and on account of the expense of land
carriage, and inconveniency of river navigation, it may frequently be
difficult to send this surplus abroad. Abundance, therefore, renders
provisions cheap, and encourages a great number of workmen to settle
in the neighbourhood, who find that their industry can there procure
them more of the necessaries and conveniences of life than in other
place. They work up the materials of manufacture which the land
produces, and exchange their finished work, or what is the same thing
the price of it, for more materials and provisions. They give a new
value to the surplus part of the rude produce, by saving the expense of
carrying it to the water-side, or to some distant market ; and they
furnish the cultivators with something in exchange for it that is either
useful or agreeable to them, upon easier terms than they could have
obtained it before. The cultivators get a better price for their surplus
produce, and can purchase cheaper other conveniences which they have
occasion for. They are thus both encouraged and enabled to increase
this surplus produce by a further improvement and better cultivation
of the land ; and as the fertility of the land had given birth to the
manufacture, so the progress of the manufacture re-acts upon the land,
and increases still further its fertility. The manufactures first supply
the neighbourhood, and afterwards, as their work improves and refines,
more distant markets. For though neither the rude produce, nor even
the coarse manufacture, could, without the greatest difficulty, support
the expense of a considerable land carriage, the refined and improved
manufacture easily may, In a small bulk it frequently contains the
21
322 THE COMPONENTS WHICH MAKE A PIECE OF CLOTH

price of a great quantity of rude produce. A piece of fine cloth, for

example, which weighs only eighty pounds, contains in it the price,
not only of eighty pounds weight of wool, but sometimes of several
thousand weight of corn, the maintenance of the different working
people, and of their immediate employers. The corn, which could with
difficulty have been carried abroad in its own shape, is in this manner
virtually exported in that of the complete manufacture, and may easily
be sent to the remotest corners of the world. In this manner have
grown up naturally, and as it were of their own accord, the manu-
factures of Leeds, Halifax, Sheffield, Birmingham, and Wolverhampton.
Such manufactures are the offspring of agriculture. In the modern
history of Europe, their extension and improvement have generally
been posterior to those which were the offspring of foreign commerce.
England was noted for the manufacture of fine cloths made of Spanish
wool, more than a century before any of those which now flourish in
the places above mentioned were fit for foreign sale. The extension
and improvement of these last could not take place but in consequence
of the extension and improvement of agriculture, the last and greatest
effect of foreign commerce, and of the manufactures immediately
introduced by it, and which I shall now proceed to explain.

CHAP. IV. How the Commerce of the Towns contributed to the

Improvement of the Country.
THE increase and riches of commercial and manufacturing towns,
contributed to improvement and cultivation of the countries to which
they belonged, in three different ways.
First, by affording a great and ready market for the rude produce of
the country, they gave encouragement to its cultivation and further
improvement. This benefit was not even confined to the countries in
which they were situated, but extended more or less to all those with
which they had any dealings. To all of them they afforded a market
for some part either of their rude or manufactured produce, and conse-
quently gave some encouragement to the industry and improvement of
all. Their own country, however, on account of its neighbourhood,
necessarily derived the greatest benefit from this market. Its rude
produce being charged with less carriage, the traders could pay the
growers a better price for it, and yet afford it as cheap to the con-
sumers as that of more distant countries.
Secondly, the wealth acquired by the inhabitants of cities was fre-
quently employed in purchasing such lands as were to be sold, of which
a great part would frequently be uncultivated. Merchants are com-
monly ambitious of becoming country gentlemen, and when they do,
they are generally the best of all improvers. A merchant is accustomed
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 323

to employ his money chiefly in profitable projects ; whereas a mere

country gentleman is accustomed to employ it chiefly in expense. The
one often sees his money go from him and return to him again with
profit : the other, when once he parts with it, very seldom expects to
see any more of it. Those different habits naturally affect their temper
and disposition in every sort of business. A merchant is commonly a
bold, a country gentleman, a timid undertaker. The one is not afraid
to lay out at once a large capital upon the improvement of his land,
when he has a probable prospect of raising the value of it in proportion
to the expense. The other, if he has any capital, which is not always
the case, seldom ventures to employ it in this manner. If he improves
at all, it is commonly not with a capital, but with what he can save out
of his annual revenue . Whoever has had the fortune to live in a mer-
cantile town situated in an unimproved country, must have frequently
observed how much more spirited the operations of merchants were in
this way, than those of mere country gentlemen. The habits, besides,
of order, economy, and attention, to which mercantile business natu-
rally forms a merchant, render him much fitter to execute, with profit
and success, any project of improvement.
Thirdly, and lastly, commerce and manufactures gradually introduced
order and good government, and with them, the liberty and security of
individuals, among the inhabitants of the country, who had before lived
almost in a continual state of war with their neighbours, and of servile
dependency upon their superiors. This, though it has been the least
observed, is by far the most important of all their effects. Mr. David
Hume is the only writer who, so far as I know, has hitherto taken
notice of it.
In a country which has neither foreign commerce, nor any of the
finer manufactures, a great proprietor, having nothing for which he can
exchange the greater part of the produce of his lands which is over
and above the maintenance of the cultivators, consumes the whole in
rustic hospitality at home. If this surplus produce is sufficient to
maintain a hundred or a thousand men, he can make use of it in no
other way than by maintaining a hundred or a thousand men. He is
at all times, therefore, surrounded with a multitude of retainers and
dependants, who having no equivalent to give in return for their main-
tenance, but being fed entirely by his bounty, must obey him, for the
same reason that soldiers must obey the prince who pays them. Be-
fore the extension of commerce and manufactures in Europe, the hos-
pitality of the rich and the great, from the sovereign down to the
smallest baron, exceeded everything which in the present times we can
easily form a notion of. Westminster Hall was the dining-room of
William Rufus, and might frequently, perhaps, not be too large for his
company. It was reckoned a piece of magnificence in Thomas Becket,
that he strowed the floor of his hall with clean hay or rushes in the
2J *
324 THE NOBLES OF OLD, AND CHIEFS, AND ANCIENT BRITONS.

season, in order that the knights and squires who could not get seats,
might not spoil their fine clothes when they sat down on the floor to
eat their dinner. The great Earl of Warwick is said to have entertained
every day at his different manors, thirty thousand people ; and though
the number here may have been exaggerated, it must, however, have
been very great to admit of such exaggeration. A hospitality nearly
of the same kind was exercised not many years ago in many different
parts of the Highlands of Scotland. It seems to be common in all
nations to whom commerce and manufactures are little known. " I have
' seen,' says Doctor Pocock, ' an Arabian chief dine in the streets of a
'town where he had come to sell his cattle, and invite all passengers,
"
even common beggars, to sit down with him and to partake of
' his banquet.'
The occupiers of land were in every respect as dependent upon the
great proprietor as his retainers. Even such of them as were not in a
state of villenage, were tenants at will, who paid a rent in no respect
equivalent to the subsistence which the land afforded them. A crown,
half-a-crown, à sheep, a lamb, was some years ago in the Highlands of
Scotland, a common rent for lands which maintained a family. In
some places it is so at this day ; nor will money at present purchase a
greater quantity of commodities there than in other places. In a
country where the surplus produce of a large estate must be consumed
upon the estate itself, it will frequently be more convenient for the pro-
prietor, that part of it be consumed at a distance from his own house,
provided they who consume it are as dependent upon him as either his
retainers or his menial servants. He is thereby saved from the embar-
rassment of either too large a company or too large a family. A tenant
at will, who possesses land sufficient to maintain his family for little
more than a quit-rent, is as dependent upon the proprietor as any ser-
vant or retainer whatever, and must obey him with as little reserve.
Such a proprietor, as he feeds his servants and retainers at his own
house, so he feeds his tenants at their houses. The subsistence of both
is derived from his bounty, and its continuance may depend upon his
good pleasure.
Upon the authority which the great proprietors necessarily had in
such a state of things over their tenants and retainers, was founded the
power of the ancient barons. They necessarily became the judges in
peace, and the leaders in war, of all who dwelt upon their estates.
They could maintain order and execute the law within their respective
demesnes, because each of them could there turn the whole force of all
the inhabitants against the injustice of any one. No other person had
sufficient authority to do this. The king in particular had not. In
those ancient times he was little more than the greatest proprietor in
his dominions, to whom, for the sake of common defence against their
common enemies, the other great proprietors paid certain respect
 SMITH ON THE CAUSES OF THE WEALT ÖF NATIONS. 325

To have enforced payment of a small debt within the lands of a great

proprietor, where all the inhabitants were armed and accustomed to
stand by one another, would have cost the king, had he attempted it
by his own authority, almost the same efforts as to extinguish a civil
war. He was, therefore, obliged to abandon the administration of
justice through the greater part of the country, to those who were
capable of administering it ; and for the same reason to leave command
of the country militia to those whom that militia would obey.
It is a mistake to imagine that those territorial jurisdictions took
their origin from the feudal law. Not only the highest jurisdictions
both civil and criminal, but the power of levying troops, of coining
money, and even that of making bye-laws for the government of their
own people, were all rights possessed allodially by the great pro-
prietors of land several centuries before even the name of the feudal law
was known in Europe. The authority and jurisdiction of the Saxon lords
in England appear to have been as great before the conquest as that
of any of the Norman lords after it. But the feudal law is not sup-
posed to have become the common law of England till after the
conquest. That the most extensive authority and jurisdictions were
possessed by the great lords in France allodially, long before the
feudal law was introduced into that country, is a matter of fact that
admits of no doubt. That authority and those jurisdictions all neces-
sarily flowed from the state of property and manners just now described.
Without remounting to the remote antiquities of either the French or
English monarchies, we may find in much later times many proofs that
such effects must always flow from such causes. It is not thirty years
ago since Mr. Cameron of Lochiel, a gentleman of Lochabar in Scot-
land, without any legal warrant whatever, not being what was then
called a lord of regality, nor even a tenant in chief, but a vassal of the
Duke of Argyle, and without being so much as a justice of peace, used,
notwithstanding, to exercise the highest criminal jurisdiction over his
own people. He is said to have done so with great equity, though
without any of the formalities of justice ; and it is not improbable that
the state of that part of the country at that time made it necessary for
him to assume this authority in order to maintain the public peace.
That gentleman, whose rent never exceeded five hundred pounds a
year, carried, in 1745, eight hundred of his own people into the Stuart
rebellion with him.
The introduction of the feudal law, so far from extending, may be
regarded as an attempt to moderate the authority of the great allodial
lords. It established a regular subordination, accompanied with a long
train of services and duties, from the king down to the smallest pro-
prietor. During the minority of the proprietor, the rent, together with
the management of his lands, fell into the hands of his immediate
superior, and, consequently, those of all great proprietors into the
326 BENIGN INFLUENCE OF COMMERCE AND MANUFACTURES.

hands of the king, who was charged with the maintenance and educa-
tion of the pupil, and who, from his authority as guardian, was sup-
posed to have a right of disposing of him in marriage, provided it was
in a manner not unsuitable to his rank. But though this institution
necessarily tended to strengthen the authority of the king, and to
weaken that of the great proprietors, it could not do either sufficiently
for establishing order and good government among the inhabitants of
the country ; because it could not alter sufficiently that state of pro-
perty and manners from which the disorders arose. The authority of
government still continued to be, as before, too weak in the head and
too strong in the inferior members, and the excessive strength of the
inferior members was the cause of the weakness of the head. After
the institution of feudal subordination, the king was as incapable of
restraining the violence of the great lords as before. They still con-
tinued to make war according to their own discretion, almost con-
tinually upon one another, and very frequently upon the king ;
and the open country still continued to be a scene of violence, rapine,
and of disorder.
But what all the violence of the feudal institutions could never have
effected, the silent and insensible operation of foreign commerce and
manufactures gradually brought about. These gradually furnished the
great proprietors with something for which they could exchange the
whole surplus produce of their lands, and which they could consume
themselves without sharing it either with tenants or retainers. All for
ourselves, and nothing for other people, seems, in every age of the
world, to have been the vile maxim of the masters of mankind. As
soon, therefore, as they could find a method of consuming the whole
value of their rents themselves, they had no disposition to share them
with any other persons. For a pair of diamond buckles, perhaps, or
for something as frivolous and useless, they exchanged the mainte-
nance, or what is the same thing, the price of the maintenance, of a
thousand men for a year, and with it the whole weight and authority
which it could give them. The buckles, however, were to be all their own,
and no other human creature was to have any share of them ; whereas
in the more ancient method of expense they must have shared with at
least a thousand people. With the judges that were to determine the
preference, this difference was perfectly decisive ; and thus, for the
gratification of the most childish, the meanest and the most sordid of
all vanities, they gradually bartered their power and authority.
In a country where there is no foreign commerce, nor any of the
finer manufactures, a man of ten thousand a year cannot well employ
his revenue in any other way than in maintaining, perhaps, a thousand
families, who are all of them necessarily at his command. In the
present state of Europe, a man of ten thousand a year can spend his
whole revenue, and he generally does so, without directly maintaining
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 327

twenty people, or being able to command more than ten footmen not
worth the commanding. Indirectly, perhaps, he maintains as great or
even a greater number of people than he could have done by the
ancient method of expense. For though the quantity of precious pro-
ductions for which he exchanges his whole revenue be very small, the
number of workmen employed in collecting and preparing it must
necessarily have been very great. Its great price generally arises from
the wages of their labour, and the profits of all their immediate em-
ployers. By paying that price he indirectly pays all those wages and
profits, and thus indirectly contributes to the maintenance of all the
workmen and their employers. He generally contributes, however, but
a very small proportion to that of each, to very few perhaps a tenth, to
many not a hundredth, and to some not a thousandth, nor even a ten
thousandth part of their whole annual maintenance. Though he con-
tributes, therefore, to the maintenance of them all, they are all more or
less independent of him, because that, generally they can all be main-
tained without him.
When the great proprietors of land spend their rents in maintaining
their tenants and retainers, each of them maintains entirely all his own
tenants and all his own retainers. But when they spend them in
maintaining tradesmen and artificers, they may, all of them taken
together, perhaps, maintain as great, or, on account of the waste which
attends rustic hospitality, a greater number of people than before.
Each of them, however, taken singly, contributes often but a very
small share to the maintenance of any individual of this greater
number. Each tradesman or artificer derives his subsistence from
the employment, not of one, but of a hundred or a thousand different
customers. Though in some measure obliged to them all, therefore,
he is not absolutely dependent upon any one of them.
The personal expense of the great proprietors having in this manner
gradually increased, it was impossible that the number of their retainers
should not as gradually diminish, till they were at last dismissed, alto-
gether. The same cause gradually led them to dismiss the unnecessary
part of their tenants. Farms were enlarged, and the occupiers of land,
notwithstanding the complaints of depopulation, reduced to the number
necessary for cultivating it, according to the imperfect state of cultiva-
tion and improvement in those times. By the removal of the unneces-
sary mouths, and by exacting from the farmer the full value of the farm ,
a greater surplus, or what is the same thing, the price of a greater
surplus, was obtained for the proprietor, which the merchants and
manufacturers soon furnished him with a method of spending upon his
own person in the same manner as he had done the rest. The same
cause continuing to operate, he was desirous to raise his rents above
what his lands, in the actual state of their improvement, could afford.
His tenants could agree to this upon one condition only, that they
328 SOCIAL ADVANTAGES OF LONG LEASES TO THE TENANT.

should be secured in their possession for such a term of years as might

give them time to recover with profit whatever they should lay out in
the further improvement of the land. The expensive vanity of the
landlord made him willing to accept of this condition ; and hence the
origin of long leases.
Even a tenant at will, who pays the full value of the land, is not
altogether dependent upon the landlord. The pecuniary advantages
which they receive from one another, are mutual and equal, and such
a tenant will expose neither his life nor his fortune in the service ofthe
proprietor. But if he has a lease for a long term of years, he is alto-
gether independent ; and his landlord must not expect from him even
the most trifling service beyond what is either expressly stipulated in
the lease, or has been imposed upon him by the common and known
law of the country.
The tenants having in this manner become independent, and the
retainers being dismissed, the great proprietors were no longer capable
of interrupting the regular execution of justice, or of disturbing the
peace of the country. Having sold their birthright, not like Esau for
a mess of pottage in time of hunger and necessity, but in the wanton-
ness of plenty for trinkets and baubles, fitter to be the playthings of
children than the serious pursuits of men, they became as insignificant
as any substantial burgher or tradesman in a city. A regular govern-
ment was established in the country as well as in the city, nobody
having sufficient power to disturb its operations in the one, any more
than in the other.
It does not, perhaps, relate to the present subject, but I cannot help
remarking it, that very old families, such as have possessed some con-
siderable estate from father to son for many successive generations, are
very rare in commercial countries. In countries which have little com-
merce, on the contrary, such as Wales or the Highlands of Scotland,
they are very common. The Arabian histories seem to be all full of
genealogies, and there is a history written by a Tartar Khan, which
has been translated into several European languages, and which con-
tains scarce anything else ; a proof that ancient families are very com-
mon among those nations. In countries where a rich man can spend
his revenue in no other way than by maintaining as many people as it
can maintain, he is not apt to run out, and his benevolence it seems is
seldom so violent as to attempt to maintain more than he can afford.
But where he can spend the greatest revenue upon his own person, he
frequently has no bounds to his expense, because he frequently has no
bounds to his vanity, or to his affection for his own person. In com-
mercial countries, therefore, riches, in spite of the most violent regula-
tions of law to prevent their dissipation, very seldom remain long in
the same family. Among simple nations, on the contrary, they fre
quently do without any regulations of law; for among nations of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 329

shepherds, such as the Tartars and Arabs, the consumable nature of

their property necessarily renders all such regulations impossible.
A revolution of the greatest importance to the public happiness, was
in this manner brought about by two different orders of people, who
had not the least intention to serve the public. To gratify the most
childish vanity was the sole motive of the great proprietors. The
merchants and artificers, much less ridiculous, acted merely from a
view to their own interest, and in pursuit of their own pedlar principle
of turning a penny wherever a penny was to be got. Neither of them
had either knowledge or foresight of that great revolution which the
folly of the one, and the industry of the other, was gradually bringing
about among them..
It is thus that through the greater part of Europe the commerce and
manufactures of cities, instead of being the effect, have been the cause
and occasion of the improvement and cultivation of the country.
This order, however, being contrary to the natural course of things,
is necessarily both slow and uncertain. Compare the slow progress of
those European countries of which the wealth depends very much upon
their commerce and manufactures, with the rapid advances of our
North American colonies, of which the wealth is founded altogether in
agriculture. Through the greater part of Europe, the number of inha-
bitants is not supposed to double in less than five hundred years. In
several of our North American colonies, it is found to double in twenty
or five-and-twenty years. In Europe, the law of primogeniture, and
perpetuities of different kinds, prevent the division of great estates, and
thereby hinder the multiplication of small proprietors. A small pro-
prietor, however, who knows every part of his little territory, views it
with all the affection which property, especially small property, natu-
rally inspires, and who upon that account takes pleasure not only in
cultivating but in adorning it, is generally of all improvers the most
industrious, the most intelligent, and the most successful. The same
regulations, besides, keep so much land out of the market, that there
are always more capitals to buy than there is land to sell, so that what
is sold always sells at a monopoly price. The rent never pays the
interest of the purchase-money, and is besides burdened with repairs
and other occasional charges, to which the interest of money is not
liable. To purchase land is everywhere in Europe a most unprofitable
employment of a small capital. For the sake of the superior security,
indeed, a man of moderate circumstances, when he retires from business,
will sometimes choose to lay out his little capital in land. A man of
profession too, whose revenue is derived from another source, often
loves to secure his savings in the same way. But a young man, who,
instead of applying to trade or to some profession, should employ a
capital of two or three thousand pounds in the purchase and cultiva-
tion of a small piece of land, might indeed expect to live very happily,
330 ENGLAND ADMIRABLY SITUATED FOR FOREIGN COMMERCE.

and very independently, but must bid adieu, for ever, to all hope of
either great fortune or great illustration , which by a different employ-
ment of his stock he might have had the same chance of acquiring
with other people. Such a person too, though he cannot aspire at
being a proprietor, will often disdain to be a farmer. The small
quantity of land, therefore, which is brought to market, and the high
price of what is brought thither, prevents a great number of capitals
from being employed in its cultivation and improvement which would
otherwise have taken that direction . In North America, on the con-
trary, fifty or sixty pounds is often found a sufficient stock to begin a
plantation with. The purchase and improvement of uncultivated land,
is there the most profitable employment of the smallest as well as of
the greatest capitals, and the most direct road to all the fortune and
illustration which can be acquired in that country. Such land, indeed ,
is in North America to be had almost for nothing, or at a price much
below the value of the natural produce ; a thing impossible in Europe ,
or, indeed , in any country where all lands have long been private pro-
perty. If landed estates, however, were divided equally among all the
children, upon the death of any proprietor who left a numerous family,
the estate would generally be sold. So much land would come to
market, that it could no longer sell at a monopoly price. The free
rent of the land would go nearer to pay the interest of the purchase-
money, and a small capital might be employed in purchasing land as
profitably as in any other way. 134
England, on account of the natural fertility of the soil, of the great
extent of the sea-coast in proportion to that of the whole country, and
of the many navigable rivers which run through it, and afford the con-
veniency of water carriage to some of the most inland parts of it, is
perhaps as well fitted by nature as any large country in Europe, to be
the seat of foreign commerce, of manufactures for distant sale, and of
all the improvements which these can occasion. From the beginning
of the reign of Elizabeth too, the English legislature has been peculiarly
attentive to the interests of commerce and manufactures, and in reality
there is no country in Europe, Holland itself not excepted, of which
the law is, upon the whole, more favourable to this sort of industry.
Commerce and manufactures have accordingly been continually ad-
vancing during all this period. The cultivation and improvement of
the country has, no doubt, been gradually advancing too ; but it seems
to have followed slowly, and at a distance, the more rapid progress of
commerce and manufactures. The greater part of the country must
probably have been cultivated before the reign of Elizabeth ; and a
very great part of it still remains uncultivated, and the cultivation of
the far greater part, much inferior to what it might be. The law of
England, however, favours agriculture not only indirectly by the pro-
tection of commerce, but by several direct encouragements. Except
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 331

in times of scarcity, the exportation of corn is not only free, but

encouraged by a bounty. In times of moderate plenty, the importation
of foreign corn is loaded with duties that amount to a prohibition.
The importation of live cattle, except from Ireland, is prohibited at all
times, and it is but of late that it was permitted from thence. Those
who cultivate the land, therefore, have a monopoly against their
countrymen for the two greatest and most important articles of land
produce, bread and butcher's-meat. These encouragements, though at
bottom, perhaps, as I shall endeavour to show hereafter, altogether
illusory, sufficiently demonstrate at least the good intention of the
legislature to favour agriculture. But what is of much more import-
ance than all of them, the yeomanry of England are rendered as
secure, as independent, and as respectable as law can make them. No
country, therefore, in which the right of primogeniture takes place,
which pays tithes, and where perpetuities, though contrary to the spirit
of the law, are admitted in some cases, can give more encouragement
to agriculture than England. Such, however, notwithstanding, is the
štate of its cultivation. What would it have been, had the law given.
no direct encouragement to agriculture besides what arises indirectly
from the progress of commerce, and had left the yeomanry in the same
condition as in most other countries of Europe? It is now more than
two hundred years since the beginning of the reign of Elizabeth, a
period as long as the course of human prosperity usually endures.
France seems to have had a considerable share of foreign commerce
near a century before England was distinguished as a commercial
country. The marine of France was considerable, according to the
notions of the times, before the expedition of Charles VIII. to
Naples. The cultivation and improvement of France, however, is upon
the whole, inferior to that of England. The law of the country has
never given the same direct encouragement to agriculture.
The foreign commerce of Spain and Portugal to the other parts of
Europe, though chiefly carried on in foreign ships, is very considerable.
That to their colonies is carried on in their own, and is much greater,
on account of the great riches and extent of those colonies. But it has
never introduced any considerable manufactures for distant sale into
either of those countries, and the greater part of both still remains un-
cultivated. The foreign commerce of Portugal is of older standing that
that of any great country in Europe, except Italy.
Italy is the only great country of Europe which seems to have been
cultivated and improved in every part, by means of foreign commerce
and manufactures for distant sale. Before the invasion of Charles
VIII., Italy, according to Guicciardin, was cultivated not less in the
most mountainous and barren parts of the country, than in the plaines
and most fertile. The advantageous situation of the country, and the
great number of independent states which at that time subsisted in it,
332 CAPITAL ACQUIRED BY COMMERCE PRECARIOUS TILL SECURED .

probably contributed not a little to this general cultivation. It is not

impossible too, notwithstanding this general expression of one of the
most judicious and reserved of modern historians, that Italy was not at
that time better cultivated than England is at present.
The capital, however, that is acquired to any country by commerce
and manufactures, is all a very precarious and uncertain possession, till
some part of it has been secured and realized in the cultivation and
improvement of its lands. A merchant, it has been said very properly,
is not necessarily the citizen of any particular country. It is in a great
measure indifferent to him from what place he carries on his trade, and
a very trifling disgust will make him remove his capital, and together
with it all the industry which it supports, from one country to another.
No part of it can be said to belong to any particular country, till it has
been spread as it were over the face of that country, either in buildings,
or in the lasting improvement of lands. No vestige now remains of
the great wealth said to have been possessed by the greater part of the
Hanse towns, except in the obscure histories of the thirteenth and four-
teenth centuries. It is even uncertain where some of them were situ-
ated, or to what towns in Europe the Latin names given to some of
them belong. But though the misfortunes of Italy in the end of the
fifteenth and beginning of the sixteenth centuries greatly diminished
the commerce and manufactures of the cities of Lombardy and
Tuscany, those countries still continue to be among the most populous
and best cultivated in Europe. The civil wars of Flanders, and the
Spanish government which succeeded them, chased away the great
commerce of Antwerp, Ghent, and Bruges. But Flanders still
continues to be one of the richest, best cultivated, and most populous
provinces of Europe. The ordinary revolution of war and government
easily dry up the sources of that wealth which arises from commerce
only. That which arises from the more solid improvements of agricul-
ture is much more durable, and cannot be destroyed but by those more
violent convulsions, occasioned by the depredations of hostile and bar-
barous nations, continued for a century or two together ; such as those
that happened for some time before and after the fall of the Roman
empire in the western provinces of Europe.

BOOK IV. OF Systems OF POLITICAL ECONOMY.

INTRODUCTION.-Political economy, considered as a branch of the
science of a statesman or legislator, proposes two distinct objects :
first, to provide a plentiful revenue or subsistence for the people, or,
more properly, to enable them to provide such a revenue or subsistence
for themselves ; and secondly, to supply the state or commonwealth
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 333

with a revenue sufficient forthe public services. It proposes to enrich

185
both the people and the sovereign.
The different progress of opulence in different ages and nations, has
given occasion to two different ' systems of political economy, with
regard to enriching the people. The one may be called the system of
commerce, the other that of agriculture. I shall endeavour to explain
both as fully and distinctly as I can, and shall begin with the system of
commerce. It is the modern system, and is best understood in our own
sountry and in our own times.

CHAP. I. Ofthe Principle of the Commercial or Mercantile System.

THAT wealth consists in money, or in gold and silver, is a popular
notion which naturally arises from the double function of money, as the
instrument ofcommerce, and as the measure of value. In consequence
of its being the instrument of commerce, when we have money we can
more readily obtain whatever else we have occasion for, than by means
of any other commodity. The great affair, we always find, is to get
money. When that is obtained, there is no difficulty in making any
subsequent purchase. In consequence of its being the measure of
value, we estimate that of all other commodities by the quantity of
money which they will exchange for. We say of a rich man that he is
worth a great deal, and of a poor man that he is worth very little money.
A frugal man, or a man eager to be rich , is said to love money ; and a
careless, a generous, or a profuse man, is said to be indifferent about
it. To grow rich is to get money ; and wealth and money, in short, are
in common language, considered as in every respect synonymous.
A rich country, in the same manner as a rich man, is supposed to be
a country abounding in money ; and to heap up gold and silver in any
country is supposed to be the readiest way to enrich it. For some time
after the discovery of America, the first inquiry of the Spaniards, when
they arrived upon any unknown coast, used to be, if there was any gold
or silver to be found in the neighbourhood ? By the information which
they received, they judged whether it was worth while to make a settle-
ment there, or if the country was worth the conquering. Plano Car-
pino, a monk, sent ambassador from the king of France to one of the
sons of the famous Gengis Khan, says that the Tartars used frequently
to ask him, if there was plenty of sheep and oxen in the kingdom of
France ? Their inquiry had the same object with that of the Spaniards.
They wanted to know if the country was rich enough to be worth the
conquering. Among the Tartars, as among all other nations of shep-
herds, who are generally ignorant of the use of money, cattle are the
instruments of commerce and the measures of value. Wealth, there-
fore, according to them, consisted in cattle, as according to the Span-
334 MONEY IS A STEADY FRIEND AND LITTLE LIABLE TO BE WASTED.

iards it consisted in gold and silver. Of the two, the Tartar notion,
perhaps, was the nearest to the truth.
Mr. Locke remarks a distinction between money and other movable
goods. All other movable goods, he says, are of so consumable a
nature, that the wealth which consists in them cannot be much depended
on, and a nation which abounds in them one year may, without any
exportation, but merely by their own waste and extravagance, be in
great want of them the next. Money, on the contrary, is a steady
friend, which, though it may travel about from hand to hand, yet if it
can be kept from going out of the country, is not very liable to be
wasted and consumed. Gold and silver, therefore, are, according to
him , the most solid and substantial part of the movable wealth of a
nation, and to multiply those metals ought, he thinks, upon that account,
to be the great object of its political economy.
Others admit, that if a nation could be separated from all the world,
it would be of no consequence how much or how little money circu-
lated in it. The consumable goods which were circulated by means
of this money, would only be exchanged for a greater or a smaller
number of pieces ; but the real wealth or poverty of the country, they
allow, would depend altogether upon the abundance or scarcity of
those consumable goods. But it is otherwise, they think, with coun-
tries which have connections with foreign nations, and which are
obliged to carry on foreign wars, and to maintain fleets and armies
in distant countries. This, they say, cannot be done, but by sending
abroad money to pay them with ; and a nation cannot send much.
money abroad, unless it has a good deal at home. Every such nation,
therefore, must endeavour in time of peace to accumulate gold and
silver, that when occasion requires, it may have wherewithal to carry
France and on foreign wars.
In consequence of these popular notions, all the different nations of
Europe have studied, though to little purpose, every possible means of
accumulating gold and silver in their respective countries. Spain and
Portugal, the proprietors of the principal mines which supply Europe
with those metals, have either prohibited their exportation under the
severest penalties, or subjected it to a considerable duty. The like
prohibition seems anciently to have made a part of the policy of most
other European nations. It is even to be found, where we should least
of all expect to find it, in some old Scotch acts of parliament, which
forbid, under heavy penalties, the carrying gold or silver forth of the
kingdom. The like policy anciently took place in the kingdoms of
France and England.
When those countries became commercial, the merchants found this
prohibition, upon many occasions, extremely inconvenient. They
could frequently buy more advantageously with gold and silver than
with any other commodity, the foreign goods which they wanted, either
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 335

to import into their own, or to carry to some other foreign country.

They remonstrated, therefore, against this prohibition as being hurtful
to their trade.
They represented, first, that the exportation of gold and silver in
order to purchase foreign goods, did not always diminish the quantity
of those metals in the kingdom. That, on the contrary, it might
frequently increase that quantity ; because, if the consumption of
foreign goods was not thereby increased in the country, those goods
might be re-exported to foreign countries, and, being there sold for a
large profit, might bring back much more treasure than was originally
sent out to purchase them. Mr. Mun compares this operation of
foreign trade to the seedtime and harvest of agriculture. ' If we only
'behold,' says he, ' the actions of the husbandman in the seed-
' time, when he casteth away much good corn into the ground, we shall
' account him rather a madman that a husbandman. But when we
' consider his labours in harvest, which is the end of his endeavours,
' we shall find the worth and plentiful increase of his actions.'
They represented, secondly, that this prohibition could not hinder
the exportation of gold and silver, which, on account of the smallness
of their bulk in proportion to their value, could easily be smuggled
abroad. That this exportation could only be prevented by a proper
attention to what they called the balance of trade. That when the
country exported to a greater value than it imported , a balance became
due to it from foreign nations, which was necessarily paid to it in gold
and silver, and thereby increased the quantity of those metals in the
kingdom. But that when it imported to a greater value than it
exported, a contrary balance became due to the foreign nations, which
was necessarily paid to them in the same manner, and thereby dimi-
nished that quantity. That in this case, to prohibit the exportation of
those metals could not prevent it, but only by making it more
dangerous, render it more expensive. That the exchange was thereby
turned more against the country which owed the balance than it other-
wise might have been ; the merchant who purchased a bill upon the
foreign country being obliged to pay the banker who sold it, not only
for the natural risk, trouble, and expense of sending the money thither,
but for the extraordinary risk arising from the prohibition. But that
the more the exchange was against any country, the more the balance
of trade became necessarily against it ; the money of that country
becoming necessarily of so much less value, in comparison with that of
the country to which the balance was due. That if the exchange
between England and Holland, for example, was five per cent. against
England, it would require a hundred and five ounces of silver in
England to purchase a bill for a hundred ounces of silver in Holland :
that a hundred and five ounces of silver in England, therefore, would
be worth onlya hundred ounces of silver in Holland, and would purchase
336 THE ARGUMENTS ADDRESSED BY TRADERS TO THEIR RULERS.

nly a proportionate quantity of Dutch goods : but that a hundred

ounces of silver in Holland, on the contrary, would be worth a hundred
and five ounces in England, and would purchase a proportionate quan-
tity of English goods : that the English goods which were sold to
Holland would be sold so much cheaper ; and the Dutch goods which
were sold to England, so much dearer, by the difference of the
exchange ; that the one would draw so much less Dutch money to Eng-
land, and the other so much more English money to Holland as this
difference amounted to : and that the balance of trade, therefore,
would necessarily be so much more against England, and would
require a greater balance of gold and silver to be exported to Holland.
Those arguments were partly solid and partly sophistical. They
were solid so far as they asserted that the exportation of gold and silver
in trade might frequently be advantageous to the country. They were
solid too, in asserting that no prohibition could prevent their exporta-
tion, when private people found any advantage in exporting them. But
they were sophistical in supposing, that either to preserve or to aug-
ment the quantity of those metals required more the attention of
government, than to preserve or to augment the quantity of any other
useful commodities, which the freedom of trade, without any such at-
tention, never fails to supply in the proper quantity. They were
sophistical too, perhaps, in asserting that the high price of exchange
necessarily increased, what they called, the unfavourable balance of
trade, or occasioned the exportation of a greater quantity of gold and
silver. That high price, indeed, was extremely disadvantageous to the
merchants who had any money to pay in foreign countries. They paid
so much dearer for the bills which their bankers granted them upon
those countries. But though the risk arising from the prohibition
might occasion some extraordinary expense to the bankers, it would
not necessarily carry any more money out of the country. This ex-
pense would generally be all laid out in the country, in smuggling the
money out of it, and could seldom occasion the exportation of a single
sixpence beyond the precise sum drawn for. The high price of ex-
change too would naturally dispose the merchants to endeavour to make
their exports nearly balance their imports, in order that they might
have this high exchange to pay upon as small a sum as possible. The
high price of exchange, besides, must necessarily have operated as a
tax, in raising the price of foreign goods, and thereby diminishing their
consumption. It would tend, therefore, not to increase, but to diminish,
what they called, the unfavourable balance of trade, and consequently
the exportation of gold and silver.
Such as they were, however, those arguments convinced the people
to whom they were addressed. They were addressed by merchants to
parliaments, and to the councils of princes, to nobles, and to country
gentlemen ; by those who were supposed to understand trade, to those
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 337

who were conscious to themselves that they knew nothing about the
matter. That foreign trade enriched the country, experience demon-
strated to the nobles and country gentlemen, as well as to the mer
chants ; but how, or in what manner, none of them well knew. The
merchants knew perfectly in what manner it enriched themselves. It
was their business to know it. But to know in what manner it enriched
the country, was no part of their business. This subject never came
into their consideration but when they had occasion to apply to their
country for some change in the laws relating to foreign trade. It then
became necessary to say something about the beneficial effects of
foreign trade, and the manner in which those effects were obstructed
by the laws as they then stood. To the judges who were to decide the
business, it appeared a most satisfactory account of the matter, when
they were told that foreign trade brought money into the country, but
that the laws in question hindered it from bringing so much as it other-
wise would do. Those arguments therefore produced the wished-for
effect. The prohibition of exporting gold and silver was in France and
England confined to the coin of those respective countries. The ex-
portation of foreign coin and of bullion was made free. In Holland ,
and in some other places, this liberty was extended even to the coin of
the country. The attention of government was turned away from
guarding against the exportation of gold and silver, to watch over the
balance of trade, as the only cause which could occasion any aug-
mentation or diminution of those metals. From one fruitless care it
was turned away to another care much more intricate, much more em-
barrassing, and just equally fruitless. The title of Mun's Book, Eng-
land's Treasure in Foreign Trade, became a fundamental maxim in
the political economy, not of England only, but of all other commercial
countries. The inland or home trade, the most important of all, the
136
trade in which an equal capital affords the greatest revenue and
creates the greatest employment to the people of the country, was
considered as subsidiary only to foreign trade. It neither brought
money into the country, it was said, or carried any out of it. The
country therefore could never become either richer or poorer by means
of it, except so far as its prosperity or decay might indirectly influence
the state of foreign trade.
A country that has no mines of its own must undoubtedly draw its
gold and silver from foreign countries, in the same manner as one that
has no vineyards of its own must draw its wines. It does not seem
necessary, however, that the attention of government should be more
turned towards the one than towards the other object. A country that
nas wherewithal to buy wine, will always get the wine which it has
occasion for ; and a country that has wherewithal to buy gold and
silver, will never be in want of those metals. They are to be bought
for a certain price like all other commodities, and as they are the price
22
338 QUANTITY OF COMMODITIES IS RULED BY EFFECTUAL DEMAND.

of all other commodities, so all other commodities are the price of those
metals. We trust with perfect security that the freedom of trade, with-
out any attention of government, will always supply us with the wine
which we have occasion for ; and we may trust with equal security that
it will always supply us with all the gold and silver which we can afford
to purchase or to employ, either in circulating our commodities, or in
other uses.
The quantity of every commodity which human industry can either
purchase or produce, naturally regulates itself in every country accord-
ing to the effectual demand, or according to the demand of those who
are willing to pay the whole rent, labour, and profits which must be
paid in order to prepare and bring it to market. But no commodities
regulate themselves more easily or more exactly according to this ef
fectual demand than gold and silver ; because, on account of the small
bulk and great value of those metals, no commodities can be more
easily transported from one place to another, from the places where
they are cheap, to those where they are dear, from the places where
they exceed, to those where they fall short, of this effectual demand. If
there were in England, for example, an effectual demand for an addi-
tional quantity of gold , a packet-boat could bring from Lisbon, or
from wherever else it was to be had, fifty tons of gold, which could
be coined into more than five millions of guineas. But if there were
an effectual demand for grain to the same value, to import it would
require, at five guineas a ton, a million of tons of shipping, or a thou-
sand ships of a thousand tons each. The navy of England would not
be sufficient.
When the quantity of gold and silver imported into any country ex-
ceeds the effectual demand, no vigilance of government can prevent
their exportation. All the sanguinary laws of Spain and Portugal are
not able to keep their gold and silver at home. The continual import-
ations from Peru and Brazil exceed the effectual demand of those
countries, and sink the price of those metals there below that in the
neighbouring countries. If, on the contrary, in any particular country
their quantity fell short of the effectual demand, so as to raise their
price above that of the neighbouring countries, the government would
have no occasion to take any pains to import them. If it were even to
take pains to prevent their importation, it would not be able to effectu-
ate it. Those metals, when the Spartans had got wherewithal to pur-
chase them, broke through all the barriers which the laws of Lycurgus
opposed to their entrance into Lacedemon. All the sanguinary laws
of the customs are not able to prevent the importation of the teas of
the Dutch and Gottenburg East India companies ; because somewhat
cheaper than those of the British company. A pound of tea, however,
is about a hundred times the bulk of one of the highest prices, sixteen
shillings, th is commonly paid for it in silver, and more than two
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 339

thousand times the bulk of the same price in gold, and consequently
just so many times more difficult to smuggle.
It is partly owing to the easy transportation of gold and silver from
the places where they abound to those where they are wanted, that the
price of those metals does not fluctuate continually like that of the
greater part of other commodities, which are hindered by their bulk
from shifting their situation, when the market happens to be either
over or under stocked with them. The price of those metals, indeed ,
is not altogether exempted from variation, but the changes to which it
is liable are generally slow, gradual, and uniform. In Europe, for ex-
ample, it is supposed, without much foundation perhaps, that during
the course of the present and preceding century, they have been con-
stantly, but gradually, sinking in their value, on account of the con-
tinual importations from the Spanish West Indies. But to make any
sudden change in the price of gold and silver, so as to raise or lower at
once, sensibly and remarkably, the money price of all other commodi-
ties, requires such a revolution in commerce as that occasioned by the
discovery of America.
If, notwithstanding all this, gold and silver should at any time fall
short in a country which has wherewithal to purchase them, there are
more expedients for supplying their place than that of almost any other
commodity. If the materials of manufacture are wanted, industry
must stop. If provisions are wanted, the people must starve. But if
money is wanted, barter will supply its place, though with a good deal
of inconveniency. Buying and selling upon credit, and the different
dealers compensating their credits with one another, once a month or
once a year, will supply it with less inconveniency. A well-regulated
paper money will supply it, not only without any inconveniency, but,
in some cases, with some advantages. Upon every account, therefore,
the attention of government never was so unnecessarily employed, as
when directed to watch over the preservation or increase of the quan .
tity of money in any country.
No complaint, however, is more common than that of a scarcity of
money. Money, like wine, must always be scarce with those who have
neither wherewithal to buy it, nor credit to borrow it. Those who have
either, will seldom be in want either of the money or of the wine which
they have occasion for. This complaint, however, of the scarcity of
money, is not always confined to improvident spendthrifts. It is some-
times general through a whole mercantile town, and the country in its
neighbourhood. Over-trading is the common cause of it. Sober men,
whose projects have been disproportioned to their capitals, are as likely
to have neither wherewithal to buy money, nor credit to borrow it, as
prodigals whose expense has been disproportioned to their revenue.
Before their projects can be brought to bear, their stock is gone, and
their credit with it. They run about everywhere to borrow money, and
22 *
340 MONEY IS ALWAYS THE MOST UNPROFITABLE PART OF WEALTH

everybody tells them that they have none to lend. Even such general
complaints of the scarcity of money do not always prove that the usual
number of gold and silver pieces are not circulating in the country, but
that many people want those pieces who have nothing to give for them.
When the profits of trade happen to be greater than ordinary, over-
trading becomes a general error both among great and small dealers.17
They do not always send more money abroad than usual, but they buy
upon credit both at home and abroad, an unusual quantity of goods,
which they send to some distant market, in hopes that the returns will
comc in before the demand for payment. The demand comes before
the returns, and they have nothing at hand with which they can either
purchase money or give solid security for borrowing. It is not any
scarcity of gold and silver, but the difficulty which such people find in
borrowing, and which their creditors find in getting payment, that
occasions the general complaint of the scarcity of money.
It would be too ridiculous to go about seriously to prove that wealth
does not consist in money, or in gold and silver, but in what money
purchases, and is valuable only for purchasing. Money, no doubt,
makes always a part of the national capital ; but it has already been
shown that it generally makes but a small part, and always the most
unprofitable part of it.
It is not because wealth consists more essentially in money than in
goods, that the merchant finds it generally more easy to buy goods
with money, than to buy money with goods ; but because money is the
known and established instrument of commerce, for which everything
is readily given in exchange, but which is not always with equal readi-
ness to be got in exchange for everything. The greater part of goods,
besides, are more perishable than money, and he may frequently sus-
tain a much greater loss by keeping them. When his goods are upon
hand, too, he is more liable to such demands for money as he may not
be able to answer, than when he has got their price in his coffers.
Over and above all this, his profit arises more directly from selling
than from buying, and he is upon all these accounts generally much
more anxious to exchange his goods for money, than his money for
goods. But though a particular merchant, with abundance of goods ir
his warehouse, may sometimes be ruined by not being able to sell them
in time, a nation or country is not liable to the same accident. The
whole capital of a merchant frequently consists in perishable goods
destined for purchasing money. But it is but a very small part of the
annual produce of the land and labour of a country which can ever be
destined for purchasing gold and silver from their neighbours. The
far greater part is circulated and consumed among themselves ; and
even of the surplus which is sent abroad, the greater part is generally
destined for the purchase of other foreign goods. Though gold and
silver, therefore, could not be had in exchange for the goods destined
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 341

to purchase them, the nation would not be ruined. It might, indeed,

suffer some loss and inconveniency, and be forced upon some of those
expedients which are necessary for supplying the place of money.
The annual produce of its land and labour, however, would be the
same, or very nearly the same, as usual, because the same, or very
nearly the same, consumable capital would be employed in maintaining
it. And though goods do not always draw money so readily as money
draws goods, in the long run they draw it more necessarily than even
it draws them. Goods can serve many other purposes besides pur-
chasing money, but money can serve no other purpose besides pur-
chasing goods. Money, therefore, necessarily runs after goods, but
goods do not always or necessarily run after money. The man who
buys, does not always mean to sell again, but frequently to use or to
consume ; whereas he who sells, always means to buy again. The one
may frequently have done the whole, but the other can never have done
more than the one-half of his business. It is not for its own sake that
men desire money, but for the sake of what they can purchase with it.
Consumable commodities, it is said, are soon destroyed ; whereas
gold and silver are of a more durable nature, and, were it not for this
continual exportation, might be accumulated for ages together, to the
incredible augmentation of the real wealth of the country. Nothing,
therefore, it is pretended, can be more disadvantageous to any country
than the trade which consists in the exchange of such lasting for such
perishable commodities. We do not, however, reckon that trade dis-
advantageous which consists in the exchange of the hardware of
England for the wines of France ; and yet hardware is a very durable
commodity, and were it not for this continual exportation, might, too,
be accumulated for ages together, to the incredible augmentation of the
pots and pans of the country. But it readily occurs that the number of
such utensils is in every country necessarily limited by the use which
there is for them ; that it would be absurd to have more pots and pans
than were necessary for cooking the victuals usually consumed there ;
and that if the quantity of victuals were to increase, the number of pots
and pans would readily increase along with it, a part of the increased
quantity of victuals being employed in purchasing them, or in main-
taining an additional number of workmen whose business it was to
make them. It should as readily occur that the quantity of gold and
silver is in every country limited by the use which there is for those
metals ; that their use consists in circulating commodities as coin, and
in affording a species of household furniture as plate ; that the quantity
of coin in every country is regulated by the value of the commodities
which are to be circulated by it ; increase that value, and immediately
a part of it will be sent abroad to purchase, wherever it is to be had,
the additional quantity of corn requisite for circulating them ; that the
quantity of plate is regulated by the number and wealth of those pri-
 342 GOLD OR SILVER COIN OR PLATE, ARE BUT UTENSILS.

vate families who choose to indulge themselves in that sort of magnifi-

cence : increase the number and wealth of such families, and a part of
this increased wealth will most probably be employed in purchasing,
wherever it is to be found, an additional quantity of plate : that to at-
tempt to increase the wealth of any country, either by introducing or
by detaining in it an unnecessary quantity of gold and silver, is as
absurd as it would be to attempt to increase the good cheer of private
families, by obliging them to keep an unnecessary number of kitchen
utensils. As the expense of purchasing those unnecessary utensils
would diminish instead of increasing either the quantity or goodness of
the family provisions ; so the expense of purchasing an unnecessary
quantity of gold and silver must, in every country, as necessarily
diminish the wealth which feeds, clothes, and lodges, which maintains
and employs the people. Gold and silver, whether in the shape of coin
or of plate, are utensils, it must be remembered, as much as the furni-
ture of the kitchen. Increase the use for them, increase the consuma-
ble commodities which are to be circulated, managed, and prepared by
means of them, and you will infallibly increase the quantity ; but if you
attempt, by extraordinary means, to increase the quantity, you will as
infallibly diminish the use and even the quantity too, which in those
metals can never be greater than what the use requires. Were they ever
to be accumulated beyond this quantity, their transportation is so easy,
and the loss which attends their lying idle and unemployed so great, that
no law could prevent their being immediately sent out of the country.
It is not always necessary to accumulate gold and silver, in order to
enable a country to carry on foreign wars, and to maintain fleets and
armies in ་ distant countries. Fleets and armies are maintained, not
with gold and silver, but with consumable goods. The nation which,
from the annual produce of its domestic industry, from the annual
revenue arising out of its lands, labour, and consumable stock, has
wherewithal to purchase those consumable goods in distant countries,
can maintain foreign wars there.
A nation may purchase the pay and provisions of an army in a dis-
tant country three different ways ; by sending abroad either, first, some
part of its accumulated gold and silver ; or secondly, some part of the
annual produce of its manufactures ; or last of all, some part of its
annual rude produce.
The gold and silver which can properly be considered as accumulated
or stored up in any country, may be distinguished into three parts ;
first, the circulating money ; secondly, the plate of private families ;
and last of all, the money which may have been collected by many
years parsimony, and laid up in the treasury of the prince.
It can seldom happen that much can be spared from the circulating
money ofthe country ; because in that there can seldom be much re-
dundancy. The value of goods annually bought and sold in any coun
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 343

try requires a certain quantity of money to circulate and distribute

them to their proper consumers, and can give employment to no more.
· The channel of circulation necessarily draws to itself a sum sufficient
to fill it, and never admits any more. Something, however, is generally
withdrawn from this channel in the case of foreign war. By the great
number of people who are maintained abroad, fewer are maintained at
home. Fewer goods are circulated there, and less money becomes
necessary to circulate them. An extraordinary quantity of paper
money, of some sort or other too, such as exchequer notes, navy bills,
and bank bills in England, is generally issued upon such occasions,
and by supplying the place of circulating gold and silver, gives an op-
portunity of sending a greater quantity of it abroad. All this, how-
ever, could afford but a poor resource for maintaining a foreign war of
great expense and several years duration.
The melting down the plate of private families, has upon every
occasion been found a still more insignificant one. The French, in the
beginning of the last war, did not derive so much advantage from this
expedient as to compensate the loss of the fashion.
The accumulated treasures of the prince have, in former times,
afforded a much greater and more lasting resource. In the present
times, if you except the king of Prussia, to accumulate treasure seems
to be no part of the policy of European princes.
The funds which maintained the foreign wars of the present century,
the most expensive perhaps which history records, seem to have had
little dependency upon the exportation either of the circulating money
or of the plate of private families, or of the treasure of the prince.
The last French war cost Great Britain upwards of ninety millions,
including not only the seventy-five millions of new debt that was con-
tracted, but the additional two shillings in the pound land tax, and what
was annually borrowed of the sinking fund. More than two-thirds of
this expense was laid out in distant countries ; in Germany, Portugal,
America, in the ports ofthe Mediterranean, in the East and West Indies.
The kings of England had no accumulated treasure. We never heard of
any extraordinary quantity of plate being melted down. The circula-
ting gold and silver of the country had not been supposed to exceed
eighteen millions. Since the late recoinage of the gold, however, it is
believed to have been a good deal under-rated. Let us suppose, there-
fore, according to the most exaggerated computation which I remember
to have either seen or heard of, that, gold and silver together, it
amounted to thirty millions. Had the war been carried on, by means
of our money, the whole of it must, even according to this computation,
have been sent out and returned again at least twice, in a period of be-
tween six and seven years. Should this be supposed, it would afford
the most decisive argument to demonstrate how necessary it is for
government to watch over the preservation of money, since upon this
 344 BULLION THE MONEY OF THE GREAT MERCANTILE REPUBLIC.

supposition the whole money of the country must have gone from it
and returned to it again, two different times in so short a period, with-
out anybody's knowing anything of the matter. The channel of circu-
lation, however, never appeared more empty than usual during any
part of this period. Few people wanted money who had wherewithal
to pay for it. The profits of foreign trade, indeed, were greater than
usual during the whole war ; but especially towards the end of it. This
occasioned, what it always occasions, a general over-trading in all the
parts of Great Britain ; and this again occasioned the usual complaint of
the scarcity of money, which always follows over-trading. Many people
wanted it, who had neither wherewithal to buy it, nor credit to borrow it ;
and because the debtors found it difficult to borrow, the creditors found
it difficult to get payment. Gold and silver, however, were generally to
be had for their value, by those who had that value to give for them.
The enormous expense of the late war, therefore, must have been
chiefly defrayed, not by the exportation of gold and silver, but by that
of British commodities of some kind or other. When the government,
or those who acted under them, contracted with a merchant for a
remittance to some foreign country, he would naturally endeavour to
pay his foreign correspondent, upon whom he had granted a bill, by
sending abroad rather commodities than gold and silver. If the com-
modities of Great Britain were not in demand in that country, he would
endeavour to send them to some other country, in which he could pur-
chase a bill upon that country. The transportation of commodities,
when properly suited to the market, is always attended with a consider-
able profit ; whereas that of gold and silver is scarce ever attended
with any. When those metals are sent abroad in order to purchase
foreign commodities, the merchant's profit arises, not from the purchase,
but from the sale of the returns. But when they are sent abroad
merely to pay a debt, he gets no returns, and consequently no profit.
He naturally, therefore, exerts his invention to find out a way of paying
his foreign debts, rather by the exportation of commodities than by that
of gold and silver. The great quantity of British goods exported
during the course of the late war, without bringing back any returns,
is accordingly remarked by the author of ' The present State of the
British Nation.'
Besides the three sorts of gold and silver above-mentioned, there is
in all great commercial countries a good deal of bullion alternately im-
ported and exported for the purposes of foreign trade. This bullion,
as it circulates among different commercial countries in the same man-
ner as the national coin circulates in every particular country, may be .
considered as the money ofthe great mercantile republic. The national
coin receives its movement and direction from the commodities circu-
lated within the precincts of each particular country : the money of the
mercantile republic, from those circulated between different countries,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 345

Both are employed in facilitating exchanges, the one between different

individuals of the same, the other between those of different nations.
Part of this money of the great mercantile republic may have been, and
probably was, employed in carrying on the late war. In time of a
general war, it is natural to suppose that a movement and direction
should be impressed upon it, different from what it usually follows in
profound peace ; that it should circulate more about the seat of war,
and be more employed in purchasing there, and in the neighbouring
countries, the pay and provisions of the different armies. But what-
ever part of this money of the mercantile republic Great Britain may
have annually employed in this manner, it must have been annually
purchased, either with British commodities, or with something else that
had been purchased with them ; which still brings us back to commodi-
ties, to the annual produce of the land and labour of the country, as the
ultimate resources which enabled us to carry on the war. It is natural
indeed to suppose, that so great an annual expense must have been de-
frayed from a great annual produce. The expense of 1761 , for example,
amounted to more than nineteen millions. No accumulation could
have supported so great an annual profusion. There is no annual pro-
duce even of gold and silver which could have supported it. The
whole gold and silver annually imported into both Spain and Portugal,
according to the best accounts, does not commonly much exceed six
millions sterling*which, in some years, would scarce have paid four
months expense of the late war. 188
The commodities most proper for being transported to distant coun-
tries, in order to purchase there, either the pay and provisions of an
army, or some part of the money of the mercantile republic to be em-
ployed in purchasing them, seem to be the finer and more improved
manufactures ; such as contain a great value in a small bulk, and can,
therefore, be exported to a great distance at little expense. A country
whose industry produces a great annual surplus of such manufactures,
which are usually exported to foreign countries, may carry on for many
years a very expensive foreign war, without either exporting any con-
siderable quantity of gold and silver, or even having any such quantity
to export. A considerable part of the annual surplus of its manufac-
tures must, indeed, in this case be exported, without bringing back any
returns to the country, though it does to the merchant ; the government
purchasing of the merchant his bills upon foreign countries, in order to
purchase there the pay and provisions of an army. Some part of this
surplus, however, may still continue to bring back a return. The manu-
facturers, during the war, will have a double demand upon them, and
be called upon, first, to work up goods to be sent abroad, for paying the
bills drawn upon foreign countries for the pay and provisions of the
army ; and, secondly, to work up such as are necessary for purchasing
the common returns that had usually been consumed in the country.
* See note 84,
346 VANITY OFTEN LEADS TO EXTRAVAGANCE ; HOSPITALITY SELDOM,

In the midst of the most destructive foreign war, therefore, the greater
part of manufactures may frequently flourish greatly ; and, on the con-
trary, they may decline on the return of peace. They may flourish
amidst the ruin of their country, and begin to decay upon the return of
its prosperity. The different state of many different branches of the
British manufactures during the late war, and for some time after the
peace, may serve as an illustration of what has been just now said.
No foreign war of great expense or duration could conveniently be
carried on by the exportation of the rude produce of the soil. The
expense of sending such a quantity of it to a foreign country as might
purchase the pay and provisions of an army, would be too great. Few
countries too produce much more rude produce than what is sufficient
for the subsistence of their own inhabitants. To send abroad any great
quantity of it, therefore, would be to send abroad a part of the neces-
sary subsistence of the people. It is otherwise with the exportation of
manufactures. The maintenance of the people employed in them is
kept at home, and only the surplus part of their work is exported. Mr.
Hume frequently takes notice of the inability of the ancient kings of
England to carry on, without interruption, any foreign war of any long
duration. The English, in those days, had nothing wherewithal to
purchase the pay and provisions of their armies in foreign countries,
but either the rude produce of the soil, of which no considerable part
could be spared from the home consumption, or a few manufactures of
the coarsest kind, of which, as well as of the rude produce, the trans-
portation was too expensive. This inability did not arise from the want
of money, but of the finer and more improved manufactures. Buying
and selling was transacted by means of money in England then, as
well as now. The quantity of circulating money must have borne the
same proportion to the number and value of purchases and sales usually
transacted at that time, which it does to those transacted at present ;
or rather it must have borne a greater proportion because there was
then no paper, which now occupies a great part of the employment of
gold and silver. Among nations to whom commerce and manufactures
are little known, the sovereign, upon extraordinary occasions, can sel-
dom draw any considerable aid from his subjects, for reasons which
shall be explained hereafter. It is in such countries, therefore, that he
generally endeavours to accumulate a treasure, as the only resource
against such emergencies. Independent of this necessity, he is in such
a situation naturally disposed to the parsimony requisite for accumula-
tion. In that simple state, the expense even of such a sovereign is not
directed by the vanity which delights in the gaudy finery of a court,
but is employed in bounty to his tenants, and hospitality to his
retainers. But bounty and hospitality very seldom lead to extrava-
gance ; though vanity almost always does. Every Tartar chief, accord,
ingly, has a treasure. The treasures of Mazeppa, chief of the Cossacks
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 347

in the Ukraine, the famous ally of Charles XII. are said to have
been very great. The French kings of the Merovingian race had all
treasures. When they divided their kingdom among their different
children, they divided their treasure too. The Saxon princes, and the
first kings after the conquest, seem likewise to have accumulated
treasures. The first exploit of every new reign was commonly to seize
the treasure of the preceding king, as the most essential measure for
securing the succession. The sovereigns of improved and commercial
countries are not under the same necessity of accumulating treasures,
because they can generally draw from their subjects extraordinary aids
upon extraordinary occasions. They are likewise less disposed to do
so. They naturally, perhaps necessarily, follow the mode of the times,
and their expense comes to be regulated by the same extravagant
vanity which directs that of all the other great proprietors in their
dominions. The insignificant pageantry of their court becomes every
day more brilliant, and the expense of it not only prevents accumula-
tion, but frequently encroaches upon the funds destined for more
necessary expenses. What Dercyllidas said of the court of Persia,
may be applied to that of several European princes, that he saw
there much splendour but little strength, and many servants but few
soldiers.
The importation of gold and silver is not the principal, much less the
sole benefit which a nation derives from its foreign trade. Between
whatever places foreign trade is carried on, they all of them derive two
distinct benefits from it. It carries out that surplus part of the produce
of their land and labour for which there is no demand among them,
and brings back in return for it something else for which there is a
demand. It gives a value to their superfluities, by exchanging them
for something else, which may satisfy a part of their wants, and increase
their enjoyments. By means of it, the narrowness of the home market
does not hinder the division of labour in any particular branch of art
or manufacture from being carried to the highest perfection. By open-
ing a more extensive market for whatever part of the produce of their
labour may exceed the home consumption, it encourages them to im-
prove its productive powers, and to augment its annual produce to the
utmost, and thereby to increase the real revenue and wealth of the
society. These great and important services foreign trade is con-
tinually occupied in performing, to all the different countries between
which it is carried on. They all derive great benefit from it, though
that in which the merchant resides generally derives the greatest, as he
is generally more employed in supplying the wants, and carrying out
the superfluities of his own, than of any other particular country. To
import the gold and silver which may be wanted, into the countries
which have no mines, is, no doubt, a part of the business of foreign
commerce. It is, however, a most insignificant part of it. A country
348 EFFECT ON EUROPE OF THE DISCOVERY OF GOLD IN AMERICA

which carried on foreign trade merely upon this account, could scarce
have occasion to freight a ship in a century.
It is not by the importation of gold and silver, that the discovery of
America has enriched Europe. By the abundance of the American
mines, those metals have become cheaper. A service of plate can now
be purchased for about a third part of the corn, or a third part of the
labour, which it would have cost in the fifteenth century. With the
same annual expense of labour and commodities, Europe can annually
purchase about three times the quantity of plate which it could have
purchased at that time. But when a commodity comes to be sold for
a third part of what had been its usual price, not only those who pur-
chased it before can purchase three times their former quantity, but it is
brought down to the level of a much greater number of purchasers,
perhaps to more than ten, perhaps to more than twenty times the
former number. So that there may be in Europe at present not only
more than three times, but more than twenty or thirty times the
quantity of plate which would have been in it, even in its present state
of improvement, had the discovery of the American mines never been
made. So far Europe has, no doubt, gained a real conveniency, though
surely a very trifling one. The cheapness of gold and silver render
those metals rather less fit for the purposes of money than they were
before. In order to make the same purchases, we must load ourselves
with a greater quantity of them, and carry about a shilling in our
pocket where a groat would have done before. It is difficult to say
which is most trifling, this inconveniency, or the opposite conveniency.
Neither the one nor the other could have made any very essential
change in the state of Europe. The discovery of America, however,
certainly made a most essential one. By opening a new and inex-
haustible market to all the commodities of Europe, it gave occasion to
new divisions of labour and improvements of art, which, in the narrow
circle of the ancient commerce, could never have taken place for want
of a market to take off the greater part of their produce. The pro-
ductive powers of labour were improved, and its produce increased in
all the different countries of Europe, and together with it the real
revenue and wealth of the inhabitants. The commodities of Europe
were almost all new to America, and many of those of America were
new to Europe. A new set of exchanges, therefore, began to take place
which had never been thought of before, and which should naturally
have proved as advantageous to the new, as it certainly did to the old
continent. The savage injustice of the Europeans rendered an event,
which ought to have been beneficial to all, ruinous and destructive to
several of those unfortunate countries.
The discovery of a passage to the East Indies, by the Cape of Good
Hope, which happened much about the same time, opened , perhaps, a
sti more extensive range to foreign commerce than even that of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 349

America, notwithstanding the greater distance. There were but two

nations in America, in any respect superior to savages, and these were
destroyed almost as soon as discovered. The rest were mere savages.
But the empires of China, Hindostan, Japan, as well as several others
in the East Indies, without having richer mines of gold or silver, were
in every other respect much richer, better cultivated, and more advanced
in all arts and manufactures than either Mexico or Peru, even though
we should credit, what plainly deserves no credit, the exaggerated
accounts of the Spanish writers, concerning the ancient state of those
empires. But rich and civilized nations can always exchange to a
much greater value with one another, than with savages and barbarians.
Europe, however, has hitherto derived much less advantage from its
commerce with the East Indies, than from that with America. The
Portuguese monopolized the East India trade to themselves for about
a century, and it was only indirectly and through them, that the other
nations of Europe could either send out or receive any goods from that
country. When the Dutch, in the beginning of the last century, began
to encroach upon them, they vested their whole East India commerce
in an exclusive company. The English, French, Swedes, and Danes,
? ave all followed their example, so that no great nation in Europe has
ever yet had the benefit of a free commerce to the East Indies. No
other reason need be assigned why it has never been so advantageous
as the trade to America, which, between almost every nation of Europe
and its own colonies, is free to all its subjects. The exclusive privileges
of those East India companies, their great riches, the great favour and
protection which these have procured them from their respective
governments, have excited much envy against them. This envy has
frequently represented their trade as altogether pernicious, on account
of the great quantities of silver which it every year exports from the
countries from which it is carried on. The parties concerned have
replied, that their trade, by this continual exportation of silver, might,
indeed, tend to impoverish Europe in general, but not the particular
country from which it was carried on ; because, by the exportation of a
part of the returns to other European countries, it annually brought
home a much greater quantity of that metal than it carried out. Both
the objection and the reply are founded in the popular notion which I
have been just now examining. It is, therefore, unnecessary to say
anything further about either. By the annual exportation of silver to
the East Indies, plate is probably somewhat dearer in Europe than it
otherwise might have been ; and coined silver probably purchases a
larger quantity both of labour and commodities. The former of these
two effects is a very small loss, the latter a very small advantage ; both
too insignificant to deserve any part of the public attention. The trade
to the East Indies, by opening a market to the commodities of Europe,
or, what comes nearly to the same thing, to the gold and silver which
350 WHAT WERE THE RESTRAINTS UPON IMPORTATION.

is purchased with those commodities, must necessarily tend to increase

the annual production of European commodities, and consequently the
real wealth and revenue of Europe. That it has hitherto increased
them so little, is probably owing to the restraints which it everywhere
labours under. (Trade to India is now open.)
I thought it necessary, though at the hazard of being tedious, to
examine at full length this popular notion that wealth consists in
money, or in gold and silver. Money in common language, as I have
already observed, frequently signifies wealth ; and this ambiguity of
expression has rendered this popular notion so familiar to us, that even
they who are convinced of its absurdity, are very apt to forget their
own principles, and in the course of their reasonings to take it for
granted as a certain and undeniable truth. Some of the best English
writers upon commerce set out with observing, that the wealth of a
country consists, not in its gold and silver only, but in its lands, houses,
and consumable goods of all different kinds. In the course of their
reasonings, however, the lands, houses, and consumable goods seem to
slip out of their memory, and the strain of their argument frequently
supposes that all wealth consists in gold and silver, and that to multiply
those metals is the great object of national industry and commerce.
The two principles being established, however, that wealth consisted
in gold and silver, and that those metals could be brought into a
country which had no mines only by the balance of trade, or by
exporting to a greater value than it imported, it necessarily became
the greater object of political economy to diminish as much as possible
the importation of foreign goods for home consumption, and to in-
crease as much as possible the exportation of the produce of domestic
industry. Its two great engines for enriching the country, therefore,
were restraints upon importation, and encouragements for exportation.
The restraints upon importation were of two kinds.
I. Restraints upon the importation of such foreign goods for home
consumption as could be produced at home, from whatever country
they were imported.
II. Restraints upon the importation of goods of almost all kinds
from those particular countries with which the balance of trade was
supposed to be disadvantageous.
Those different restraints consisted sometimes in high duties, and
sometimes in absolute prohibitions.
Exportation was encouraged sometimes by drawbacks, sometimes
by bounties, sometimes by advantageous treaties of commerce with
foreign states, and sometimes by the establishment of colonies in
distant countries.
Drawbacks were given upon two different occasions. When the
home manufacturers were subject to any duty or excise, either the
whole or a part of it was frequently drawn back upon their exporta-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 351

tion ; and when foreign goods liable to a duty were imported in

order to be exported again, either the whole or a part of this duty was
sometimes given back upon such exportation.
Bounties were given for the encouragement either of some beginning
manufacturers, or of such sorts of industry of other kinds as were sup-
posed to deserve particular favour.
By advantageous treaties of commerce, particular privileges were pro-
cured in some foreign state for the goods and merchants of the country,
beyond what were granted to those of other countries.
By the establishment of colonies in distant countries, not only par-
ticular privileges, but a monopoly was frequently procured for the goods
and merchants of the country which established them.
The two sorts of restraints upon importation above-mentioned ,
together with these four encouragements to exportation, constitute the
six principal means by which the commercial system proposes to
increase the quantity of gold and silver in any country by turning the
balance of trade in its favour. I shall consider each of them in a
particular chapter, and without taking much further notice of their
supposed tendency to bring money into the country, I shall examine
chiefly what are likely to be the effects of each of them upon the
annual produce of its industry. According as they tend either to
increase or diminish the value of this annual produce, they must evi-
dently tend either to increase or diminish the real wealth and revenue
of the country.

CHAP. II.-Of Restraints upon the Importation from Foreign Coun-

tries of such Goods as can be produced at Home.
By restraining, either by high duties, or by absolute prohibitions, the
importation of such goods from foreign countries as can be produced
at home, the monopoly of the home market is more or less secured to
the domestic industry employed in producing them. Thus the prohi-
bition of importing either live cattle or salt provisions from foreign
countries secures to the graziers of Great Britain the monopoly of the
home market for butcher's-meat. The high duties upon the importa-
tion of corn, which in times of moderate plenty amount to a prohibi-
tion, give a like advantage to the growers of that commodity. The
prohibition of the importation of foreign woollens is equally favourable
to the woollen manufacturers. The silk manufacture, though altogether
employed upon foreign materials, has lately obtained the same advan-
tage. The linen manufacture has not yet obtained it, but is making
great strides towards it. Many other sorts of manufacturers have, in
the same manner, obtained in Great Britain, either altogether, or very
nearly a monopoly against their countrymen. T e variety o. goods
352 CAPITAL IS ORDINARILY MOST PROFITABLY EMPLOYED AT HOME.

of which the importation into Great Britain is prohibited either abso-

lutely, or under certain circumstances, greatly exceeds what can easily
be suspected by those who are not well acquainted with the laws of the
customs.139 (Restrictions on importations are now few.)
That this monopoly of the home market frequently gives great
encouragement to that particular species of industry which enjoys it,
and frequently turns towards that employment a greater share of both
the labour and stock of the society than would otherwise have gone to
it cannot be doubted. But whether it tends either to increase the
general industry of the society, or to give it the most advantageous
direction, is not, perhaps, altogether so evident.
The general industry of the society can never exceed what the capital
of the society can employ. As the number of workmen that can be
kept in employment by any particular person must bear a certain pro-
portion to his capital, so the number of those that can be continually
employed by all the members of a great society, must bear a certain
proportion to the whole capital of that society, and can never exceed
that proportion. No regulation of commerce can increase the quan-
tity of industry in any society beyond what its capital can maintain.
It can only divert a part of it into a direction into which it might not
otherwise have gone ; and it is by no means certain that this artificial
direction is likely to be more advantageous to the society than that
into which it would have gone of its own accord.
Every individual is continually exerting himself to find out the most
advantageous employment for whatever capital he can command. It
is his own advantage, indeed, and not that of the society, which he
has in view. But the study of his own advantage, naturally, or rather
necessarily, leads him to prefer that employment which is most advan-
tageous to the society.
I. Every individual endeavours to employ his capital as near home
as he can, and consequently as much as he can in the support of
domestic industry, provided always that he can thereby obtain the
ordinary, or not a great deal less than the ordinary, profits of stock.
Thus, upon equal or nearly equal profits, every wholesale merchant
naturally prefers the home trade to the foreign trade of consumption,
and the foreign trade of consumption to the carrying trade. In the
home trade his capital is never so long out of his sight as it frequently
is in the foreign trade of consumption. He can know better the cha-
racter and situation of the person whom he trusts, and if he should
happen to be deceived, he knows better the laws of the country from
which he must seek redress. In the carrying trade, the capital of the
merchant is, as it were, divided between two foreign countries, and no
part of it is ever necessarily brought home, or placed under his own
immediate view and command. The capital which an Amsterdam
merchant employs in carrying corn from Konnigsberg to Lisbon, and
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 353

fruit and wine from Lisbon to Konnigsberg, must generally be the one
half of it at Konnigsberg and the other half at Lisbon. No part of
it need ever come to Amsterdam. The natural residence of such a
merchant should either be at Konnigsberg or Lisbon, and it can only
be some very particular circumstances which can make him prefer the
residence of Amsterdam. The uneasiness, however, which he feels at
being separated so far from his capital, generally determines him to
bring part both of the Konnigsberg goods which he destines for the
market of Lisbon, and the Lisbon goods which he destines for that of
Konnigsberg, to Amsterdam : and though this necessarily subjects
him to a double charge of loading and unloading, as well as to the pay-
ment of some duties and customs, yet for the sake of having some
part of his capital always under his own view and command, he wil-
lingly submits to this extraordinary charge ; and it is in this manner
that every country which has any considerable share of the carrying
trade, becomes always the emporium, or general market, for the goods
of all the different countries whose trade it carries on. The merchant,
in order to save a second loading and unloading, endeavours always to
sell in the home market as much of the goods of all those different
countries as he can, and thus, so far as he can, to convert his carrying
trade into a foreign trade of consumption. A merchant, in the same
manner, who is engaged in the foreign trade of consumption, when he
collects goods for foreign markets, will always be glad, upon equal or
nearly equal profits, to sell as great a part of them at home as he can.
He saves himself the risk and trouble of exportation, when, so far as
he can, he thus converts his foreign trade of consumption into a home
trade. Home is in this manner the centre, if I may say so, round
which the capitals of the inhabitants of every country are continually
circulating, and towards which they are always tending, though by
particular causes they may sometimes be driven off and repelled from
it toward more distant employments. But a capital employed in the
home trade, it has already been shown, necessarily puts into motion a
greater quantity of domestic industry, and gives revenue and employ-
ment to a greater number of the inhabitants of the country, than an
equal capital employed in the foreign trade of consumption : and one
employed in the foreign trade of consumption has the same advantage
over an equal capital employed in the carrying trade.* Upon equal or
only nearly equal profits, therefore, every individual naturally inclines
to employ his capital in the manner in which it is likely to afford the
greatest support to domestic industry, and to give revenue and employ-
ment to the greatest number of people of his own country.
II. Every individual who employs his capital in the support of
domestic industry, necessarily endeavours so to direct that industry,
that its produce may be of the greatest possible value.
The produce of industry is what it adds to the subject or materials
* See ante, p. 287, 23
354 WHAT THE ANNUAL REVENUE OF EVERY SOCIETY CONSISTS OF.

upon which it is employed. In proportion as the value of this produce

is great or small, so will likewise be the profits of the employer. But
it is only for the sake of profit that any man employs a capital in the
support of industry ; and he will always, therefore, endeavour to em-
ploy it in the support of that industry of which the produce is likely to
be of the greatest value, or to exchange for the greatest quantity either
of money or of other goods.
But the annual revenue of every society is always precisely equal to
the exchangeable value of the whole annual produce of its industry, or
rather is precisely the same thing with that exchangeable value. As
every individual, therefore, endeavours as much as he can both to em-
ploy his capital in the support of domestic industry, and so to direct
that industry that its produce may be of the greatest value, every in-
dividual necessarily labours to render the annual revenue of the society
as great as he can. He generally, indeed, neither intends to promote
the public interest, nor knows how much he is promoting it. By pre-
ferring the support of domestic to that of foreign industry, he intends
only his own security ; and by directing that industry in such a manner
as its produce may be of the greatest value, he intends only his own
gain, and he is in this, as in many other cases, led by an invisible hand
to promote an end which was no part of his intention. Nor is it always
the worse for the society that it was no part of it. By pursuing his own
interest he frequently promotes that of the society more effectually than
when he really intends to promote it. I have never known much good
done by those who affected to trade for the public good. It is an
affectation, indeed, not very common among merchants, and very few
words need be employed in dissuading them from it.
What is the species of domestic industry which his capital can em-
ploy, and of which the produce is likely to be of the greatest value,
every individual, it is evident, can, in this local situation, judge much
better than any statesman or lawgiver can do for him. The statesman,
who should attempt to direct private people in what manner they ought
to employ their capitals, would not only load himself with a most un-
necessary attention, but assume an authority which could safely be
trusted, not only to no single person, but to no council or senate what-
ever, and which would nowhere be so dangerous as in the hands of a
man who had folly and presumption enough to fancy himself fit to
exercise it.
To give the monopoly of the home market to the produce of domestic
industry, in any particular art or manufacture, is in some measure to
direct private people in what manner they ought to employ their
capitals, and must, in almost all cases, be either a useless or a hurtful
regulation. If the produce of domestic can be brought there as cheap
as that of foreign industry, the regulation is evidently useless. If it
cannot, it must generally be hurtful. It is the maxim of every prudent
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 355

master of a family, never to attempt to make at home what it will cost

him more to make than to buy. The tailor does not attempt to make
his own shoes, but buys them ofthe shoemaker. The shoemaker does
not attempt to make his own clothes, but employs a tailor. The
farmer attempts to make neither the one nor the other, but employs
those different artificers. All of them find it for their interest to em-
ploy their whole industry in a way in which they have some advantage
over their neighbours, and to purchase with a part of its produce, or
what is the same thing, with the price of a part of it, whatever else they
have occasion for.
What is prudence in the conduct of every private family, can scarce
be folly in that of a great kingdom. If a foreign country can supply us
with a commodity cheaper than we ourselves can make it, better buy
it of them with some part of the produce of our own industry, employed
in a way in which we have some advantage. The general industry of
the country, being always in proportion to the capital which employs
it, will not thereby be diminished, no more than that of the above-
mentioned artificers ; but only left to find out the way in which it can
be employed with the greatest advantage. It is certainly not employed
to the greatest advantage when it is thus directed towards an object
which it can buy cheaper than it can make. The value of its annual
produce is certainly more or less diminished, when it is thus turned
away from producing commodities evidently of more value than the
commodity which it is directed to produce. According to the supposi-
tion, that commodity could be purchased from foreign countries cheaper
than it can be made at home. It could, therefore, have been purchased
with a part only of the commodities, or, what is the same thing, with a
part only of the price of the commodities, which the industry employed
by an equal capital would have produced at home, had it been left to
follow its natural course. The industry of the country, therefore, is
thus turned away from a more, to a less advantageous employment,
and the exchangeable value of its annual produce, instead of being in-
creased, according to the intention of the lawgiver, must necessarily be
diminished by every such regulation.
By means of such regulations, indeed, a particular manufacture may
sometimes be acquired sooner than it could have been otherwise, and
after a certain time may be made at home as cheap or cheaper than in
the foreign country. But though the industry of the society may be
thus carried with advantage into a particular channel sooner than it
could have been otherwise, it will by no means follow that the sum
total, either of its industry, or of its revenue, can ever be augmented
by any such regulation . The industry of the society can augment only
in proportion as its capital augments, and its capital can augment only
in proportion to what can be gradually saved out of its revenue. But
the immediate effect of every such regulation is to diminish its revenue,
23
356 MANUFACTURERS GAIN MOST FROM THEIR HOME MARKETS.

and what diminishes its revenue is certainly not very likely to augment
its capital faster than it would have augmented of its own accord, had
both their capital and their industry been left to find out their
natural employments.
Though for want of such regulations the society should never acquire
the proposed manufacture, it would not, upon that account, necessarily
be the poorer in any one period of its duration. In every period of its
duration its whole capital and industry might still have been employed,
though upon different objects, in the manner that was most advantage.
ous at the time. In every period its revenue might have been the
greatest which its capital could afford, and both capital and revenue
might have been augmented with the greatest possible rapidity.
The natural advantages which one country has over another in
producing particular commodities are sometimes so great, that it is
acknowledged by all the world to be in vain to struggle with them.
By means of glasses, hotbeds, and hot-walls, very good grapes can be
raised in Scotland, and very good wine too can be made of them at
about thirty times the expense for which at least equally good can be
brought from foreign countries. Would it be a reasonable law to pro-
hibit the importation of all foreign wines merely to encourage the making
of claret and burgundy in Scotland ? But if there would be a manifest
absurdity in turning towards any employment, thirty times more of
the capital and industry of the country than would be necessary to
purchase from foreign countries an equal quantity of the commodities
wanted, there must be an absurdity, though not altogether so glaring,
yet exactly of the same kind, in turning towards any such employment
a thirtieth, or even a three hundredth part more of either. Whether
the advantages which one country has over another be natural or ac-
quired, is in this respect of no consequence. As long as the one country
has those advantages, and the other wants them, it will always be more
advantageous for the latter rather to buy of the former than to make.
It is an acquired advantage only which one artificer has over his
neighbour who exercises another trade ; and yet they both find it more
advantageous to buy of one another, than to make what does not be-
long to their particular trades.
Merchants and manufacturers are the people who derive the greatest
advantage from this monopoly of the home market. " The prohibition
ofthe importation of foreign cattle, and of salt provisions, together with
the high duties upon foreign corn, which in times of moderate plenty
amount to a prohibition, are not near so advantageous to the graziers
and farmers of Great Britain, as other regulations of the same kind are
to its merchants and manufacturers. Manufactures, those of the finer
kind especially, are more easily transported from one country to another
than corn or cattle. It is in the fetching and carrying manufactures,
accordingly, that foreign trade is chiefly employed. In manufactures,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 357

a very small advantage will enable foreigners to undersell our own

workmen, even in the home market. It will require a very great one
to enable them to do so in the rude produce of the soil. If the free
importation of foreign manufactures were permitted, several of the
home manufactures would probably suffer, and some of them, perhaps,
go to ruin altogether, and a considerable part of the stock and industry
at present employed in them would be forced to find out some other
employment.142 But the freest importation of the rude produce of the
soil could have no such effect upon the agriculture of the country.
If the importation of foreign cattle, for example, were made ever so
free, so few could be imported, that the grazing trade of Great Britain :
could be little affected by it. Live cattle are, perhaps, the only com-
modity of which the transportation is more expensive by sea than by
land. By land they carry themselves to market. By sea, not only the
cattle, but their food and their water too, must be carried at no small
expense and inconveniency. The short sea passage between Ireland and
Great Britain, renders the importation of Irish cattle more easy. But
though the free importation of them, which was lately permitted only
for a limited time, were rendered perpetual (It has long been so, 1869.),
it could have no considerable effect upon the interest of the graziers of
Great Britain. Those parts of Great Britain which border upon the
Irish sea are all grazing countries. Irish cattle could never be imported
for their use, but must be driven through those very extensive countries,
at no small expense and inconveniency, before they could arrive at
their proper market. Fat cattle could not be driven so far. Lean cattle,
therefore, only could be imported, and such importation could interfere,
not with the interest of the feeding or fattening countries, to which, by
reducing the price of lean cattle, it would rather be advantageous, but
with that of the breeding countries only. The small number of Irish
cattle imported since their importation was permitted, together with
the good price at which lean cattle still continue to sell, seem to de-
monstrate that even the breeding countries of Great Britain are never
likely to be much affected by the free importation of Irish cattle. The
common people of Ireland, indeed, are said to have sometimes opposed
with violence the exportation of their cattle. But if the exporters
had found any great advantage in continuing the trade, they could
easily, when the law was on their side, have conquered the oppo-
sition of the Irish mobs.
Feeding and fattening countries, besides, must always be highly im-
proved, whereas breeding countries are generally uncultivated. The
high price of lean cattle, by augmenting the value of uncultivated land,
is like a bounty against improvement. To any country which was
hignly improved throughout, it would be more advantageous to import
its lean cattle than to breed them. The province of Holland, accord-
ingly, is said to follow this maxim at present. The mountains of Scot-
358 FREE IMPORT OF CORN WOULD LITTLE AFFECT BRITISH FARMER.

land, Wales, and Northumberland, indeed, are countries not capable

of much improvement, and seem destined by nature to be the breeding
countries of Great Britain. The freest importation of foreign cattle
could have no other effect than to hinder those breeding countries from
taking advantage of the increasing population and improvement of the
rest of the kingdom, from raising their price to an exorbitant height,
and from laying a real tax upon all the more improved and cultivated
parts of the country.
The freest importation of salt provisions, in the same manner, could
have as little effect upon the interest of the graziers of Great Britain as
that of live cattle. Salt provisions are not only a very bulky com-
modity, but when compared with fresh meat, they are a commodity
both of worse quality and, as they cost more labour and expense, of
higher price. They could never, therefore, come into competition with
the fresh meat, though they might with the salt provisions of the
country. They might be used for victualling ships for distant voyages,
and such like uses, but could never make any considerable part of the
food of the people. The small quantity of salt provisions imported
from Ireland since their importation was rendered free, is an experi-
mental proof that our graziers have nothing to apprehend from it. It
does not appear that the price of butcher's-meat has ever been sensibly
affected by it.
Even the free importation of foreign corn could very little affect the
interest of the farmers of Great Britain. Corn is a much more bulky
commodity than butcher's-meat. A pound of wheat at a penny is as
dear as a pound of butcher's-meat at fourpence. The small quantity
of foreign corn imported even in times of the greatest scarcity, may
satisfy our farmers that they can have nothing to fear from the freest
importation. The average quantity imported one year with another,
amounts only, according to the very well informed author of the tracts
upon the corn trade, to twenty-three thousand seven hundred and
twenty-eight quarters of all sorts of grain, and does not exceed the five
hundredth and seventy-one part of the annual consumption. But as
the bounty upon corn occasions a greater exportation in years of
plenty, so it must of consequence occasion a greater importation in
years of scarcity, than in the actual state of tillage would otherwise
take place. By means of it, the plenty of one year does not compensate
the scarcity of another, and as the average quantity exported is neces-
sarily augmented by it, so must likewise, in the actual state of tillage,
the average quantity imported. If there were no bounty, as less corn
would be exported, so it is probable that, one year with another, less
would be imported than at present. The corn merchants, the fetchers
and carriers of corn between Great Britain and foreign countries, would
have much less employment, and might suffer considerably ; but the
country gentlemen and farmers could suffer very little. It is in the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 359

corn merchants accordingly, rather than in the country gentlemen and

farmers, that I have observed the greatest anxiety for the renewal and
continuation of the bounty.* (Repealed in 1815.)
Country gentlemen and farmers are, to their great honour, of all
people, the least subject to the wretched spirit of monopoly. The
undertaker of a great manufactory is sometimes alarmed if another
work of the same kind is established within twenty miles of him. The
Dutch undertaker of the woollen manufacture at Abbeville stipulated
that no work of the same kind should be established within thirty
leagues of that city. Farmers and country gentlemen, on the contrary,
are generally disposed rather to promote than to obstruct the cultiva-
tion and improvement of their neighbours' farms and estates. They
have no secrets, such as those of the greater part of manufacturers,
but are generally rather fond of communicating to their neighbours,
and of extending as far as possible any new practice which they have
found to be advantageous. Pius Questus, says old Cato, stabilis-
simusque, minimeque invidiosus; minimeque male cogitantes, sunt, qui
in eo studio occupati sunt. † Country gentlemen and farmers, dispersed
in different parts of the country, cannot so easily combine as merchants
and manufacturers, who being collected into towns, and accustomed to
that exclusive corporation spirit which prevails in them, naturally
endeavour to obtain against all their countrymen, the same exclusive
privilege which they generally possess against the inhabitants of their
respective towns. They accordingly seem to have been the original
inventors of those restraints upon the importation of foreign goods,
which secure to them the monopoly of the home market. It was pro-
bably in imitation of them, and to put themselves upon a level with
those who, they found , were disposed to oppress them, that the country
gentlemen and farmers of Great Britain so far forgot the generosity
which is natural to their station, as to demand the exclusive privilege
of supplying their countrymen with corn and butcher's-meat. They
did not perhaps take time to consider, how much less their interest
could be affected by the freedom of trade, than that of the people
whose example they followed.
To prohibit by a perpetual law the importation of foreign corn and
cattle, is in reality to enact, that the population and industry of the
country shall at no time exceed what the rude produce of its own soil
can maintain.
There seem, however, to be two cases in which it will generally be
advantageous to lay some burden upon foreign, for the encouragement
of domestic industry.
The first is, when some particular sort of industry is necessary for
the defence of the country. The defence of Great Britain, for example
depends very much upon the number of its sailors and shipping. The
act of navigation, therefore, very properly endeavours to give the sailors
* See note on Corn Tag in Appendix. + See note 93.
360 PRINCIPAL DISPOSITIONS OF NAVIGATION ACT.

and shipping of Great Britain the monopoly of the trade of their own
country, in some cases, by absolute prohibitions, and in others by heavy
burdens upon the shipping of foreign countries. The following are the
principal dispositions of this act.
I. All ships, of which the owners, masters, and three-fourths of the
mariners are not British subjects, are prohibited, upon pain of forfeiting
ship and cargo, from trading to the British settlements and plantations,
or from being employed in the coasting trade of Great Britain.
II. A great variety of the most bulky articles of importation can be
brought into Great Britain only, either in such ships as are above
described, or in ships of the country where those goods are produced,
and of which the owners, masters, and three-fourths of the mariners,
are of that particular country ; and when imported even in ships of this
latter kind, they are subject to double aliens' duty. If imported in ships
of any other country, the penalty is forfeiture of ship and goods. When
this act was made, the Dutch were, what they still are, the great
carriers of Europe, and by this regulation they were entirely excluded
from being the carriers to Great Britain, or from importing to us the
goods of any other European country.
III. A great variety of the most bulky articles of importation are
prohibited from being imported, even in British ships, from any country
but that in which they are produced ; under pain of forfeiting ship and
cargo. This regulation too was probably intended against the Dutch.
Holland was then, as now, the great emporium for all European goods,
and by this regulation, British ships were hindered from loading in
Holland the goods of any other European country.
IV. Salt fish of all kinds, whale-fins, whale-bone, oil, and blubber,
not caught by and cured on board British vessels, when imported into
Great Britain, are subjected to double aliens' duty. The Dutch, as
they are still the principal, were then the only fishers in Europe that
attempted to supply foreign nations with fish. By this regulation, a
very heavy burden was laid upon their supplying Great Britain.
When the act of navigation was made, though England and Holland
were not actually at war, the most violent animosity subsisted between
the two nations. It had begun during the government of the Long
Parliament, which first framed this act, and it broke out soon after in
the Dutch wars during that of the Protector and of Charles the Second.
It is not impossible, therefore, that some of the regulations of this
famous act may have proceeded from national animosity. They are
as wise, however, as if they had all been dictated by the most deli-
berate wisdom. National animosity at that particular time aimed at
the very same object which the most deliberate wisdom would have
recommended, the diminution of the naval power of Holland, the only
naval power which could endanger the security of England.
The act of navigation is not favourable to foreign commerce, or to
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 361

the growth of that opulence which can arise from it. The interest of a
nation in its commercial relations to foreign nations is, like that of a
I merchant with regard to the different people with whom he deals, to
buy as cheap and to sell as dear as possible. But it will be most likely
to buy cheap, when by the most perfect freedom of trade it encourages
all nations to bring to it the goods which it has occasion to purchase ;
and, for the same reason, it will be most likely to sell dear, when its
markets are thus filled with the greatest number of buyers. The act
of navigation, it is true, lays no burden upon foreign ships that come
to export the produce of British industry. Even the ancient aliens'
duty, which used to be paid upon all goods exported as well as im-
ported, has, by several subsequent acts, been taken off from the greater
part of the articles of exportation. But if foreigners, either by pro-
hibitions or high duties, are hindered from coming to sell, they cannot
always afford to come to buy ; because coming without a cargo, they
must lose the freight from their own country to Great Britain. By
diminishing the number of sellers, therefore, we necessarily diminish
that of buyers, and are thus likely not only to buy foreign goods dearer,
but to sell our own cheaper, than if there was a more perfect freedom
of trade. As defence, however, is of much more importance than opu-
lence, the act of navigation is, perhaps, the wisest of all the commercial
144
regulations of England.
The second case in which it will generally be advantageous to lay
some burden upon foreign for the encouragement of domestic industry,
is when some tax is imposed at home upon the produce of the latter.
In this case, it seems reasonable that an equal tax should be imposed
upon the like produce of the former. This would not give the monopoly
of the home market to domestic industry, nor turn towards a particular
employment a greater share of the stock and labour of the country
than what would naturally go to it. It would only hinder any part of
what would naturally go to it from being turned away by the tax, into
a less natural direction, and would leave the competition between
foreign and domestic industry, after the tax, as nearly as possible upon
the same footing as before it. In Great Britain, when any such tax is
laid upon the produce of domestic industry, it is usual at the same time,
in order to stop the clamorous complaints of our merchants and manu-
facturers, that they will be undersold at home, to lay a much heavier
duty upon the importation of all foreign goods of the same kind.
This second limitation of the freedom of trade according to some
people should, upon some occasions, be extended much farther than to
the precise foreign commodities which could come into competition
with those which had been taxed at home. When the necessaries of
life have been taxed in any country, it becomes proper, they pretend,
to tax not only the like necessaries of life imported from other countries,
but all sorts of foreign goods which can come into competition with
362 PRICES OF LABOUR AND COMMODITIES CORRESPOND.

anything that is the produce of domestic industry. Subsistence, they

say, becomes necessarily dearer in consequence of such taxes ; and the
price of labour must always rise with the price of the labourers' sub-
sistence. Every commodity, therefore, which is the produce of domestic
industry, though not immediately taxed itself, becomes dearer in con-
sequence of such taxes, because the labour which produces it becomes
so.145 Such taxes, therefore, are really equivalent, they say, to a tax
upon every particular commodity produced at home. In order to put
domestic upon the same footing with foreign industry, therefore, it
becomes necessary, they think, to lay some duty upon every foreign
commodity, equal to this enhancement of the price of the home com-
modities with which it can come into competition.
Whether taxes upon the necessaries of life, such as those in Great
Britain upon soap, salt, leather, candles, etc. , necessarily raise the price
of labour, and consequently that of all other commodities, I shall con-
sider hereafter, when I come to treat of taxes. Supposing, however,
in the meantime, that they have this effect, and they have it undoubt-
edly, this general enhancement of the price of all commodities, in con-
sequence of that of labour, is a case which differs in the two following
respects from that of a particular commodity, of which the price was
enhanced by a particular tax immediately imposed upon it.
I. It might always be known with great exactness how far the price
of such a commodity could be enhanced by such a tax ; but how far
the general enhancement of the price of labour might affect that of
every different commodity about which labour was employed, could
never be known with any tolerable exactness. It would be impossible,
therefore, to proportion with any tolerable exactness the tax upon every
foreign, to this enhancement of the price of every home commodity.
II. Taxes upon the necessaries of life have nearly the same effect
upon the circumstances of the people as a poor soil and a bad climate.
Provisions are thereby rendered dearer in the same manner as if it
required extraordinary labour and expense to raise them. As in the
natural scarcity arising from soil and climate, it would be absurd to
direct the people in what manner they ought to employ their capitals and
industry, so is it likewise in the artificial scarcity arising from such
taxes. To be left to accommodate, as well as they could, their industry
to their situation, and to find out those employments in which, notwith-
standing their unfavourable circumstances, they might have some ad-
vantage either in the home or in the foreign market, is what in both
cases would evidently be most for the advantage. To lay a new tax
upon them, because they are already overburdened with taxes, and
because they already pay too dear for the necessaries of life, to make
them likewise pay too dear for the greater part of other commodities, is
certainly a most absurd way of making amends.
Such taxes, when they have grown up to a certain height, are a curse
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 363

equal to the barrenness of the earth and the inclemency of the heavens ;
and yet it is in the richest and most industrious countries that they have
been most generally imposed. No other countries could support so
great a disorder. As the strongest bodies only can live and enjoy
health, under an unwholesome regimen ; so the nations only, that in
every sort of industry have the greatest natural and acquired advan-
tages, can subsist and prosper under such taxes. Holland is the country
in Europe in which they abound most, and which from peculiar circum-
stances continues to prosper, not by means of them, as has been most
absurdly supposed, but in spite of them.
As there are two cases in which it will generally be advantageous to
lay some burden upon foreign, for the encouragement of domestic in-
dustry, so there are two others in which it may sometimes be a matter
of deliberation ; in the one, how far it is proper to continue the free
importation of certain foreign goods ; and in the other, how far, or in
what manner, it may be proper to restore that free importation after it
has been for some time interrupted.
The case in which it may sometimes be a matter of deliberation how
far it is proper to continue the free importation of certain foreign goods,
is, when some foreign nation restrains by high duties or prohibitions
the importation of some of our manufactures into their country. Re-
venge in this case naturally dictates retaliation, and that we should
impose the like duties and prohibitions upon the importation of some
or all of their manufactures into ours. Nations accordingly seldom
fail to retaliate in this manner. The French have been particularly
forward to favour their own manufactures by restraining the importa-
tion of such foreign goods as could come into competition with them.
In this consisted a great part of the policy of Mr. Colbert, who, not-
withstanding his great abilities, seems in this case to have been imposed
upon by the sophistry of merchants and manufacturers, who are always
demanding a monopoly against their countrymen. It is at present the
opinion of the most intelligent men in France that his operations of
this kind have not been beneficial to his country. That minister, by
the tariff of 1667, imposed very high duties upon a great number of
foreign manufactures. Upon his refusing to moderate them in favour
of the Dutch, they in 1671 prohibited the importation of the wines,
brandies, and manufactures of France. The war of 1672 seems to
have been in part occasioned by this commercial dispute. The peace
of Nimeguen put an end to it in 1678, by moderating some of those
duties in favour of the Dutch, who in consequence took off their pro-
hibition. It was about the same time that the French and English
began mutually to oppress each other's industry, by the like duties and
prohibitions, of which the French, however, seem to have set the first
example. The spirit of hostility which has subsisted between the two
nations ever since, has hitherto hindered them from being moderated on
364 HOW THE RECOVERY OF A GREAT FOREIGN MARKET OPERATES.

either side. In 1697 the English prohibited the importation of bone-

lace, the manufacture of Flanders. The government of that country,
at that time under the dominion of Spain, prohibited in return the im-
portation of English woollens. In 1700, the prohibition of importing
bonelace into England, was taken off upon condition that the importa-
tion of the English woollens into Flanders should be put on the same
footing as before,
There may be good policy in retaliations of this kind, when there
is a probability that they will procure the repeal of the high duties or
prohibitions complained of. The recovery of a great foreign market
will generally more than compensate the transitory inconveniency of
paying dearer during a short time for some sorts of goods. To judge
whether such retaliations are likely to produce such an effect, does not,
perhaps, belong so much to the science of a legislator, whose delibera-
tions ought to be governed by general principles which are always the
same, as to the skill of that insidious and crafty animal, vulgarly called
a statesman or politician, whose councils are directed by the moment-
ary fluctuations of affairs. When there is no probability that any such
repeal can be procured, it seems a bad method of compensating the
injury done to certain classes of our people, to do another injury our-
selves, not only to those classes, but to almost all the other classes of
them. When our neighbours prohibit some manufacture of ours, we
generally prohibit, not only the same, for that alone would seldom
affect them considerably, but some other manufacture of theirs. This
may no doubt give encouragement to some particular class of workmen
among ourselves, and by excluding some of their rivals, may enable
them to raise their price in the home market. Those workmen, how-
ever, who suffered by our neighbours' prohibition will not be benefited
by ours. On the contrary, they and almost all the other classes of our
citizens will thereby be obliged to pay dearer than before for certain
goods. Every such law, therefore, imposes a real tax upon the whole
country, not in favour of that particular class of workmen who were
injured by our neighbours' prohibition, but of some other class.
The case in which it may sometimes be a matter of deliberation, how
far, or in what manner it is proper to restore the free importation of
foreign goods, after it has been for some time interrupted, is, when par-
ticular manufactures, by means of high duties or prohibitions upon all
foreign goods which can come into competition with them, have been
so far extended as to employ a great multitude of hands. Humanity
may in this case require that the freedom of trade should be restored
only by slow gradations, and with a good deal of reserve and circum-
spection. Were those high duties and prohibitions taken away all at
once, cheaper foreign goods of the same kind might be poured so fast
into the home market, as to deprive all at once many thousands of our
people of their ordinary employment and means of subsistence. The
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS 365

disorder which this would occasion might no doubt be very consider-

able. It would in all probability, however, be much less than is com-
monly imagined, for the two following reasons.
First, all those manufactures, of which any part is commonly exported
to other European countries without a bounty, could be very little
affected by the freest importation of foreign goods. Such manufactures
must be sold as cheap abroad as any other foreign goods of the same
quality and kind, and consequently must be sold cheaper at home.
They would still, therefore, keep possession of the home market, and
though a capricious man of fashion might sometimes prefer foreign
wares, merely because they were foreign, to cheaper and better goods
of the same kind that were made at home, this folly could, from the
nature of things, extend to so few, that it could make no sensible im-
pression upon the general employment of the people. But a great part
of all the different branches of our woollen manufacture, of our tanned
leather, and of our hardware, are annually exported to other European
countries without any bounty, and these are the manufactures which
employ the greatest number of hands. The silk, perhaps, is the manu-
facture which would suffer the most by this freedom of trade, and after
it the linen, though the latter much less than the former. *
Secondly, though a great number of people should, by thus restoring
the freedom of trade, be thrown all at once out of their ordinary
employment and common method of subsistence, it would by no
means follow that they would thereby be deprived either of employ-
ment or subsistence. By the reduction of the army and navy at the
end of the late war, more than a hundred thousand soldiers and sea-
men, a number equal to what is employed in the greatest manufactures,
were all at once thrown out of their ordinary employment ; but, though
they no doubt suffered some inconveniency, they were not thereby
deprived of all employment and subsistence. The greater part of the
seamen, it is probable, gradually betook themselves to the merchant-
service as they could find occasion, and in the meantime both they
and the soldiers were absorbed in the great mass of the people, and
employed in a great variety of occupations. Not only no great con-
vulsion, but no sensible disorder arose from so great a change in the
situation of more than a hundred thousand men, all accustomed to the
use of arms, and many of them to rapine and plunder. The number
of vagrants was scarce anywhere sensibly increased by it, even the
wages of labour were not reduced by it in any occupation, so far as I
have been able to learn, except in that of seamen in the merchant-
service. But if we compare together the habits of a soldier and of
any sort of manufacturer, we shall find that those of the latter do not
tend so much to disqualify him from being employed in a new trade,
as those ofthe former from being employed in any. The manufacturer
has always been accustomed to look for his subsistence from his labour
* See note 142.
 366 TO EXPECT ENTIRE FREEDOM OF TRADE IS AN UTOPIAN NOTION.

only the soldier to expect it from his pay. Application and industry
have been familiar to the one ; idleness and dissipation to the other.
But it is surely much easier to change the direction of industry from
one sort of labour to another, than to turn idleness and dissipation to
To the greater part of manufactures besides, it has already been
any .
observed, there are other collateral manufactures of so similar a nature,
that a workman can easily transfer his industry from one of them to
another. The greater part of such workmen too are occasionally
employed in country labour. The stock which employed them in a
particular manufacture before, will still remain in the country to employ
an equal number of people in some other way. The capital of the
country remaining the same, the demand for labour will likewise be
the same, or very nearly the same, though it may be exerted in
different places and for different occupations. Soldiers and seamen,
indeed, when discharged from the king's service, are at liberty to
exercise any trade, within any town or place of Great Britain or
Ireland. Let the same natural liberty of exercising what species of
industry they please, be restored to all His Majesty's subjects, in the
same manner as to soldiers and seamen ; that is, break down the
146 , privileges of corporations, and repeal the statute of appren
exclusive
ticeship , both which are real encroachments upon natural liberty, and
add to these the repeal of the law of settlements, so that a poor work
man, when thrown out of employment either in one trade, or in one
place, may seek for it in another trade or in another place, without the
fear either of a prosecution or of a removal, and neither the public nor
the individuals will suffer much more from the occasional disbanding
son e particular classes of manufacturers, than from that of soldiers
Our manufacturers have no doubt great merit with their country, but
they cannot
deserve to behave more
treated than
with those
more who defend it with their blood, nor
delicacy.
To expect, indeed, that the freedom of trade should ever be entirely
restored in Great Britain, is as absurd as to expect that an Oceania or
Utopia should ever be established in it. Not only the prejudices of
the public, but what is much more unconquerable, the private interests
of many individuals, irresistibly oppose it." Were the officers of the
army to oppose with the same zeal and unanimity any reduction in the
number of forces, with which master manufacturers set themselves
agamist every law that is likely to increase the number of their rivals
in the home market ; were the former to animate the soldiers, in the
me manner as the latter enflame their workmen, to attack with
sa
violen ce and outrage the proposers of any such regulation,—to attempt
uce e
to red th army would be as dangerous as it has now become to
attemptto diminish in any respect the monopoly which our manufac-
turers have obtained against us. This monopoly has so much increased

e number of some particular tribes of them that, like an overgrown

th
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 367

standing army, they have become formidable to the government, and

upon many occasions intimidate the legislature. The member of par-
liament who supports every proposal for strengthening this monopoly,
is sure to acquire not only the reputation of understanding trade, but
great popularity and influence with an order of men whose numbers
and wealth render them of great importance. If he opposes them, on
the contrary, and still more if he has authority enough to be able to
thwart them, neither the most acknowledged probity, nor the highest
rank, nor the greatest public services, can protect him from the most
infamous abuse and detraction, from personal insults, nor sometimes
from real danger, arising from the insolent outrage of furious and dis-
appointed monopolists. 143
The undertaker of a great manufacture, who, by the home markets
being suddenly laid open to the competition of foreigners, should be
obliged to abandon his trade, would no doubt suffer very considerably.
That part of his capital which had usually been employed in purchasing
materials and in paying his workmen might, without much difficulty
perhaps, find another employment. But that part of it which was
fixed in workhouses, and in the instruments of trade, could scarce be
disposed of without considerable loss. The equitable regard, there-
fore, to his interest requires that changes of this kind should never be
introduced suddenly, but slowly, gradually, and after a very long warn-
ing. The legislature, were it possible that its deliberations could be
always directed, not by the clamorous importunity of partial interests,
but by an extensive view of the general good, ought upon this very
account, perhaps, to be particularly careful neither to establish any
new monopolies of this kind, nor to extend further those which are
already established. Every such regulation introduces some degree of
real disorder into the constitution of the state, which it will be difficult
afterwards to cure without occasioning another disorder.
How far it may be proper to impose taxes upon the importation of
foreign goods, in order, not to prevent their importation, but to raise a
revenue for government, I shall consider hereafter when I come to
neat of taxes. Taxes imposed with a view to prevent, or even to
diminish importation, are evidently as destructive of the revenue of the
customs as of the freedom of trade.
368 THE UNREASONABLENESS OF RESTRAINTS ON TRADE SHOWN.

CHAP. III. Of the extraordinary Restraints upon the Importation of

Goods of almost all Kinds, from those Countries with which the
Balance is supposed to be disadvantageous.
PART I. Ofthe Unreasonableness of those Restraints, even upon the
Principles of the Commercial System.
To lay extraordinary restraints upon the importation of goods of
almost all kinds from those particular countries with which the balance
of trade is supposed to be disadvantageous, is the second expedient by
which the commercial system proposes to increase the quantity of gold
and silver. Thus in Great Britain, Silesia lawns may be imported for
home consumption, upon paying certain duties ; but French cambrics
and lawns are prohibited to be imported, except into the port of
London, there to be warehoused for exportation. Higher duties are
imposed upon the wines of France than upon those of Portugaì, or
indeed of any other country. By what is called the impost 1692 , a
duty of five-and-twenty per cent. , of the rate or value, was laid upon
all French goods ; while the goods of other nations were, the greater
part of them, subjected to much lighter duties, seldom exceeding five
per cent. The wine, brandy, salt and vinegar of France were indeed
excepted ; these commodities being subjected to other heavy duties,
either by other laws, or by particular clauses of the same law. In
1696, a second duty of twenty-five per cent. , the first not having been
thought a sufficient discouragement, was imposed upon all French
goods, except brandy ; together with a new duty of five-and-twenty
pounds upon the ton of French wine, and another of fifteen pounds
upon the ton of French vinegar. French goods have never been
omitted in any of those general subsidies, or duties of five per cent. ,
which have been imposed upon all, or the greater part of the goods
enumerated in the book of rates. If we count the one third and the
two third subsidies as making a complete subsidy between them , there
have been five of these general subsidies ; so that before the commence-
ment of the present war seventy-five per cent. may be considered as
the lowest duty, to which the greater part of the goods of the growth,
produce, or manufacture of France were liable. But upon the greater
part of the goods, those duties are equivalent to a prohibition. The
French in their turn have, I believe, treated our goods and manufac
tures just as hardly ; though I am not well acquainted with the par
ticular hardships which they have imposed upon them. Those mutual
restraints have put an end to almost all fair commerce between the two
nations, and smugglers are now the principal importers, either of
British goods into France, or of French goods into Great Britain. The
principles which I have been examining in the foregoing chapter took
their origin from private interest and the spirit of monopoly ; those
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 369

which I am going to examine in this, from national prejudice and

animosity. They are, accordingly, as might well be expected, still more
unreasonable. They are so, even upon the principles of the commer-
149
cial system.
First, though it were certain that in the case of a free trade between
France and England, for example, the balance would be in favour of
France, it would by no means follow that such a trade would be
disadvantageous to England , or that the general balance of its whole
trade would thereby be turned more against it. If the wines of France
are better and cheaper than those of Portugal, or its linens than those
of Germany, it would be more advantageous for Great Britain to pur-
chase both the wine and the foreign linen which it had occasion for of
France, than of Portugal and Germany. Though the value of the
annual importations from France would thereby be greatly augmented,
the value of the whole annual importations would be diminished, in
proportion as the French goods of the same quality were cheaper than
" those of the other two countries. This would be the case, even upon
the supposition that the whole French goods imported were to be con-
sumed in Great Britain.
But, secondly, a great part of them might be re-exported to other
countries, where, being sold with profit, they might bring back a return
equal in value, perhaps, to the prime cost of the whole French goods
imported. What has frequently been said of the East India trade might
possibly be true of the French ; that though the greater part of East
India goods were bought with gold and silver, the re-exportation of a
part of them to other countries brought back more gold and silver to
that which carried on the trade than the prime cost of the whole
amounted to. One of the most important branches of the Dutch trade
at present consists in the carriage of French goods to other European
countries. Some part even of the French wine drank in Great Britain
is clandestinely imported from Holland and Zealand. If there was
either a free trade between France and England , or if French goods
could be imported upon paying only the same duties as those of other
European nations, to be drawn back upon exportation, England might
have some share of a trade which is found so advantageous to Holland.
Thirdly, and lastly, there is no certain criterion by which we can
determine on which side what is called the balance between any two
countries lies, or which of them exports to the greatest value. National
prejudice and animosity, prompted always by the private interests of
particular traders, are the principles which generally direct our judg-
ment upon all questions concerning it. There are two criterions.
however, which have frequently been appealed to upon such occasions,
the custom-house books and the course of exchange. The custom-house
books, I think, it is now generally acknowledged, are a very uncertain
criterion, on account of the inaccuracy of the valuation at which the
24
370 ORDINARY COURSE OF EXCHANGE INDICATES STATE OF TRADE.

greater part of goods are rated in them. The course of exchange

is, perhaps, almost equally so.
When the exchange between two places, such as London and Paris,
is at par, it is said to be a sign that the debts due from London to Paris
are compensated by those due from Paris to London. On the contrary,
when a premium is paid at London for a bill upon Paris, it is said to
be a sign that the debts due from London to Paris are not compensated
by those due from Paris to London, but that a balance in money must
be sent out from the latter place ; for the risk, trouble, and expense of
exporting which the premium is both demanded and given. But the ordi-
nary state of debt and credit between those two cities must necessarily
be regulated, it is said, by the ordinary course of their dealings with one
another. When neither of them imports from the other to a greater
amount than it exports to that other, the debts and credits of each may
compensate one another. But when one of them imports from the
other to a greater value than it exports to that other, the former neces-
sarily becomes indebted to the latter in a greater sum than the latter
becomes indebted to it : the debts and credits of each do not compen-
sate one another, and money must be sent out from that place of which
the debts overbalance the credits. The ordinary course of exchange,
therefore, being an indication of the ordinary state of debt and credit
between two places, it must likewise be an indication of the ordin-
ary course of their exports and imports, as must these necessarily
regulate that state.
But though the ordinary course of exchange should be allowed to be
a sufficient indication of the ordinary state of debt and credit between
any two places, it would not from thence follow, that the balance of
trade was in favour of that place which had the ordinary state of debt
and credit in its favour. The ordinary state of debt and credit between
any two places is not always entirely regulated by the ordinary course
of their dealings with one another ; but is often influenced by that of
the dealings of either with many other places. If it is usual, for ex-
ample, for the merchants of England to pay for the goods which they
buy of Hamburgh, Dantzic, Riga, etc. , by bills upon Holland, the ordi-
nary state of debt and credit between England and Holland will not
be regulated entirely by the ordinary course of the dealings of those
two countries with one another, but will be influenced by that of the
dealings of England with those other places. England may be ob-
liged to send out every year money to Holland, though its annual ex-
ports to that country may exceed very much the annual value of its
imports from thence ; and though what is called the balance of trade
may be very much in favour of England.
In the way, besides, in which the par of exchange has hitherto been
computed, the ordinary course of exchange can afford no sufficient
indication that the ordinary state of debt and credit is in favour of that
 SMITH ON THỂ CAUSES OF THE WEALTH OF NATIONS. 371

country which seems to have, or which is supposed to have, the ordi-

nary course of exchange in its favour : or, in other words, the real
exchange may be, and, in fact, often is so very different from the com-
puted one, that from the course of the latter, no certain conclusion
can, upon many occasions, be drawn concerning that of the former.
When for a sum of money paid in England, containing, according
to the standard of the English mint, a certain number of ounces of
pure silver, you receive a bill for a sum of money to be paid in France,
containing, according to the standard of the French mint, an equal
number of ounces of pure silver, exchange is said to be at par between
England and France. When you pay more, you are supposed to give
a premium, and exchange is said to be against England, and in favour
of France. When you pay less, you are supposed to get a premium,
and exchange is said to be against France, and in favour of England.
But, first, we cannot always judge of the value of the current money
of different countries by the standard of their respective mints. In
some it is more, in others it is less, worn, clipt, and otherwise degene-
rated from that standard. But the value of the current coin of every
country, compared with that of any other country, is in proportion, not
to the quantity of pure silver which it ought to contain, but to that
which it actually does contain. Before the reformation of the silver
coin in King William's time, exchange between England and Holland ,
computed, in the usual manner, according to the standard of their re-
spective mints, was five-and-twenty per cent. against England. But the
value of the current coin of England, as we learn from Mr. Lowndes,
was at that time rather more than five-and-twenty per cent. below its
standard value. The real exchange, therefore, may even at that time
have been in favour of England, notwithstanding the computed ex-
change was so much against it ; a smaller number of ounces of pure
silver, actually paid in England, may have purchased a bill for a greater
number of ounces of pure silver to be paid in Holland, and the man
who was supposed to give, may in reality have got the premium. The
French coin was, before the late reformation of the English gold coin,
much less worn than the English, and was, perhaps, two or three per
cent. nearer its standard. If the computed exchange with France,
therefore, was not more than two or three per cent. against England,
the real exchange might have been in its favour. Since the reforma-
tion of the gold coin, the exchange has been constantly in favour of
England, and against France.
Secondly, in some countries, the expense of coinage is defrayed by
the government ; in others, it is defrayed by the private people, who
carry their bullion to the mint, and the government even derives some
.revenue from the coinage. In England it is defrayed by the govern-
ment, and if you carry a pound weight of standard silver to the mint,
you get back sixty-two shillings, containing a pad weight of the like
24 *
 SANK MONEY OF MORE VALUE THAN COMMON CURRENCY.

372 da
r d
silver.150 In France , a duty of eight per cent, is deducted from
a g e
an oin enue , which not only defrays the expense of it, but affords a
stsmac ll r ev nt
to the governme .160 In England , as the coinage costs
e g
th n
hi ty the current coin can never be much more valuable than the
n qoutanti , of bullion which it actually contains . In France , the work-
hip as you pay for it, adds to the value, in the same manner as
ans , wrought plate . A sum of French money, therefore , contain-
tothat
m of
a in ight of pure lver is more valuable than a sum of
a cert we si ,
ngnglish
iE money containing an equal weight of pure silver, and must
e
u urre t in
i r more
n bullion, or other commodities, to purchase it. Though
r heqc
te r ds co of the two countries , therefore , were equally near the
d a
sta n of their respective mints , a sum of English money could not
well purchase a sum of French money, containing an equal number of
Vunces of pure silver, nor consequently a bill upon France for such a
If for such a bill no more additional money was paid than what
sum . sufficient to compensate the expense of the French coinage, the
was exchange might be at par between the two countries, their debts
real
and credits might naturally compensate one another, while the com-
ge was considerably in favour of France. If less than
puted exchan
this was paid , the real exchange might be in favour of England , while
the comd puted was in favour of France.
ly dam , Hamburgh ,
Thir , and lastly, in some places, as at Amster
i c e n an ge a t they call bank
Ven , etc. , foreig bills of exch are paid in wh
y
mone ; while in others , as at London, Lisbon, Antwerp , Leghorn , etc. ,
they are paid in the common currency of the country. What is called
l
bank money is always of more value than the same nomina sum of
o m m on rrency ou sa nd il de rs e a n k of A m s terdam,
c cu . A th gu in th b
l e e r e lu e an ou sa nd il de rs of A m s terdam
for examp , ar of mo va th a th gu
currency. The difference between them is called the agio ofthe bank,
which, at Amsterdam , is generally about five per cent. Supposing the
current money ofthe two countries equally near to the standard of their
respective mints, and that the one pays foreign bills in this common
currency, while the other pays them in the bank money, it is evident
that the computed exchange may be in favour of that which pays in
bank money, though the real exchange should be in favour of that
which pays in current money ; for the same reason that the computed
exchange may be in favour of that which pays in better money, or in
money nearer to is own standard , though the real exchange should be
in favour ofthat which pays in worse. The computed exchange, before
the late reformation of the gold coin, was generally against London with
Amsterdam, Hamburgh , Venice, and, I believe, with all other places
hi ch pay in what is called bank money. It will by no means follow,
ho ever, that the real exchange was against it. Since the reformation.
of the gold coin, it has been in favour of London even with those
pl ces, The computed
exchange has generally been in favour of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 373

London with Lisbon, Antwerp, Leghorn, and, if you except France,

I believe, with most other parts of Europe that pay in common cur-
rency ; and it is not improbable that the real exchange was so too. 151

Digression concerning Banks of Deposit, particularly concerning

that ofAmsterdam.
THE currency of a great state, such as France or England, generally
consists almost entirely of its own coin. Should this currency, there-
fore, be at any time worn, clipt, or otherwise degraded below its
standard value, the state by a reformation of its coin can effectually
re-establish its currency. But the currency of a small state, such as
Genoa or Hamburgh, can seldom consist altogether in its own coin,
but must be made up, in a great measure, of the coins of all the neigh-
bouring states with which its inhabitants have a continual intercourse.
Such a state, therefore, by reforming its coin, will not always be able
to reform its currency. If foreign bills of exchange are paid in this
currency, the uncertain value of any sum, of what is in its own nature
so uncertain, must render the exchange always very much against such
a state, its currency being, in all foreign states, necessarily valued even
below what it is worth.
In order to remedy the inconvenience to which this disadvantageous
exchange must have subjected their merchants, such small states, when
they began to attend to the interest of trade, have frequently enacted,
that foreign bills of exchange of a certain value should be paid, not in
common currency, but by an order upon, or by a transfer in the books
of a certain bank, established upon the credit and under the protection
of the state ; this bank being always obliged to pay, in good and true
money, exactly according to the standard of the state. The banks of
Venice, Genoa, Amsterdam, Hamburgh, and Nuremberg, seem to have
been all originally established with this view, though some of then.
may have afterwards been made subservient to other purposes. The
money of such banks being better than the common currency of the
country, necessarily bore an agio, which was greater or smaller,
according as the currency was supposed to be more or less degraded
below the standard of the state. The agio of the bank of Hamburgh,
for example, which is said to be commonly about fourteen per cent., is
the supposed difference between the good standard money of the state,
and the clipt, worn, and diminished currency poured into it from all
the neighbouring states.
Before 1609 the great quantity of clipt and worn foreign coin, which
the extensive trade of Amsterdam brought from all parts of Europe,
reduced the value of its currency about nine per cent. below that of
good money fresh from the mint. Such money no sooner appeared
374 HISTORY OF THE BANK OF AMSTERDAM AND ITS IMPORTANCE.

than it was melted down or carried away, as it always is in such

circumstances. The merchants, with plenty of currency, could
not always find a sufficient quantity of good money to pay their
bills of exchange ; and the value of those bills, in spite of several
regulations which were made to prevent it, became in a great measure
uncertain.
In order to remedy these inconveniencies, a bank was established in
1609 under the guarantee of the city. This bank received both foreign
coin, and the light and worn coin of the country at its real intrinsic
value in the good standard money of the country, deducting only so
much as was necessary for defraying the expense of coinage, and the
other necessary expense of management. For the value which re-
mained, after this small deduction was made, it gave a credit in its
books. This credit was called bank money, which, as it represented
money exactly according to the standard of the mint, was always of
the same real value, and intrinsically worth more than current money.
It was at the same time enacted, that all bills drawn upon or negotiated
at Amsterdam of the value of six hundred guilders and upwards should
be paid in bank money, which at once took away all uncertainty in the
value of those bills. Every merchant, in consequence of this regula-
tion, was obliged to keep an account with the bank in order to pay his
foreign bills of exchange, which necessarily occasioned a certain
demand for bank money.
Bank money, over and above both its intrinsic superiority to cur-
rency, and the additional value which this demand necessarily gives it,
has likewise some other advantages. It is secure from fire, robbery,
and other accidents ; the city of Amsterdam is bound for it ; it can be
paid away by a simple transfer, without the trouble of counting, or the
risk of transporting it from one place to another. In consequence of
those different advantages, it seems from the beginning to have borne
an agio, and it is generally believed that all the money originally
deposited in the bank was allowed to remain there, nobody caring to
demand payment of a debt which he could sell for a premium in the
market. By demanding payment of the bank, the owner of a bank
credit would lose this premium. As a shilling fresh from the mint
will buy no more goods in the market than one of our common worn
shillings, so the good and true money which might be brought from
the coffers of the bank into those of a private person, being mixed and
confounded with the common currency of the country, would be of no
more value than that currency, from which it could no longer be
readily distinguished. While it remained in the coffers of the bank,
its superiority was known and ascertained. When it had come into
those of a private person, its superiority could not well be ascertained
without more trouble than perhaps the difference was worth. By
being brought from the coffers of the bank, besides, it lost all the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 375

other advantages of bank money : its security, its easy and safe trans-
ferability, its use in paying foreign bills of exchange. Over and above
all this, it could not be brought from those coffers, as it will appear by-
and-by, without previously paying for the keeping.
Those deposits of coin, or those deposits which the bank was bound
to restore in coin, constituted the original capital of the bank, or the
whole value of what was represented by what is called bank money.
At present they are supposed to constitute but a very small part of it.
In order to facilitate the trade in bullion , the bank has been for these
many years in the practice of giving credit in its books upon deposits
of gold and silver bullion. This credit is generally about five per cent.
below the mint price of such bullion. The bank grants at the same
time what is called a recipice or receipt, entitling the person who makes
the deposit, or the bearer, to take out the bullion again at any time
within six months, upon retransferring to the bank a quantity of bank
money equal to that for which credit had been given in its books when
the deposit was made, and upon paying one-fourth per cent. for the
keeping, if the deposit was in silver ; and one-half per cent. if it was
in gold ; but at the same time declaring, that in default of such pay-
ment, and upon the expiration of this term, the deposit should belong
to the bank at the price at which it had been received, or for which
credit had been given in the transfer books. What is thus paid for
the keeping of the deposit may be considered as a sort of warehouse
rent ; and why this warehouse rent should be so much dearer for gold
than for silver, several different reasons have been assigned. The
fineness of gold, it has been said, is more difficult to be ascertained
than that of silver. Frauds are more easily practised, and occasion a
greater loss in the more precious metal. Silver, besides, being the
standard metal, the state, it has been said, wishes to encourage more
the making of deposits of silver than those of gold.
Deposits of bullion are most commonly made when the price is
somewhat lower that ordinary ; and they are taken out again when it
-happens to rise. In Holland the market price of bullion is generally
above the mint price, for the same reason that it was so in England
before the late reformation of the gold coin. The difference is said to
be commonly from about six to sixteen stivers upon the mark, or eight
ounces of silver of eleven parts fine, and one part alloy. The bank
price, or the credit which the bank gives for deposits of such silver
(when made in foreign coin, of which the fineness is well known and
ascertained, such as Mexico dollars), is twenty-two guilders the mark ;
the mint price is about twenty-three guilders, and the market price is
from twenty-three guilders six, to twenty-three guilders sixteen stivers,
*
or from two to three per cent. above the mint price. The proportions
* The following are the prices at which the bank of Amsterdam at present (September,
1775) receives bullion and coin of different kinds :---
376 OWNERS OF BANK CREDITS AND HOLDERS OF RECEIPTS.

between the bank price, the mint price, and the market price of gold
bullion, are nearly the same. A person can generally sell his receipt
for the difference between the mint price of bullion and the market
price. A receipt for bullion is almost always worth something, and it
very seldom happens, therefore, that anybody suffers his receipt to
expire, or allows his bullion to fall to the bank at the price at which it
had been received, either by not taking it out before the end of the six
months, or by neglecting to pay the one-fourth or one-half per cent. in
order to obtain a new receipt for another six months. This, however,
though it happens seldom, is said to happen sometimes, and more
frequently with regard to gold, than with regard to silver, on account
of the higher warehouse-rent which is paid for the keeping of the more
precious metal.
The person who by making a deposit of bullion obtains both a bank
credit and a receipt, pays his bills of exchange as they become due
with his bank credits ; and either sells or keeps his receipt according
as he judges that the price of bullion is likely to rise or to fall. The
receipt of the bank credit seldom keeps long together, and there is no
occasion that they should. The person who has a receipt, and who
wants to take out bullion, finds always plenty of bank credits, or bank
money to buy at the ordinary price ; and the person who has bank
money, and wants to take out bullion, finds receipts always in equal
abundance.
The owners of bank credits, and the holders of receipts, constitute
two different sorts of creditors against the bank. The holder of a
receipt cannot draw out the bullion for which it is granted, without
re-assigning to the bank a sum of bank money equal to the price at
which the bullion had been received. If he has no bank money of his
own, he must purchase it of those who have it. The owner of bank
money cannot draw out bullion without producing to the bank receipts
for the quantity which he wants. If he has none of his own, he must
buy them of those who have them. The holder of a receipt, when he
purchases bank money, purchases the power of taking out a quantity
SILVER.
Mexico dollars Guilders. Mexico dollars new coin 21 10
French crowns B-22 per mark. Ducatoons · 3
Rix dollars - · 2 8
Bar silver containing fine silver 21 per mark, and in this proportion down to fine, on
which 5 guilders are given.
Fine bars, 23 per mark.
GOLD.
Portugal coin Louis d'ors old 300
Guineas B-310 per mark . New ducats · 4 19 8 per ducat.
Louis d'ors new
Bar or ingot gold is received in proportion to its fineness compared with the above foreign
gold coin. Upon fine bars the bank gives 340 per mark. In general, however, something
more is given upon coin of a known fineness, than upon gold and silver bars, of which the
fineness cannot be ascertained but by a process of melting and assaying.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 377

of bullion, of which the mint price is five per cent. above the bank
price. The agio of five per cent., therefore, which he commonly pays
for it, is paid, not for an imaginary, but for a real value. The owner
of bank money, when he purchases a receipt, purchases the power of
taking out a quantity of bullion of which the market price is commonly
from two to three per cent. above the mint price. The price which he
pays for it, therefore, is paid likewise for a real value. The price of
the receipt, and the price of the bank money, compound or make up
between them the full value or price of the bullion.
Upon deposits of the coin current in the country, the bank grants
receipts likewise as well as bank credits : but those receipts are fre-
quently of no value, and will bring no price in the market. Upon
ducatoons, for example, which in the currency pass for three guilders
three strivers each, the bank gives a credit of three guilders only, or
five per cent. below their current value. It grants a receipt, likewise,
entitling the bearer to take out the number of ducatoons deposited at
any time within six months, upon paying one fourth per cent. for the
keeping. This receipt will frequently bring no price in the market.
Three guilders bank money generally sell in the market for three
guilders three stivers, the full value of the ducatoons if they were
taken out of the bank ; and before they can be taken out, one-fourth
per cent. must be paid for the keeping which would be mere loss to the
holder of the receipt. If the agio of the bank, however, should at any
time fall to three per cent., such receipts might bring some price in the
market, and might sell for one and three-fourths per cent. But the
agio of the bank being now generally about five per cent. , such receipts
are frequently allowed to expire, or, as they express it, to fall to the
bank. The receipts which are given for deposits of gold ducats fall to
it yet more frequently, because a higher warehouse-rent, or one-half per
cent., must be paid for the keeping of them before they can be taken
out again. The five per cent. which the bank gains, when deposits
either of coin or bullion are allowed to fall to it, may be considered
as the warehouse-rent for the perpetual keeping of such deposits.
The sum of bank money for which the receipts are expired must be
very considerable. It must comprehend the whole original capital of
the bank, which, it is generally supposed, has been allowed to remain
there from the time it was first deposited, nobody caring either to
renew his receipt or to take out his deposit, as, for the reasons already
assigned, neither the one nor the other could be done without loss.
But whatever may be the amount of this sum, the proportion which it
bears to the whole mass of bank money is supposed to be very small.
The bank of Amsterdam has for these many years past been the great
warehouse of Europe for bullion, for which the receipts are very seldom
allowed to expire, or, as they express it, to fall to the bank. The far
greater part of the bank money, or of the credits upon the books of the
378 POLICY OF THE BANKS IN QUIET TIMES, AND IN TIME OF WAR.

bank, is supposed to have been created , for these many years past, by
such deposits which the dealers in bullion are continually both making
and withdrawing.
No demand can be made upon the bank but by means of a recipice
or receipt. The smaller mass of bank money, for which the receipts
are expired, is mixed and confounded with the much greater mass for
which they are still in force ; so that, though there may be a consider-
able sum of bank money, for which there are no receipts, there is no
specific sum or portion of it, which may not at any time be demanded
by one. The bank cannot be debtor to two persons for the same
thing; and the owner of bank money who has no receipt, cannot
demand payment of the bank till he buys one. In ordinary and quiet
times, he can find no difficulty in getting one to buy at the market
price, which generally corresponds with the price at which he can sell
the coin or bullion it entitles him to take out of the bank.
It might be otherwise during a public calamity ; an invasion, for
example, such as that of the French in 1672. The owners of bank
money being then all eager to draw it out of the bank, in order to have
it in their own keeping, the demand for receipts might raise their price
to an exorbitant height. The holders of them might form extravagant
expectations, and, instead of two or three per cent. demand half the
bank money for which credit had been given upon the deposits that
the receipts had respectively been granted for. The enemy, informed
of the constitution of the bank, might even buy them up, in order to
prevent the carrying away of the treasure. In such emergencies, the
bank, it is supposed, would break through its ordinary rule of making
payments only to the holders of receipts. The holders of receipts, who
had no bank money, must have received within two or three per cent.
of the value of the deposit for which their respective receipts had been
granted. The bank, therefore, it is said, would in this case make no
scruple of paying, either with money or bullion, the full value of what
the owners of bank money who could get no receipts were credited for
in its books ; paying at the same time two or three per cent. to such
holders of receipts as had no bank money, that being the whole value
which in this state of things could justly be supposed due to them.
Even in ordinary and quiet times it is the interest of the holders of
receipts to depress the agio, in order either to buy bank money (and
consequently the bullion, which their receipts would then enable them
to take out of the bank) so much cheaper, or to sell their receipts to
those who have bank money, and who want to take out bullion, so
much dearer ; the price of a receipt being generally equal to the differ-
ence between the market price of bank money, and that of the coin or
bullion for which the receipt had been granted. It is the interest of
the owners of bank money, on the contrary, to raise the agio, in order
either to sell their bank money so much dearer, or to buy a receipt so
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 379

much cheaper. To prevent the stock-jobbing tricks which those oppo-

site interests might sometimes occasion, the bank has of late years
come to the resolution to sell at all times bank money for currency, at
five per cent. agio, and to buy it in again at four per cent. agio. In
consequence of this resolution, the agio can never either rise above
five, or sink below four per cent. , and the proportion between the mar-
ket price of bank and that of current money is kept at all times very
near to the proportion between their intrinsic values. Before this
resolution was taken, the market price of bank money used sometimes
to rise so high as nine per cent. agio, and sometimes to sink so low as
par, according as opposite interests influenced the market.
The bank of Amsterdam professes to lend out no part of what is
deposited with it, but for every guilder for which it gives credit in its
books, to keep in its repositories the value of a guilder either in money
or bullion. That it keeps in its repositories all the money or bullion
for which there are receipts in force, for which it is at all times liable
to be called upon, and which, in reality, is continually going from it
and returning to it again, cannot well be doubted. But whether it
does so likewise with regard to that part of its capital, for which the
receipts are long ago expired, for which in ordinary and quiet times it
cannot be called upon, and which in reality is very likely to remain
with it for ever, or as long as the States of the United Provinces sub-
sist, may perhaps appear more uncertain. At Amsterdam, however,
no point of faith is better established than that for every guilder, cir-
culated as bank money, there is a correspondent guilder in gold or
silver to be found in the treasure of the bank. The city is guarantee
that it should be so. The bank is under the direction of the four
reigning burgomasters, who are changed every year. Each new set of
burgomasters visits the treasure, compares it with the books, receives
it upon oath, and delivers it over, with the same awful solemnity, to
the set which succeeds ; and in that sober and religious country oaths
are not yet disregarded. A rotation of this kind seems alone a suffi-
cient security against any practices which cannot be avowed. Amidst
all the revolutions which faction has ever occasioned in the govern-
ment of Amsterdam, the prevailing party has at no time accused their
predecessors of infidelity in the administration of the bank. No accu-
sation could have affected more deeply the reputation and fortune of
the disgraced party, and if such an accusation could have been sup-
ported, we may be assured that it would have been brought. In 1672,
when the French king was at Utrecht, the bank of Amsterdam paid so
readily, as left no doubt of the fidelity with which it had observed its
engagements. Some of the pieces which were then brought from its
repositories appeared to have been scorched with the fire which hap
pened in the town-house soon after the bank was established. Those
pieces, therefore, must have lain there from that time.
380 ESTIMATED AMOUNT OF CAPITAL OF BANK OF AMSTERDAM.

What may be the amount of the treasure in the bank, is a question

which has long employed the speculations of the curious. Nothing but
conjecture can be offered concerning it. It is generally reckoned that
there are about two thousand people who keep accounts with the bank,
and allowing them to have, one with another, the value of fifteen
hundred pounds sterling lying upon their respective accounts (a very
large allowance) , the whole quantity of bank money, and consequently
of treasure in the bank, will amount to about three millions sterling, or
at eleven guilders the pound sterling, thirty-three millions of guilders ;
a great sum, and sufficient to carry on a very extensive circulation ; but
it is vastly below the extravagant ideas which some people have
formed of this treasure.
The city of Amsterdam derives a considerable revenue from the
bank. Besides what may be called the warehouse-rent above men-
tioned, each person, upon first opening an account with the bank, pays
a fee of ten guilders ; and for every new account three guilders three
stivers ; for every transfer two stivers ; and if the transfer is for less
than three hundred guilders, six stivers, in order to discourage the
multiplicity of small transactions. The person who neglects to balance
his account twice in the year forfeits twenty-five guilders. The person
who orders a transfer for more than is upon his account, is obliged to
pay three per cent. for the sum overdrawn, and his order is set aside
into the bargain. The bank is supposed too to make a considerable
profit by the sale of the foreign coin or bullion which sometimes falls
to it by the expiring of receipts, and which is always kept till it can be
sold with advantage. It makes a profit likewise by selling bank money
at five per cent. agio, and buying it in at four. These different emolu-
ments amount to a good deal more than what is necessary for paying
the salaries of officers, and defraying the expense of management.
What is paid for the keeping of bullion upon receipts, is alone supposed
to amount to a nett annual revenue of between one hundred and fifty
thousand and two hundred thousand guilders. Public utility, however,
and not revenue, was the original object of this institution. Its object
was to relieve the merchants from the inconvenience of a disadvan-
tageous exchange. The revenue which had arisen from it was unfore-
seen, and may be considered as accidental. But it is now time to
return from this long digression , into which I have been insensibly led
in endeavouring to explain the reasons why the exchange between the
countries which pay in what is called bank money, and those which
pay in common currency, should generally appear to be in favour of the
former, and against the latter. The former pay in a species of money
of which the intrinsic value is always the same, and exactly agreeable
to the standard of their respective mints ; the latter is a species of
money of which the intrinsic value is continually varying, and is almost
always more or less below that standard, 25ª
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 381

PART II.-Of the Unreasonableness of those extraordinary Restraints

upon other Principles.
IN the foregoing part of this chapter, I have endeavoured to show,
even upon the principles of the commercial system, how unnecessary
it is to lay extraordinary restraints upon the importation of goods from
those countries with which the balance of trade is supposed to be
disadvantageous.
Nothing, however, can be more absurd than this whole doctrine of
the balance of trade, upon which, not only these restraints, but almost
all the other regulations of commerce are founded. When two places
trade with one another, this doctrine supposes that, if the balance be
even, neither of them either loses or gains ; but if it leans in any degree
to one side, that one of them loses, and the other gains in proportion
to its declension from the exact equilibrium. Both suppositions are
false. A trade which is forced by means of bounties and monopolies
may be, and commonly is, disadvantageous to the country in whose
favour it is meant to be established, as I shall endeavour to show here-
after. But that trade, which, without force or constraint, is naturally
and regularly carried on between any two places, is always advan-
tageous, though not always equally so, to both .
By advantage or gain, I understand, not the increase of the quantity
of gold and silver, but that of the exchangeable value of the annual
produce of the land and labour of the country, or the increase of the
annual revenue of its inhabitants.
If the balance be even, and if the trade between the two places con-
sist altogether in the exchange of their native commodities, they will,
upon most occasions, not only both gain, but they will gain equally, or
very near equally : each will in this case afford a market for a part of
the surplus produce of the other : each will replace a capital which had
been employed in raising and preparing for the market this part of the
surplus produce of the other, and which had been distributed among,
and given revenue and maintenance to, a certain number of its inhabit-
ants. Some part of the inhabitants of each, therefore, will indirectly
derive their revenue and maintenance from the other. As the com-
modities exchanged too are supposed to be of equal value, so the two
capitals employed in the trade will, upon most occasions, be equal, or
very nearly equal ; and both being employed in raising the native com-
modities of the two countries, the revenue and maintenance which their
distribution will afford to the inhabitants of each will be equal, or very
nearly equal. This revenue and maintenance, thus mutually afforded,
will be greater or smaller in proportion to the extent of their dealings.
If these should annually amount to an hundred thousand pounds, for
example, or to a million on each side, each of them would afford an
382 COMMERCE CONSISTS IN FOREIGN AND NATIVE GOODS.

annual revenue in the one case of an hundred thousand pounds, in the

other, of a million , to the inhabitants of the other.
If their trade should be of such a nature that one of them exported
to the other nothing but native commodities, while the returns of that
other consisted altogether in foreign goods ; the balance in this case,
would still be supposed even, commodities being paid for with com-
modities. They would, in this case too, both gain, but they would not
gain equally ; and the inhabitants of the country which exported no-
thing but native commodities would derive the greatest revenue from
the trade. If England, for example, should import from France
nothing but the native commodities of that country, and, not having
such commodities of its own as were in demand there, should annually
repay them by sending thither a large quantity of foreign goods, tobacco,
we shall suppose, and East India goods ; this trade, though it would
give some revenue to the inhabitants of both countries, would give
more to those of France than to those of England. The whole French
capital annually employed in it would annually be distributed among
the people of France. But that part of the English capital only which
was employed in producing the English commodities with which those
foreign goods were purchased , would be annually distributed among
the people of England. The greater part of it would replace the
capitals which had been employed in Virginia, Hindostan, and China,
and which had given revenue and maintenance to the inhabitants of
those distant countries. If the capitals were equal, or nearly equal,
therefore, this employment of the French capital would augment much
more the revenue of the people of France, than that of the English
capital would the revenue of the people of England. France would in
this case carry on a direct foreign trade of consumption with England ;
whereas England would carry on a round-about trade of the same kind
with France. The different effects of a capital employed in the direct
and of one employed in the round-about foreign trade of consumption,
have already been fully explained. 153
There is not, probably, between any two countries, a trade which
consists altogether in the exchange either of native commodities on
both sides, or of native commodities on one side and of foreign goods
on the other. Almost all countries exchange with one another partly
native and partly foreign goods. That country, however, in whose
cargoes there is the greatest proportion of native, and the least of
foreign goods, will always be the principal gainer.
If it was not with tobacco and East India goods, but with gold and
silver, that England paid for the commodities annually imported from
France, the balance, in this case, would be supposed uneven, com-
modities not being paid for with commodities, but with gold and silver
The trade, however, would, in this case, as in the foregoing, give some
revenue to the inhabitants of both countries, but more to those of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 383

France than to those of England. It would give some revenue to

those of England. The capital which had been employed in pro-
ducing the English goods that purchased this gold and silver, the
capital which had been distributed among, and given revenue to,
certain inhabitants of England, would thereby be replaced, and enabled
to continue that employment. The whole capital of England would no
more be diminished by this exportation of gold and silver, than by the
exportation of an equal value of any other goods. On the contrary, it
would, in most cases, be augmented. No goods are sent abroad but
those for which the demand is supposed to be greater abroad than at
home, and of which the returns consequently, it is expected, will be of
more value at home than the commodities exported. If the tobacco
which, in England, is worth only a hundred thousand pounds, when
sent to France will purchase wine which is, in England, worth a
hundred and ten thousand pounds, the exchange will augment the
capital of England by ten thousand pounds. If a hundred thousand
pounds of English gold, in the same manner, purchase French wine
which, in England, is worth a hundred and ten thousand, this exchange
will equally augment the capital of England by ten thousand pounds.
As a merchant who has a hundred and ten thousand pounds worth of
wine in his cellar, is a richer man than he who has only a hundred
thousand pounds worth of tobacco in his warehouse, so is he likewise
a richer man than he who has only a hundred thousand pounds worth
of gold in his coffers. He can put into motion a greater quantity of
industry, and give revenue, maintenance, and employment, to a greater
number of people than either of the other two. But the capital of the
country is equal to the capitals of all its different inhabitants, and the
quantity of industry which can be annually maintained in it, is equal
to what all those different capitals can maintain. Both the capital of
the country, therefore, and the quantity of industry which can be
annually maintained in it, must generally be augmented by this ex-
change. It would, indeed, be more advantageous for England that it
could purchase the wines of France with its own hardware and broad-
cloth, than with either the tobacco of Virginia or the gold and silver
of Brazil and Peru. A direct foreign trade of consumption is always
more advantageous than a round-about one.155 But a round-about foreign
trade of consumption, which is carried on with gold and silver, does
not seem to be less advantageous than any other equally round-about
one. Neither is a country which has no mines more likely to be
exhausted of gold and silver by this annual exportation of those metals,
than one which does not grow tobacco by the like annual exportation
of that plant. As a country which has wherewithal to buy tobacco
will never be long in want of it, so neither will one be long in want of
gold and silver which has wherewithal to purchase those metals,
It is a losing trade, it is said, which a workman carries on with the
44
72
384 THE CHEAPNESS OF WINE SEEMS TO BE A CAUSE OF SOBRIETY.

alehouse, and the trade which a manufacturing nation would naturally

carry on with a wine country, may be considered as a trade of the same
nature. I answer, that the trade with the alehouse is not necessarily
a losing trade. In its own nature It is just as advantageous as any
other, though, perhaps, somewhat more liable to be abused. The em-
ployment of a brewer, and even that of a retailer of fermented liquors,
are as necessary divisions of labour as any other. It will generally be
more advantageous for a workman to buy of the brewer the quantity
he has occasion for, than to brew it himself, and if he is a poor work-
man, it will generally be more advantageous for him to buy it by little
and little of the retailer, than a large quantity of the brewer. He may
no doubt buy too much of either, as he may of any other dealers in his
neighbourhood, of the butcher, if he is a glutton, or ofthe draper, if he
affects to be a beau among his companions. It is advantageous to the
great body of workmen, notwithstanding, that all these trades should
be free, though this freedom may be abused in all of them, and is more
likely to be so, perhaps, in some than in others. Though individuals,
besides, may sometimes ruin their fortunes by an excessive consump-
tion of fermented liquors, there seems to be no risk that a nation should
do so. Though in every country there are many people who spend
upon such liquors more than they can afford, there are always many
more who spend less. It deserves to be remarked too, that, if we con-
sult experience, the cheapness of wine seems to be a cause, not of
drunkenness, but of sobriety. The inhabitants of the wine countries
are in general the soberest people in Europe ; witness the Spaniards,
the Italians, and the inhabitants of the southern provinces of France.
People are seldom guilty of excess in what is their daily fare. Nobody
affects the character of liberality and good fellowship, by being profuse
of a liquor which is as cheap as small beer. On the contrary, in the
countries which, either from excessive heat or cold, produce no grapes,
and where wine consequently is dear and a rarity, drunkenness is a
common vice, as among the northern nations, and all those who live
between the tropics, the negroes, for example, on the coast of Guinea.
When a French regiment comes from some of the northern provinces
of France, where wine is somewhat dear, to be quartered in the south-
ern, where it is very cheap, the soldiers, I have frequently heard it ob-
served, are at first debauched by the cheapness and novelty of good
wine ; but after a few months residence the greater part of them be-
come as sober as the rest of the inhabitants. Were the duties upon
foreign wines, and the excises upon malt, beer, and ale , to be taken
away all at once, it might, in the same manner, occasion in Great
J'ritain a pretty general and temporary drunkenness among the middling
and inferior ranks of people, which would probably be soon followed
by a permanent and almost universal sobriety. At present drunkenness
is by no means the vice of people of fashion, or of those who can easily
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 385

afford the most expensive liquors. A gentleman drunk with ale, has
scarce ever been seen among us. The restraints upon the wine trade
in Great Britain, besides, do not so much seem calculated to hinder the
people from going, if I may say so, to the alehouse, as from going
where they can buy the best and cheapest liquor. They favour the wine
trade of Portugal, and discourage that of France. The Portuguese, it
is said, indeed, are better customers for our manufactures than the
French, and should therefore be encouraged in preference to them .
As they give us their custom , it is pretended, we should give them ours.
The sneaking arts of underling tradesmen are thus erected into politi-
cal maxims for the conduct of a great empire ; for it is the most under-
ling tradesmen only who make it a rule to employ chiefly their own
customers. A great trader purchasers his goods always where they are
cheapest and best, without regard to any little interest of this kind.
By such maxims as these, however, nations have been taught that
their interest consisted in beggaring all their neighbours. Each nation
has been made to look with an invidious eye upon the prosperity of all
the nations with which it trades, and to consider their gain as its own
loss. Commerce, which ought naturally to be, among nations as among
individuals, a bond of union and friendship, has become the most fer-
tile source of discord and animosity. The capricious ambition of kings
and ministers has not, during the present and the preceding century,
been more fatal to the repose of Europe, than the impertinent jealousy
of merchants and manufacturers. The violence and injustice of the
rulers of mankind is an ancient evil, for which, I am afraid, the nature
of human affairs can scarce admit ofa remedy. But the mean rapacity,
the monopolizing spirit of merchants and manufacturers, who neither
are, nor ought to be, the rulers of mankind, though it cannot perhaps
be corrected, may very easily be prevented from disturbing the tran-
quillity of anybody but themselves. 156
That it was the spirit of monopoly which originally both invented
and propagated this doctrine, cannot be doubted ; and they who first
taught it were by no means such fools as they who believed it. In
every country it always is and must be the interest of the great body of
the people to buy whatever they want of those who sell it cheapest.
The proposition is so very manifest, that it seems ridiculous to take any
pains to prove it ; nor could it ever have been called in question, had
not the interested sophistry of merchants and manufacturers confound-
ed the common sense of mankind. Their interest is, in this respect,
directly opposite to that of the great body of the people. As it is the
interest of the freemen of a corporati n to hinder the rest of the inha-
bitants from employing any workmen but themselves, so it is the interest
of the merchants and manufacturers of every country to secure to
themselves the monopoly of the home market. Hence in Great Britain,
and in most other European countries, the extraordinary duties upon
25
386 COMPETITION IS ADVANTAGEOUS TO THE PUBLIC.

almost all goods imported by alien merchants. Hence the high duties
and prohibitions upon all those foreign manufactures which can come
into competition with our own. Hence too the extraordinary restraints
upon the importation of almost all sorts of goods from those countries
with which the balance of trade is supposed to be disadvantageous ;
that is, from those against whom national animosity happens to be
most violently inflamed.
The wealth of a neighbouring nation, however, though dangerous in
war and politics, is certainly advantageous in trade. In a state of hos-
tility it may enable our enemies to maintain fleets and armies superior
to our own ; but in a state of peace and commerce it must likewise
enable them to exchange with us to a greater value, and to afford a
better market, either for the immediate produce of our own industry, or
for whatever is purchased with that produce. As a rich man is likely
to be a better customer to the industrious people in his neighbourhood ,
than a poor, so is likewise a rich nation. A rich man, indeed, who is
himself a manufacturer, is a very dangerous neighbour to all those who
deal in the same way. All the rest of the neighbourhood , however, by
far the greatest number, profit by the good market which his expense
affords them. They even profit by his underselling the poorer work-
men who deal in the same way with him. The manufacturers of a rich
nation, in the same manner, may no doubt be very dangerous rivals to
those of their neighbours. This very competition, however, is advan-
tageous tothe great body of the people, who profit greatly besides by the
good market which the great expense of such a nation affords them in
every other way. Private people who want to make a fortune, never
think of retiring to the remote and poor provinces of the country, but
resort either to the capital, or to some of the great commercial towns.
They know that where little wealth circulates, there is little to be got ;
but that where a great deal is in motion, some share of it may fall to
them. The same maxims which would in this manner direct the com-
mon sense of one, or ten, or twenty individuals, should regulate the
judgment of one, or ten, or twenty millions, and should make a whole
nation regard the riches of its neighbours as a probable cause and oc-
casion for itself to acquire riches. A nation that would enrich itself by
foreign trade, is certainly most likely to do so when its neighbours are
all rich, industrious, and commercial nations. A great nation surround-
ed on all sides by wandering savages and poor barbarians might, no
doubt, acquire riches by the cultivation of its own lands, and by its own
interior commerce, but not by foreign trade. It seems to have been in
this manner that the ancient Egyptians and the modern Chinese ac-
quired their great wealth. The ancient Egyptians, it is said, neglected
foreign commerce, and the modern Chinese, it is known, hold it in the
utmost contempt, and scarce deign to afford it the decent protection of
the laws. The modern maxims of foreign commerce, by aiming at the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 387

impoverishment of all our neighbours, as far as they are capable of

producing their intended effect, tend to render that very commerce
insignificant and contemptible.
It is in consequence of these maxims that the commerce between
France and England has in both countries been subjected to so many
discouragements and restraints. If those two countries, however, were
to consider their real interest, without either mercantile jealousy or
national animosity, the commerce of France might be more advan-
tageous to Great Britain than that of any other country, and for the same
reason that of Great Britain to France. France is the nearest neigh-
bour to Great Britain. In the trade between the southern coast of
England and the northern and north-western coasts of France, the
returns might be expected, in the same manner as in the inland trade,
four, five, or six times in the year. The capital, therefore, employed in
this trade, could in each of the two countries keep in motion four, five,
or six times the quantity of industry, and afford employment and sub-
sistence to four, five, or six times the number of people, which an equal
capital could do in the greater part of the other branches of foreign
trade. Between the parts of France and Great Britain most remote
from one another, the returns might be expected, at least, once in the
year, and even this trade would so far be at least equally advantageous
as the greater part of the other branches of our foreign European
trade. It would be at least three times more advantageous than the
boasted trade with our North American colonies, in which the returns
were seldom made in less than three years, frequently not in less than
four or five years.* France, besides, is supposed to contain twenty-four
millions of inhabitants. Our North American colonies were never sup-
158
posed to contain more than three millions and France is a much
richer country than North America ; though, on account of the more
unequal distribution of riches, there is much more poverty and beggary
in the one country, than in the other. France therefore could afford a
market at least eight times more extensive, and, on account of the
superior frequency of the returns, four-and-twenty times more advan-
tageous than that which our North American colonies ever afforded..
The trade of Great Britain would be just as advantageous to France,
and, in proportion to the wealth, population and proximity of the re-
spective countries, would have the same superiority over that which
France carries on with her own colonies. Such is the very great differ-
ence between that trade which the wisdom of both nations has thought
proper to discourage, and that which it has favoured the most.
But the very same circumstances which would have rendered an open
and free commerce between the two countries so advantageous to both,
have occasioned the principal obstructions to that commerce. Being
neighbours, they are necessarily enemies, and the wealth and power of
each becomes, upon that account, more formidable to the other ; and
See note 126. 25
388 THE BALANCE OF THE ANNUAL PRODUCE AND CONSUMPTION.

what would increase the advantage of national friendship, serves only

to inflame the violence of national animosity. They are both rich and
industrious nations ; and the merchants and manufacturers of each
dread the competition of the skill and activity of those of the other.
Mercantile jealousy is excited, and both inflames and is itself inflamed
by the violence of national animosity : and the traders of both countries
have announced, with all the passionate confidence of interested false-
hood, the certain ruin of each, in consequence of that unfavourable
balance of trade which, they pretend, would be the infallible effect of
an unrestrained commerce with the other.
There is no commercial country in Europe of which the approaching
ruin has not frequently been foretold by the pretended doctors of this
system, from an unfavourable balance of trade. After all the anxiety,
however, which they have excited about this, after all the vain attempts
of almost all trading nations to turn that balance in their own favour
and against their neighbours, it does not appear that any one nation in
Europe has been in any respect impoverished by this cause. Every
town and country, on the contrary, in proportion as they have opened
their ports to all nations, instead of being ruined by this free trade, as
the principles of the commercial system would lead us to expect, have
been enriched by it. Though there are in Europe, indeed , a few towns
which in some respects deserve the name of free ports, there is no
country which does so. Holland, perhaps, approaches the nearest to
this character of any, though still very remote from it ; and Holland, it
is acknowledged, not only derives its whole wealth, but a great part of
its necessary subsistence, from foreign trade.
There is another balance, indeed, which has already been explained,
very different from the balance of trade, and which, according as it
happens to be either favourable or unfavourable, necessarily occasions
the prosperity or decay of every nation. This is the balance of the
annual produce and consumption. If the exchangeable value of the
annual produce, it has already been observed, exceeds that of the an-
nual consumption, the capital of the society must annually increase in
proportion to this excess. The society in this case lives within its re-
venue, and what is annually saved out of its revenue is naturally added
to its capital, and employed so as to increase still further the annual
produce. If the exchangeable value of the annual produce, on the con-
trary, fall short of the annual consumption , the capital of the society
must annually decay in proportion to this deficiency. The expense of
the society in this case exceeds its revenue, and necessarily encroaches
vpon its capital. Its capital, therefore, must necessarily decay, and,
together with it, the exchangeable value of the annual produce of its
industry.
This balance of produce and consumption is entirely different from,
what is called, the balance of trade, It might take place in a nation
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 389

which had no foreign trade, but which was entirely separated from all
the world. It may take place in the whole globe of the earth, of which
the wealth, population, and improvement, may be either gradually in-
creasing or gradually decaying.
The balance of produce and consumption may be constantly in
favour of a nation, though what is called the balance of trade be gene-
rally against it. A nation may import to a greater value than it exports
for half a century, perhaps, together ; the gold and silver which comes
into it during all this time may be all immediately sent out of it ; its
circulating coin may gradually decay, different sorts of paper money
being substituted in its place, and even the debts too which it contracts
in the principal nations with whom it deals may be gradually increas-
ing ; and yet its real wealth, the exchangeable value of the annual pro-
duce of its lands and labour, may, during the same period, have been
increasing in a much greater proportion. The state of our North
American colonies, and of the trade which they carried on with Great
Britain, before the commencement of the present disturbances,* may
serve as a proof that this is by no means an impossible supposition.

CHAP. IV. — Of Drawbacks.

MERCHANTS and manufacturers are not contented with the monopoly
of the home market, but desire likewise the most extensive foreign sale
for their goods. Their country has no jurisdiction in foreign nations,
and therefore can seldom procure them any monopoly there. They are
generally obliged, therefore, to content themselves with petitioning for
certain encouragements to exportation.
Of these encouragements what are called Drawbacks seem to be the
most reasonable. To allow the merchant to draw back upon exporta-
tion, either the whole or a part of whatever excise or inland duty is
imposed upon domestic industry, can never occasion the exportation of
a greater quantity of goods than what would have been exported had
no duty been imposed. Such encouragements do not tend to turn to-
wards any particular employment a greater share of the capital of the
country, than what would go to that employment of its own accord,
but only to hinder the duty from driving away any part of that share
to other employments. They tend not to overturn that balance which
naturally establishes itself among all the various employments of the
society ; but to hinder it from being overturned by the duty. They
tend not to destroy, but to preserve, what it is in most cases advan-
tageous to preserve the natural division and distribution of labour in
the society.
The same thing may be said of the drawbacks upon the re-exporta-
This paragraph was written in the year 1775.
390 RULES WHICH REGULATED IMPORT AND EXPORT DUTIES.

tion of foreign goods imported ; which in Great Britain generally

amount to by much the largest part of the duty upon importation. By
the second of the rules annexed to the act of parliament, which im .
posed, what is now called, the old subsidy, every merchant, whether
English or alien, was allowed to draw back half that duty upon ex-
portation ; the English merchant, provided the exportation took place
within twelve months ; the alien, provided it took place within nine
months. Wines, currants, and wrought silks were the only goods
which did not fall within this rule, having other and more advantage-
ous allowances. The duties imposed by this act of parliament were,
at that time, the only duties upon the importation of foreign goods.
The term within which this, and all other drawbacks, could be claimed,
was afterwards (by 7 George I. chapter 21 , section 10.) extended
to three years. 159
The duties which have been imposed since the old subsidy, are, the
greater part of them, wholly drawn back upon exportation. This
general rule, however, is liable to a great number of exceptions, and
the doctrine of drawbacks has become a much less simple matter than
it was at their first institution.
Upon the exportation of some foreign goods, of which it was expected
that the importation would greatly exceed what was necessary for the
home consumption, the whole duties are drawn back, without retaining
even half the old subsidy. Before the revolt of our North American
colonies, we had the monopoly of the tobacco of Maryland and Vir-
ginia. We imported about ninety-six thousand hogsheads, and the
home consumption was not supposed to exceed fourteen thousand. To
facilitate the great exportation which was necessary in order to rid us
of the rest, the whole duties were drawn back, provided the exportation
took place within three years.
We still have, though not altogether, yet very nearly, the monopoly
of the sugars of our West Indian islands. If sugars are exported within
a year, therefore, all the duties upon importation are drawn back, and
if exported within three years, all the duties, except half the old sub-
sidy, which still continues to be retained upon the exportation of the
greater part of goods. Though the importation of sugar exceeds, a
good deal, what is necessary for the home consumption, the excess is
inconsiderable, in comparison of what it used to be in tobacco. 160
Some goods, the particular objects of the jealousy of our own manu-
facturers, are prohibited to be imported for home consumption. They
may, however, upon paying certain duties, be imported and warehoused
for exportation. But upon such exportation, no part of these duties
are drawn back. Our manufacturers are unwilling, it seems, that even
this restricted importation should be encouraged, and are afraid lest
some part of these goods should be stolen out of the warehouse, and
thus come into competition with their own. It is under these regula
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 391

tions only that we can import wrought silks, French cambrics and
lawns, calicoes, painted, printed, stained, or dyed, etc.
We are unwilling even to be the carriers of French goods, and choose
rather to forego a profit to ourselves, than to suffer those whom we
consider as our enemies to make any profit by our means. Not only
half the old subsidy, but the second twenty-five per cent., is retained
upon the exportation of all French goods. *
By the fourth of the rules annexed to the old subsidy, the drawback
allowed upon the exportation of all wines amounted to a great deal
more than half the duties which were, at that time, paid upon their
exportation ; and it seems, at that time, to have been the object of the
legislature to give somewhat more than ordinary encouragement to the
carrying trade in wine. Several of the other duties too , which were
imposed, either at the same time, or subsequent to the old subsidy ;
which is called the additional duty, the new subsidy, the one-third and
two-thirds subsidies, the impost 1692, the coinage on wine, were al-
lowed to be wholly drawn back upon exportation. All those duties,
however, except the additional duty and impost 1692, being paid down
in ready money, upon importation, the interest of so large a sum oc-
casioned an expense which made it unreasonable to expect any profit-
able carrying trade in this article. Only a part, therefore, of the duty
called the impost on wine, and no part of the twenty-five pounds the
tun upon French wines, or of the duties imposed in 1745, in 1763, and
in 1778, were allowed to be drawn back upon exportation. The two
imposts of five per cent, imposed in 1779 and 1781 upon all the former
duties of customs, being allowed to be wholly drawn back upon the ex
portation of all other goods, were likewise allowed to be drawn back
upon that of wine. The last duty that has been particularly imposed
upon wine, that of 1780, is allowed to be wholly drawn back, an indul-
gence, which, when so many heavy duties are retained, most probably
could never occasion the exportation of a single tun of wine. These
rules take place with regard to all places of lawful exportation, except
the British colonies in America. 11
The 15th Charles II., chap. 7, called an act for the encouragement
of trade, had given Great Britain the monopoly of supplying the colonies
with all the commodities of the growth or manufacture of Europe ; and
consequently with wines. In a country of so extensive a coast as our
North American and West Indian colonies, where our authority was
always so very slender, and where the inhabitants were allowed to carry
out, in their own ships, their non-enumerated commodities, at first, to
all parts of Europe, and afterwards, to all parts of Europe South of
Cape Finisterre, it is not very probable that this monopoly could ever
be much respected ; and they probably, at all times, found means of
bringing back some cargo from the countries to which they were al-
lowed to carry out one. They seem, however, to have found some
* See note on Restrictions on Trade with France in Appendix:
392 DRAWBACKS GRANTED TO ENCOURAGE THE CARRYING TRADE.

difficulty in importing European wines from the places of their growth,

and they could not well import them from Great Britain, where they
were loaded with many heavy duties, of which a considerable part was
not drawn back upon exportation. Madeira wine, not being a European
commodity, could be imported directly into America and the West
Indies, countries which, in all their non-enumerated commodities, en-
joyed a free trade to the island of Madeira. These circumstances had
probably introduced that general taste for Madeira wine which our
officers found established in all our colonies at the commencement of
the war which began in 1755, and which they brought back with them
to the mother-country, where that wine had not been much in fashion
before. Upon the conclusion of that war, in 1763 (by the 4th Geo. III .
chap. 15, sect. 12. ) , all the duties, except 37. 10s., were allowed to be
drawn back, upon the exportation to the colonies of all wines except
French wines, to the commerce and consumption of which national
prejudice would allow no sort of encouragement. The period between
the granting of this indulgence, and the revolt of our North American
colonies, was probably too short to admit of any considerable change in
the customs of those countries.
The same act which, in the drawback upon all wines except French
wines, thus favoured the colonies so much more than other countries,
in those upon the greater part of other commodities, favoured them
much less. Upon the exportation of the greater part of commodities
to other countries, half the old subsidy was drawn back. But this law
enacted, that no part of that duty should be drawn back upon the
exportation to the colonies of any commodities, of the growth or
manufacture either of Europe or the East Indies, except wines, white
calicoes, and muslins.
Drawbacks were, perhaps, originally granted for the encouragement
of the carrying trade, which, as the freight of the ships is frequently
paid by foreigners in money, was supposed to be peculiarly fitted for
bringing gold and silver into the country. But though the carrying
trade certainly deserves no peculiar encouragement, though the motive
of the institution was perhaps abundantly foolish, the institution itself
seems reasonable enough. Such drawbacks cannot force into this
trade a greater share of the capital of the country than what would
have gone to it of its own accord, had there been no duties upon import-
ation. They only prevent its being excluded altogether by those duties.
The carrying trade, though it deserves no preference, ought not to be
precluded, but to be left free like all other trades. It is a necessary
resource for those capitals which cannot find employment either in
the agriculture or in the manufactures of the country, either in its home
trade or in its foreign trade of consumption.
The revenue of the customs, instead of suffering, profits from such
drawbacks, by that part of the duty which is retained. If the whole
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 393

duties had been retained, the foreign goods upon which they are paid,
could seldom have been exported, nor consequently imported, for want
of a market. The duties, therefore, of which a part is retained, would
never have been paid.
These reasons seem sufficiently to justify drawbacks, and would
justify them, though the whole duties, whether upon the produce of
domestic industry, or upon foreign goods, were always drawn back
upon exportation. The revenue of excise would in this case, indeed,
suffer a little, and that of the customs a good deal more ; but the
natural balance of industry, the natural division and distribution of
labour, which is always more or less distributed by such duties, would
be more nearly re-established by such a regulation.
These reasons, however, will justify drawbacks only upon exporting
goods to those countries which are altogether foreign and independent,
not to those in which our merchants and manufacturers enjoy a mono-
poly. A drawback, for example, upon the exportation of European
goods to our American colonies, will not always occasion a greater
exportation than what would have taken place without it. By means
of the monopoly which our merchants and manufacturers enjoy there,
the same quantity might frequently, perhaps, be sent thither, though
the whole duties were retained. The drawback, therefore, may fre-
quently be pure loss to the revenue of excise and customs, without
altering the state of the trade, or rendering it in any respect more
extensive. How far such drawbacks can be justified, as a proper
encouragement to the industry of our colonies, or how far it is advan-
tageous to the mother-country, that they should be exempted from
taxes which are paid by all the rest of their fellow-subjects, will appear
hereafter, when I come to treat of colonies.
Drawbacks, however, it must always be understood, are useful only
in those cases in which the goods for the exportation of which they
are given, are really exported to some foreign country, and not clan-
destinely re-imported into our own. That some drawbacks, particu-
larly those upon tobacco, have frequently been abused in this manner,
and have given occasion to many frauds equally hurtful both to the
revenue and to the fair trader, is well known.

CHAP. V.— Of Bounties.

BOUNTIES upon exportation are, in Great Britain, frequently petitioned
for, and sometimes granted to the produce of particular branches
of domestic industry. By means of them our merchants and manu-
facturers, it is pretended, will be enabled to sell their goods as cheap
or cheaper than their rivals in the foreign market. A greater
quantity. it is said, will thus be exported, and the balance of trade
L
394 THE OBJECTS FOR WHICH BOUNTIES WERE GIVEN.

consequently turned more in favour of our own country. We can

not give our workmen a monopoly in the foreign, as we have done
in the home market. We cannot force foreigners to buy their goods,
as we have done our own countrymen. The next best expedient, it
has been thought, therefore, is to pay them for buying. It is in this
manner that the mercantile system proposes to enrich the whole
country, and to put money into all our pockets by means of the balance
of trade.
Bounties, it is allowed, ought to be given to those branches of trade
only which cannot be carried on without them. But every branch of
trade in which the merchant can sell his goods for a price which re-
places to him, with the ordinary profits of stock, the whole capital
employed in preparing and sending them to market, can be carried on
without a bounty. Every such branch is evidently upon a level with
all the other branches of trade which are carried on without bounties,
and cannot therefore require one more than they. Those trades only
require bounties in which the merchant is obliged to sell his goods for
a price which does not replace to him his capital, together with the
ordinary profit ; or in which he is obliged to sell them for less than it
really costs him to send them to market. The bounty is given in order
to make up this loss, and to encourage him to continue, or perhaps to
begin a trade of which the expense in supposed to be greater than the
returns, of which every operation eats up a part of the capital employed
in it, and which is of such a nature that, if all other trades resembled
it, there would soon be no capital left in the country.
The trades, it is to be observed, which are carried on by means of
bounties, are the only ones which can be carried on between two
nations for any considerable time together, in such a manner as that
one of them shall always and regularly lose, or sell its goods for less
than it really costs to send them to market. But if the bounty did not
repay to the merchant what he would otherwise lose upon the price of
his goods, his own interest would soon oblige him to employ his stock
in another way, or to find out a trade in which the price of the goods
would replace to him, with the ordinary profit, the capital employed in
sending them to market. The effect of bounties, like that of all the
other expedients of the mercantile system can only be to force the
trade of a country into a channel much less advantageous than that in
which it would naturally run of its own accord.
The ingenious and well-informed author of the tracts upon the corn
trade has shown very clearly, that since the bounty upon the exporta-
tion of corn was first established, the price of the corn exported, valued
moderately enough, has exceeded that of the corn imported, valued
very high, by a much greater sum than the amount of the whole boun-
ties which have been paid during that period.162 This, he imagines, upon
the true principles of the mercantile system, is a clear proof that this
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 395

forced corn trade is beneficial to the nation ; the value of the exporta-
tion exceeding that of the importation by a much greater sum than the
whole extraordinary expense which the public has been at in order to
get it exported. Q He does not consider that this extraordinary expense,
or the bounty, is the smallest part of the expense which the exporta-
tion of corn really costs the society. The capital which the farmer
employed in raising it, must likewise be taken into the account.
Unless the price of the corn when sold in the foreign markets replaces,
not only the bounty, but this capital, together with the ordinary profits
of stock, the society is a loser by the difference, or the national stock
is so much diminished. But the very reason for which it has been
thought necessary to grant a bounty, is the supposed inefficiency of
the price to do this.
The average price of corn, it has been said, has fallen considerably
since the establishment of the bounty. That the average price of
con began to fall somewhat towards the end of the last century, and
has continued to do so during the course of the sixty-four first years of
the present, I have already endeavoured to show. But this event, sup-
posing it to be as real as I believe it to be, must have happened in
spite of the bounty, and cannot possibly have happened in consequence
of it. It has happened in France as well as in England, though in
France there was, not only no bounty, but, till 1764, the exportation of
corn was subjected to a general prohibition. This gradual fall in the
average price of grain, it is probable, therefore, is ultimately owing
neither to the one regulation nor to the other, but to that gradual and
insensible rise in the real value of silver, which, in the first book of
this discourse, I have endeavoured to show has taken place in the
general market of Europe, during the course of the present century.
It seems to be altogether impossible that the bounty could ever contri-
bute to lower the price of grain.
In years of plenty, it has already been observed, the bounty, by
occasioning an extraordinary exportation, necessarily keeps up the
price of corn in the home market above what it would naturally fall to.
To do so was the avowed purpose of the institution. In years of scar-
city, though the bounty is frequently suspended, yet the great exporta-
tion which it occasions in years ofplenty must frequently hinder more or
less the plenty of one year from relieving the scarcity of another.
Both in years of plenty and in years of scarcity, therefore, the bounty
necessarily tends to raise the money price of corn somewhat higher
than it otherwise would be in the home market.
That, in the actual state of tillage, the bounty must have this ten-
dency, will not, I apprehend, be disputed by any reasonable person.
But it has been thought by many people that it tends to encourage
tillage, and that in two different ways ; first, by opening a more exten-
sive foreign market to the corn of the farmer it tends, they imagine
396 HOME MARKET PAYS FOR BOUNTIES GIVEN FOR FOREIGN TRADE.

to increase the demand for, and consequently the production of, that
commodity ; and secondly, by securing to him a better price than he
could otherwise expect in the actual state of tillage, it tends, they sup-
pose, to encourage tillage. This double encouragement must, they
imagine, in a long period of years, occasion such an increase in the
production of corn, as may lower its price in the home market, much
more than the bounty can raise it, in the actual state which tillage may,
at the end of that period, happen to be in.
I answer, that whatever extension of the foreign market can be
occasioned by the bounty, must, in every particular year, be altogether
at the expense of the home market ; as every bushel of corn which is
exported by means of the bounty, and which would not have been
exported without the bounty, would have remained in the home market
to increase the consumption, and to lower the price of that commodity.168
The corn bounty, it is to be observed, as well as every other bounty
upon exportation, imposes two different taxes upon the people ; first,
the tax which they are obliged to contribute, in order to pay the bounty ;
and secondly, the tax which arises from the advanced price of the
commodity in the home market, and which, as the whole body of the
people are purchasers of corn, must, in this particular commodity, be
paid by the whole body of the people. In this particular commodity,
therefore, this second tax is by much the heaviest of the two. Let us
suppose that, taking one year with another, the bounty of five shillings
upon the exportation of the quarter of wheat, raises the price of that
commodity in the home market only sixpence the bushel, or four shil-
lings the quarter, higher than it otherwise would have been in the
actual state of the crop. Even upon this very moderate supposition,
the great body of the people, over and above contributing the tax
which pays the bounty of five shillings upon every quarter of wheat
exported, must pay another of four shillings upon every quarter which
they themselves consume. But, according to the very well-informed
author of the tracts upon the corn trade, the average proportion of the
corn exported to that consumed at home, is not more than that of one
to thirty-one. For every five shillings, therefore, which they contribute
to the payment of the first tax, they must contribute six pounds four
shillings to the payment of the second. So very heavy a tax upon the
first necessary of life, must either reduce the subsistence of the
labouring poor, or it must occasion some augmentation in their pecu-
niary wages , proportionable to that in the pecuniary price of their sub-
sistence. So far as it operates in the one way, it must reduce the
ability of the labouring poor to educate and bring up their children,
and must, so far, tend to restrain the population of the country. So
far as it operates in the other, it must reduce the ability of the em-
ployers of the poor, to employ so great a number as they otherwise
might do, and must, so far, tend to restrain the industry ofthe country.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 397

The extraordinary exportation of corn, therefore, occasioned by the

bounty, not only, in every particular year, diminishes the home, just
as much as it extends the foreign market and consumption, but, by
restraining the population and industry of the country, its final ten-
dency is to stunt and restrain the gradual extension of the home
market ; and thereby, in the long run, rather to diminish than to aug-
ment the whole market and consumption of corn.
This enhancement of the money price of corn, however, it has been
thought, by rendering that commodity more profitable to the farmer,
must necessarily encourage its production.
I answer, that this might be the case if the effect of the bounty was
to raise the real price of corn, or to enable the farmer, with an equal
quantity of it, to maintain a greater number of labourers in the same
manner, whether liberal, moderate, or scanty, that other labourers are
commonly maintained in his neighbourhood. But neither the bounty,
it is evident, nor any other human institution, can have any such effect.
It is not the real, but the nominal price of corn, which can in any con-
siderable degree be affected by the bounty.16 And though the tax which
that institution imposes upon the whole body of the people, may be
very burdensome to those who pay it, it is of very little advantage to
those who receive it.
The real effect of the bounty is not so much to raise the real value
of corn, as to degrade the real value of silver ; or to make an equal
quantity of it exchange for a smaller quantity, not only of corn, but of
all other home-made commodities ; for the money price of corn regu-
lates that of all other home-made commodities. 165
It regulates the money price of labour, which must always be such
as to enable the labourer to purchase a quantity of corn sufficient to
maintain him and his family either in the liberal, moderate, or scanty
manner in which the advancing, stationary, or declining circumstances
of the society oblige his employers to maintain him.
It regulates the money price of all the other parts of the rude pro-
duce of land, which, in every period of improvement, must bear a cer-
tain proportion to that of corn, though this proportion is different in
different periods. It regulates, for example, the money price of grass
and hay, of butcher's-meat, of horses, and the maintenance of horses,
of land carriage consequently, or of the greater part of the inland
commerce of the country.
By regulating the money price of all the other parts of the rude pro-
duce of land, it regulates that of the materials of almost all manufac-
tures. By regulating the money price of labour, it regulates that of
manufacturing art and industry. And by regulating both, it regulates
that of the complete manufacture. The money price of labour, and of
everything that is the produce either of land or labour, must neces-
sarily either rise or fall in proportion to the money price of corn,
 398 FERTILITY OF MINES HAS DEGRADED THE VALUE OF SILVER.

Though in consequence of the bounty, therefore, the farmer should

be enabled to sell his corn for four shillings a bushel instead of three
and sixpence, and to pay his landlord a money rent proportionable to
this rise in the money price of his produce ; yet if, in consequence of
this rise in the price of corn, four shillings will purchase no more home-
made goods of any other kind than three and sixpence would have
done before, neither the circumstances of the farmer nor those of the
landlord will be much mended by this change. The farmer will not
. be able to cultivate much better ; the landlord will not be able to live
much better. In the purchase of foreign commodities this enhance-
ment in the price of corn may give them some little advantage. In
that of home-made commodities it can give them none at all. And
almost the whole expense of the farmer, and the far greater part even
of that of the landlord, is in home-made commodities.
That degradation in the value of silver which is the effect of the
fertility of the mines, and which operates equally, or very near equally,
through the greater part of the commercial world, is a matter of very
little consequence to any particular country. The consequent rise of
all money prices, though it does not make those who receive them
really richer, does not make them really poorer. A service of plate
becomes really cheaper, and everything else remains precisely of the
same real value as before.
But that degradation in the value of silver which, being the effect
either of the peculiar situation, or of the political institutions of a par-
ticular country, takes place only in that country, is a matter of very great
consequence, which, far from tending to make anybody really richer,
tends to make everybody really poorer. The rise in the money price of
all commodities, which is in this case peculiar to that country, tends to
discourage more or less every sort of industry which is carried on
within it, and to enable foreign nations, by furnishing almost all sorts
of goods for a smaller quantity of silver than its own workmen can
afford to do, to undersell them, not only in the foreign, but even in the
home market.
It is the peculiar situation of Spain and Portugal as proprietors of
the mines, to be the distributors of gold and silver to all the other
countries of Europe. Those metals ought naturally, therefore to be
somewhat cheaper in Spain and Portugal than in any other part of
Europe. The difference, however, should be no more than the amount
of the freight and insurance ; and, on account of the great value and
small bulk of those metals, their freight is no great matter, and their
insurance is the same as that of any other goods of equal value. Spain
and Portugal, therefore, could suffer very little from their peculiar
situation, if they did not aggravate its disadvantages by their political
institutions.
Spain by taxing, and Portugal by prohibiting the exportation of gold
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 399

and silver, load that exportation with the expense of smuggling, and
raise the value of those metals in other countries so much more above
what it is in their own, by the whole amount of this expense. When
you dam up a stream of water, as soon as the dam is full, as much
water must run over the dam-head as if there was no dam at all. The
prohibition of exportation cannot detain a greater quantity of gold and
silver in Spain and Portugal than what they can afford to employ, than
what the annual produce of their land and labour will allow them to
employ, in coin, plate, gilding, and other ornaments of gold and silver.
When they have got this quantity the dam is full, and the whole stream
which flows in afterwards must run over. The annual exportation of gold
and silver from Spain and Portugal accordingly is, by all accounts,
notwithstanding these restraints, very near equal to the whole annual
importation. As the water, however, must always be deeper behind
the dam-head than before it, so the quantity of gold and silver which
these restraints detain in Spain and Portugal must, in proportion to
the annual produce of their land and labour, be greater than what is to
be found in other countries. The higher and stronger the dam-head,
the greater must be the difference in the depth of water behind and
before it. The higher the tax, the higher the penalties with which the
prohibition is guarded, the more vigilant and severe the police which
looks after the execution of the law, the greater must be the difference
in the proportion of gold and silver to the annual produce of the land
and labour of Spain and Portugal, and to that of other countries. It is
said accordingly to be very considerable, and that you frequently find
there a profusion of plate in houses, where there is nothing else which
would, in other countries, be thought suitable or correspondent to this
sort of magnificence. The cheapness of gold and silver, or what is
the same thing, the dearness of all commodities, which is the neces-
sary effect of this redundancy of the precious metals, discourages both
the agriculture and manufactures of Spain and Portugal, and enables
foreign nations to supply them with many sorts of rude, and with almost
all sorts ofmanufactured produce, for a smaller quantity of gold and silver
than what they themselves can either raise or make them for at home.166
The tax and prohibition operate in two different ways. They not only
lower very much the value of the precious metals in Spain and Portu-
gal, but by detaining there a certain quantity of those metals which
would otherwise flow over other countries, they keep up their value in
those other countries somewhat above what it otherwise would be, and
thereby give those countries a double advantage in their commerce with
Spain and Portugal. Open the flood-gates, and there will presently be
less water above, and more below, the dam-head, and it will soon come
to a level in both places. Remove the tax and the prohibition, and as
the quantity of gold and silver will diminish considerably in Spain and
Portugal, so it will increase somewhat in other countries, and the value
400 BALEFUL INFLUENCE OF BOUNTY ON EXPORTATION OF CORN,

of those metals, their proportion to the annual produce of land and

labour, will soon come to a level, or very near to a level, in all. The
loss which Spain and Portugal could sustain by this exportation of their
gold and silver would be altogether nominal and imaginary. The
nominal value of their goods, and of the annual produce of their land
and labour, would fall, and would be expressed or represented by a
smaller quantity of silver than before ; but their real value would be the
same as before, and would be sufficient to maintain, command, and
employ, the same quantity of labour. As the nominal value of their
goods would fall, the real value of what remained of their gold and silver
would rise, and a smaller quantity of those metals would answer all the
same purposes of commerce and circulation which had employed a
greater quantity before. The gold and silver which would go abroad
would not go abroad for nothing, but would bring back an equal value
of goods of some kind or another. Those goods too, would not be all
matters of mere luxury and expense, to be consumed by idle people
who produce nothing in return for their consumption. As the real .
wealth and revenue of idle people would not be augmented by this ex-
traordinary exportation of gold and silver, so neither would their con-
sumption be much augmented by it. Those goods would, probably, the
greater part of them, and certainly some part of them, consist in mate-
rials, tools, and provisions, for the employment and maintenance of
industrious people, who would reproduce, with a profit, the full value of
their consumption. A part of the dead stock of the society would thus
be turned into active stock, and would put into motion a greater quan-
tity of industry than had been employed before. The annual produce of
their land and labour would immediately be augmented a little, and in
a few years would probably be augmented a great deal ; their industry
being thus relieved from one of the most oppressive burdens which it
at present labours under.
The bounty upon the exportation of corn necessarily operates exactly
in the same way as this absurd policy of Spain and Portugal. What-
ever be the actual state of tillage, it renders our corn somewhat dearer
in the home market than it otherwise would be in that state, and some-
what cheaper in the foreign ; and as the average money price of corn
regulates more or less that of all other commodities, it lowers the value
of silver considerably in the one, and tends to raise it a little in the
other. It enables foreigners, the Dutch in particular, not only to eat
our corn cheaper than they otherwise could do, but sometimes to eat it'
cheaper than even our own people can do upon the same occasions ; as
we are assured by an excellent authority, that of Sir Matthew Decker.
It hinders our own workmen from furnishing their goods for so small a
quantity of silver as they otherwise might do, and enables the Dutch
to furnish theirs for a smaller. It tends to render our manufactures
somewhat dearer in every market, and theirs somewhat cheaper than
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 401

they otherwise would be, and consequently to give their industry a

double advantage over our own. 167
The bounty, as it raises in the home market, not so much the real, as
the nominal price of our corn, as it augments, not the quantity of labour
which a certain quantity of corn can maintain and employ, but only
the quantity of silver which it will exchange for, it discourages our
manufactures, without rendering any considerable service either to our
farmers or country gentlemen. It puts, indeed, a little more money
into the pockets of both, and it will perhaps be somewhat difficult to
persuade the greater part of them that this is not rendering them a
very considerable service. But if this money sinks in its value, in the
quantity of labour, provisions, and home-made commodities of all dif
ferent kinds which it is capable of purchasing, as much as it rises in
its quantity, the service will be little more than nominal and imaginary.
There is, perhaps, but one set of men in the whole commonwealth to
whom the bounty either was or could be essentially serviceable. These
were the corn merchants, the exporters and importers of corn. In
years of plenty the bounty necessarily occasioned a greater exporta-
tion than would otherwise have taken place ; and by hindering the
plenty of one year from relieving the scarcity of another, it occasioned
in years of scarcity a greater importation than would otherwise have
been necessary. It increased the business of the corn merchant in
both ; and in years of scarcity, it not only enabled him to import a
greater quantity, but to sell it for a better price, and consequently with
a greater profit than he could otherwise have made, if the plenty of
one year had not been more or less hindered from relieving the scarcity
of another. 168 It is in this set of men, accordingly, that I have observed
the greatest zeal for the continuance or renewal of the bounty.
Our country gentlemen, when they imposed the high duties upon the
importation of foreign corn, which in times of moderate plenty amount
to a prohibition, and when they established the bounty, seem to have
imitated the conduct of our manufacturers. By the one institution,
they secured to themselves the monopoly of the home market, and by
the other they endeavoured to prevent that market from ever being
overstocked with their commodity. By both they endeavoured to raise
its real value, in the same manner as our manufacturers had, by the
like institutions, raised the real value of many different sorts of manu-
factured goods. They did not perhaps attend to the great and essential
difference which nature has established between corn and almost every
other sort of goods. When, either by the monopoly of the home
market, or by a bounty upon exportation, you enable our woollen or
linen manufacturers to sell their goods for somewhat a better price than
they otherwise could get for them, you raise, not only the nominal, but
the real price of those goods. You render them equivalent to a greater
quantity of labour and subsistence, you increase not only the nominal,
26
402 AVERAGE PRICE OF CORN RULES VALUE OF OTHER ARTICLES.

but the real profit, the real wealth and revenue of those manufacturers,
and you enable them either to live better themselves, or to employ a
greater quantity of labour in those particular manufactures.You really
encourage those manufactures, and direct towards them a greater
quantity of the industry of the country, than what would probably go
to them of its own accord. But when by the like institutions you raise
the nominal or money price of corn, you do not raise its real value.
You do not increase the real wealth, the real revenue either of our
farmers or country gentlemen. You do not encourage the growth of
corn, because you do not enable them to maintain and employ more
labourers in raising it. The nature of things has stamped upon corn a
real value which cannot be altered by merely altering its money price.
No bounty upon exportation, no monopoly of the home market, can
raise that value. The freest competition cannot lower it. Through the
world in general that value is equal to the quantity of labour which it
can maintain, and in every particular place it is equal to the quantity
of labour which it can maintain in the way, whether liberal, moderate,
or scanty, in which labour is commonly maintained in that place.
Woollen or linen cloths are not the regulating commodities by which
the real value of all other commodities must be finally measured and
determined ; corn is. The real value of every other commodity is finally
measured and determined by the proportion which its average money
price bears to the average money price of corn. The real value of corn
does not vary with those variations in its average money price, which
sometimes occur from one century to another. It is the real value of
silver which varies with them. 170
Bounties upon the exportation of any home-made commodity are
liable, first, to that general objection which may be made to all the
different expedients of the mercantile system : the objection of forcing
some part of the industry of the country into a channel less advantage-
ous than that in which it would run of its own accord ; and, secondly,
to the particular objection of forcing it, not only into a channel that is
less advantageous, but into one that is actually disadvantageous ; the
trade which cannot be carried on but by means of a bounty being
necessarily a losing trade. The bounty upon the exportation of corn
is liable to this further objection, that it can in no respect promote the
raising of that particular commodity of which it was meant to encourage
the production. When our country gentlemen, therefore, demanded
the establishment of the bounty, though they acted in imitation of our
merchants and manufacturers, they did not act with that complete
comprehension of their own interest which commonly directs the con-
duct of those two other orders of people. They loaded the public re-
venue with a very considerable expense ; they imposed a very heavy
tax upon the whole body of the people ; but they did not, in any sen-
sible degree, increase the real value of their own commodity ; and by
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 403

lowering somewhat the real value of silver, they discouraged, in some

degree, the general industry of the country, and, instead of advancing,
retarded more or less the improvement of their own lands, which neces-
171
sarily depends upon the general industry of the country.
To encourage the production of any commodity, a bounty upon
production, one should imagine, would have a more direct operation,
than one upon exportation. It would, besides, impose only one tax
upon the people, that which they must contribute in order to pay the
bounty. Instead of raising, it would tend to lower the price of the
commodity in the home market ; and thereby, instead of imposing a
second tax upon the people, it might, at least in part, repay them for
what they had contributed to the first. Bounties upon production,
however, have been very rarely granted. The prejudices established
by the commercial system have taught us to believe, that national
wealth arises more immediately from exportation than from produc-
tion. It has been more favoured accordingly, as the more immediate
means of bringing money into the country. Bounties upon production,
it has been said too, have been found by experience more liable to
frauds than those upon exportation. How far this is true, I know not.
That bounties upon exportation have been abused to many fraudulent
purposes, is very well known. But it is not the interest of merchants
and manufacturers, the great inventors of all these expedients, that the
home market should be overstocked with their goods, an event which a
bounty upon production might sometimes occasion. A bounty upon
exportation, by enabling them to send abroad the surplus part, and tc
keep up the price of what remains in the home market, effectually pre-
vents this. Of all the expedients of the mercantile system, accordingly.
it is the one of which they are the fondest. I have known the differen
undertakers of some particular works agree privately among themselves
to give a bounty out of their own pockets upon the exportation of a
certain proportion of the goods which they dealt in. This expedient
succeeded so well, that it more than doubled the price of their goods
in the home market, notwithstanding a very considerable increase in the
produce. The operation of the bounty upon corn must have been won-
derfully different, if it has lowered the money price of that commodity."
Something like a bounty upon production, however, has been granted
upon some particular occasions. The tonnage bounties given to the
white herring and whale fisheries may, perhaps, be considered as some-
what of this nature. They tend directly, it may be supposed , to render
the goods cheaper in the home market than they otherwise would be.
In other respects their effects, it must be acknowledged, are the same
as those of bounties upon exportation. By means of them a part ofthe
capital of the country is employed in bringing goods to market, of
which the price does not repay the cost, together with the ordinary
profits of stock.
26 *
404 THE HERRING BUSS BOUNTY AND ITS EFFECT ON FISHING.

But though the tonnage bounties to those fisheries do not contribute

to the opulence of the nation, it may perhaps be thought that they con-
tribute to its defence, by augmenting the number of its sailors and
shipping. This, it may be alleged, may sometimes be done by means
of such bounties at a much smaller expense than by keeping up a
great standing navy, if I may use such an expression, in the same
way as a standing army.
Notwithstanding these favourable allegations, however, the following
considerations dispose me to believe, that in granting at least one of
these bounties, the legislature has been very grossly imposed upon.
First, the herring buss bounty seems too large.
From the commencement of this winter fishing, 1771 , to the end of
the winter fishing, 1781 , the tonnage bounty upon the herring buss
fishery has been at thirty shillings the ton. During these eleven years
the whole number of barrels caught by the herring buss fishery of Scot-
land amounted to 378,347. The herrings caught and cured at sea, are
called sea sticks. In order to render them what are called merchantable
herrings, it is necessary to repack them with an additional quantity of
salt ; and in this case it is reckoned, that three barrels of sea sticks
are usually repacked into two barrels of merchantable herrings. The
number of barrels of merchantable herrings, therefore, caught during
these eleven years, will amount only, according to this account, to
252,231 . During these eleven years the tonnage bounties paid
amounted to £155,463 11s., or 8s. 24d. upon every barrel of sea sticks,
and 12s. 3 d. upon every barrel of merchantable herrings.
The salt with which these herrings are cured, is sometimes Scotch,
and sometimes foreign salt, both which are delivered free of all excise
duty to the fish- curers. The excise duty upon Scotch salt is at present
Is. 6d., that upon foreign salt 10s. the bushel. A barrel of herrings is
supposed to require abont one bushel and one-fourth of a bushel foreign
salt. Two bushels are the supposed average of Scotch salt. If the
herrings are entered for exportation, no part of this duty is paid up ; if
entered for home consumption, whether the herrings are cured with
foreign or Scotch salt, only one shilling the barrel is paid up. It was
the whole Scotch duty upon a bushel of salt, the quantity which, at a
low estimation, had been supposed necessary for curing a barrel of her-
rings. In Scotland, foreign salt is very little used for any other purpose
but the curing of fish. But from the 5th April, 1771 , to the 5th April,
1782, the quantity of foreign salt imported amounted to 936,974
bushels, at eighty-four pounds the bushel : the quantity of Scotch salt
delivered from the works to the fish-curers, to no more than 168,226, at
fifty-six pounds the bushel only. It would appear, therefore, that it is
principally foreign salt that is used in the fisheries. Upon every barrel
of herrings exported there is, besides, a bounty of 2s. 8d. and more than
two-thirds of the buss-caught herrings are exported. Put all these
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 405

things together, and you will find that, during these eleven years, every
barrel of buss-caught herrings, cured with Scotch salt when exported ,
has cost government 17s. 11d.; and when entered for home consump-
tion 145. 3td.: and that every barrel when cured with foreign salt, when
exported, has cost goverment £ 1 75. 5d.; and when entered for home
consumption £ 1 35. 91d. The price of a barrel of good merchantable
herrings runs from seventeen and eighteen to four or five and twenty
shillings ; about a guinea at an average.*
Secondly, the bounty to the white herring fishery is a tonnage
bounty ; and is proportioned to the burden of the ship, not to her dili-
gence or success in the fishery ; and it has, I am afraid, been too com-
mon for vessels to fit out for the sole purpose of catching, not the fish,
but the bounty. In the year 1759, when the bounty was at fifty shillings
the ton, the whole buss fishery of Scotland brought in only four barrels
of sea sticks. In that year each barrel of sea sticks cost government
in bounties alone 1137. 15s. ; each barrel of merchantable herrings
1597. 7s. 6d.
Thirdly, the mode of fishing for which this tonnage bounty in the
white herring fishery has been given (by busses or decked vessels from
twenty to eighty tons burthen), seems not so well adapted to the situa-
tion of Scotland as to that of Hoiland ; from the practice of which
country it appears to have been borrowed. Holland lies at a great
distance from the seas to which herrings are known principally to re-
sort ; and can, therefore, carry on that fishery only in decked vessels
which can carry water and provisions sufficient for a voyage to a dis-
tant sea. But the Hebrides or Western Islands, the islands of Shetland,
and the northern and north-western coasts of Scotland , the countries
in whose neighbourhood the herring fishery is principally carried on,
are everywhere intersected by arms of the sea, which run up a con-
siderable way into the land, and, which, in the language of the coun-
try, are called sea-lochs. It is to these sea-lochs that the herrings
principally resort during the seasons in which they visit those seas ;
for the visits of this, and, I am assured, of many other sorts of fish, are
not quite regular and constant. A boat fishery, therefore, seems to be
the mode of fishing best adapted to the peculiar situation of Scotland :
the fishers carrying the herrings on shore, as fast as they are taken, to
be either cured or consumed fresh. But the great encouragement
which a bounty of thirty shillings the ton gives to the buss fishery, is
necessarily a discouragement to the boat fishery ; which, having no
such bounty, cannot bring its cured fish to market upon the same terms
as the buss fishery. The boat fishery, accordingly, which, before the
establishment of the buss bounty, was very considerable, and is said to
have employed a number of seamen, not inferior to what the buss
fishery employs at present, is now gone almost entirely to decay. Of
* See the accounts at the end of this section.
406 RASH ADVENTURERS ENCOURAGED BY HERRING BOUNTIES.

the former extent, however, of this now ruined and abandoned fishery,
I must acknowledge that I cannot pretend to speak with much preci-
sion. As no bounty was paid upon the outfit of the boat-fishery, no
account was taken of it by the officers of customs or salt duties.
Fourthly, in many parts of Scotland, during certain seasons of the
year, herrings make no inconsiderable part of the food of the common
people. A bounty which tended to lower their price in the home nar-
ket, might contribute a good deal to the relief of a great number of our
fellow subjects, whose circumstances are by no means affluent. But
the herring buss bounty contributes to no such good purpose. . It has
ruined the boat fishery, which is, by far, the best adapted for the sup-
ply ofthe home market, and the additional bounty of 2s. 8d. the barrel
upon exportation, carries the greater part, more than two-thirds, of the
produce of the buss fishery abroad. Between thirty and forty years
ago, before the establishment of the buss bounty, sixteen shillings the
barrel, I have been assured, was the common price of white herrings.
Between ten and fifteen years ago, before the boat fishery was entirely
ruined, the price is said to have run from seventeen to twenty shillings
the barrel. For these last five years, it has, at an average, been at
twenty-five shillings the barrel. This high price, however, may have
been owing to the real scarcity of the herrings upon the coast of Scot-
land. I must observe too, that the cask or barrel, which is usually sold
with the herrings, and of which the price is included in all the foregoing
prices, has, since the commencement of the American war, risen to
about double its former price, or from about three shillings to about
six shillings. I must likewise observe, that the accounts I have re-
ceived of the prices of former times, have been by no means quite
uniform and consistent ; and an old man of great accuracy and ex-
perience has assured me, that more than fifty years ago, a guinea was
the usual price of a barrel of good merchantable herrings ; and this, I
imagine, may still be looked upon as the average price. All accounts,
however, I think, agree, that the price has not been lowered in the
home market, in consequence of the buss bounty.
When the undertakers of fisheries, after such liberal bounties have
been bestowed upon them, continue to sell their commodity at the same,
to even at a higher price than they were accustomed to do before, it
might be expected that their profits should be very great ; and it is not
impossible that those of some individuals may have been so. In
general, however, I have every reason to believe, they have been quite
otherwise. The usual effect of such bounties is to encourage rash un-
dertakers to adventure in a business which they do not understand,
and what they lose by their own negligence and ignorance, more than
compensates all that they can gain by the utmost liberality of govern-
ment. In 1750, by the same act which first gave the bounty of thirty
shillings the ton for the encouragement of the white herring fishery
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 407

(the 23 Geo. II. chap. 24. ), a joint stock company was erected, with a
capital of five hundred thousand pounds, to which the subscribers (over
and above all other encouragements, the tonnage bounty just now
mentioned, the exportation bounty of two shillings and eightpence the
barrel, the delivery of both British and foreign salt duty free) were,
during the space of fourteen years, for every hundred pounds which
they subscribed and paid into the stock of the society, entitled to three
pounds a year, to be paid by the receiver-general of the customs in
equal half-yearly payments. Besides this great company, the residence
of whose governor and directors was to be in London, it was declared
lawful to erect different fishing-chambers in all the different out-ports
of the kingdom, provided a sum not less than ten thousand pounds was
subscribed into the capital of each, to be managed at its own risk, and
for its own profit and loss. The same annuity, and the same en-
couragements of all kinds, were given to the trade of those inferior
chambers, as to that of the great company. The subscription of the
great company was soon filled up, and several different fishing-chambers
were erected in the different out-ports of the kingdom. In spite of all
these great encouragements, almost all those different companies, both
great and small, lost either the whole, or the greater part of their
capitals ; scarce a vestige now remains of any of them, and the white
herring fishery is now entirely, or almost entirely, carried on by
private adventurers. 178
If any particular manufacture was necessary, indeed, for the defence
of the society, it might not always be prudent to depend upon our
neighbours for the supply ; and if such manufacture could not other-
wise be supported at home, it might not be unreasonable that all the
other branches of industry should be taxed in order to support it. The
bounties upon the exportation of British-made sail-cloth and British-
made gunpowder may, perhaps, both be vindicated upon this principle.
But though it can very seldom be reasonable to tax the industry of
the great body of the people, in order to support that of some par-
ticular class of manufacturers ; yet in the wantonness of great pros-
perity, when the public enjoys a greater revenue than it knows well
what to do with, to give such bounties to favourite manufactures, may,
perhaps, be as natural, as to incur any other idle expense. In public,
as well in private expenses, great wealth may pernaps frequently be
admitted as an apology for great folly. But there must surely be some-
thing more than ordinary absurdity in continuing such profusion in
times of general difficulty and distress.
What is called a bounty is sometimes no more than a drawback, and
consequently is not liable to the same objections as what is properly a
bounty. The bounty, for example, upon refined sugar exported, may
be considered as a drawback of the duties upon the brown and musco-
vado sugars, from which it is made. The bounty upon wrought silk
408 ARTISTS' PREMIUMS DIFFERENT FROM TRADERS' BOUNTIES.

exported, a drawback of the duties upon raw and thrown silk imported.
The bounty upon gunpowder exported, a drawback of the duties upon
brimstone and saltpetre imported. In the language of the customs
those allowances only are called drawbacks, which are given upon
goods exported in the same form in which they are imported. When
that form has been so altered by manufacture of any kind, as to come
under a new denomination, they are called bounties.
Premiums given by the public to artists and manufacturers who excel
in their particular occupations, are not liable to the same objections as
bounties. By encouraging extraordinary dexterity and ingenuity, they
serve to keep up the emulation of the workmen actually employed in
those respective occupations, and are not considerable enough to turn
towards any one of them a greater share of the capital of the country
than what would go to it of its own accord. Their tendency is not to
overturn the natural balance of employments, but to render the work
which is done in each as perfect and complete as possible. The ex-
pense of premiums, besides, is very trifling ; that of bounties very great.
The bounty upon corn alone has sometimes cost the public in one year
more than three hundred thousand pounds.
Bounties are sometimes called premiums, as drawbacks are some-
times called bounties. But we must in all cases attend to the nature of
the thing, without paying any regard to the word.

Digression concerning the Corn Trade and Corn Laws.

I CANNOT conclude this chapter concerning bounties, without observ-
ing that the praises which have been bestowed upon the law which
establishes the bounty upon the exportation of corn, and upon that
system of regulations which is connected with it, are altogether un-
merited. A particular examination of the nature of the corn trade, and
of the principal British laws which relate to it, will sufficiently demon-
strate the truth of this assertion. The great importance of this subject
must justify the length of the digression.
The trade ofthe corn merchant is composed of four different branches,
which, though they may sometimes be all carried on by the same
person, are in their own nature four separate and distinct trades.
These are, first, the trade of the inland dealer ; secondly, that of the
merchant importer for home consumption ; thirdly, that of the mer-
chant exporter of home produce for foreign consumption ; and fourthly,
that of the merchant carrier, or of the importer of corn in order to ex-
port it again.
I. The interest of the inland dealer, and that of the great body of
the people, how opposite soever they may at first sight appear, are,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 409

even in years of the greatest scarcity, exactly the same. It is his in-
terest to raise the price of his corn as high as the real scarcity of the
season requires, and it can never be his interest to raise it higher. By
raising the price he discourages the consumption, and puts everybody
more or less, but particularly the inferior ranks of people, upon thrift
and good management. If, by raising it too high, he discourages the
consumption so much that the supply of the season is likely to go be-
yond the consumption of the season, and to last for some time after
the next crop begins to come in, he runs the hazard, not only of losing
a considerable part of his corn by natural causes, but of being obliged
to sell what remains of it for much less than what he might have had
for it several months before. If by not raising the price high enough,
he discourages the consumption so little that the supply of the season
is likely to fall short of the consumption of the season, he not only
loses a part of the profit which he might otherwise have made, but he
exposes the people to suffer before the end of the season, instead of the
hardships of a dearth, the dreadful horrors of a famine. It is the in-
terest of the people, that their daily, weekly, and monthly consumption,
should be proportioned as exactly as possible to the supply of the
season. The interest of the inland corn dealer is the same. By sup-
plying them, as nearly as he can judge, in this proportion, he is likely
to sell all his corn for the highest price, and with the greatest profit ;
and his knowledge of the state of the crop, and of his daily, weekly,
and monthly sales, enables him to judge, with more or less accuracy,
how far they really are supplied in this manner. Without intending
the interest of the people, he is necessarily led, by a regard to his own
interest, to treat them, even in years of scarcity, pretty much in the
same manner as the prudent master of a vessel is sometimes obliged to
treat his crew. When he foresees that provisions are likely to run
short, he puts them upon short allowance. Though from excess of
caution he should sometimes do this without any real necessity, yet all
the inconveniencies which his crew can thereby suffer are inconsider-
able, in comparison of the danger, misery, and ruin, to which they
might sometimes be exposed by a less provident conduct. Though
from excess of avarice, in the same manner, the inland corn merchant
should sometimes raise the price of his corn somewhat higher than the
scarcity of the season requires, yet all the inconveniencies which the
people can suffer from this conduct, which effectually secures them
from a famine in the end of the season, are inconsiderable in compa-
rison of what they might have been exposed to by a more liberal way
of dealing in the beginning of it. The corn merchant himself is likely
to suffer the most by this excess of avarice ; not only from the indigna-
tion which it generally excites against him, but, though he should es-
cape the effects of this indignation, from the quantity of corn which it
necessarily leaves upon his hands in the end of the season, and which,
410 MONOPOLY OF CROP OF A GREAT COUNTRY SCARCE POSSIBLE.

if the next season happens to prove favourable, he must always sell for
a much lower price than he might otherwise have had. ¹7
Were it possible, indeed, for one great company of merchants to
possess themselves of the whole crop of an extensive country, it might,
perhaps, be their interest to deal with it as the Dutch are said to do
with the spiceries of the Moluccas, to destroy or throw away a consider-
able part of it, in order to keep up the price of the rest. But it is
scarce possible, even by the violence of law, to establish such an exten-
sive monopoly with regard to corn ; and wherever the law leaves the
trade free, it is of all commodities the least liable to be engrossed or
monopolized by the force of a few large capitals, which buy up the
greater part of it. Not only its value far exceeds what the capitals of
a few private men are capable of purchasing, but supposing they were
capable of purchasing it, the manner in which it is produced renders
this purchase altogether impracticable. As in every civilized country
it is the commodity of which the annual consumption is the greatest,
so a greater quantity of industry is annually employed in producing
corn than in producing any other commodity. When it first comes
from the ground, too, it is necessarily divided among a greater number
of owners than any other commodity ; and these owners can never be
collected into one place like a number of independent manufacturers,
but are necessarily scattered through all the different corners of the
country. These first owners either immediately supply the consumers
in their own neighbourhood, or they supply other inland dealers, who
supply those consumers. The inland dealers in corn, therefore, includ-
ing both the farmer and the baker, are necessarily more numerous
than the dealers in any other commodity, and their dispersed situation
renders it altogether impossible for them to enter into any general com-
bination. If in a year of scarcity, therefore, any of them should find
that he had a good deal more corn upon hand than, at the current
price, he could hope to dispose of before the end of the season, he
would never think of keeping up this price to his own loss, and to the
sole benefit of his rivals and competitors, but would immediately lower
it, in order to get rid of his corn before the new crop began to come in.
The same motives, the same interests, which would thus regulate the
conduct of any one dealer, would regulate that of every other, and
oblige them all in general to sell their corn at the price which, accord-
ing to the best of their judgment, was most suitable to the scarcity or
plenty of the season.
Whoever examines, with attention, the history of the dearths and
famines which have afflicted any part of Europe, during either the
course of the present, or that of the two preceding centuries, of several
of which we have pretty exact accounts, will find, I believe, that a
dearth never has arisen from any combination among the inland dealers
in corn, nor from any other cause but a real scarcity, occasioned some
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 411

times, perhaps, and in some particular places, by the waste of war, but
in by far the greatest number of cases, by the fault of the seasons ; and
that a famine has never arisen from any other cause but the violence of
government attempting, by improper means, to remedy the inconveni-
⚫encies of a dearth.
In an extensive corn country, between all the different parts of which
there is a free commerce and communication, the scarcity occasioned
by the most unfavourable seasons can never be so great as to produce a
famine ; and the scantiest crop, if managed with frugality and economy,
will maintain, through the year, the same number of people that are
commonly fed in a more affluent manner by one of moderate plenty.
The seasons most unfavourable to the crop are those of excessive
drought or excessive rain. But, as corn grows equally upon high and
low lands, upon grounds that are disposed to be too wet, and upon
those that are disposed to be too dry, either the drought or the rain
which is hurtful to one part of the country is favourable to another ;
and though both in the wet and in the dry season the crop is a good
deal less than in one more properly tempered ; yet, in both, what is lost
in one part of the country is in some measure compensated by what
is gained in the other. In rice countries, where the crop not only
requires a very moist soil, but where, in a certain period of its growing,
it must be laid under water, the effects of a drought are much more
dismal. Even in such countries, however, the drought is, perhaps,
scarce ever so universal as necessarily to occasion a famine, if the
government would allow a free trade. The drought in Bengal, a few
years ago, might probably have occasioned a very great dearth. Some
improper regulations, some injudicious restraints, imposed by the
servants of the East India Company upon the rice trade, contributed,
perhaps, to turn that dearth into a famine.
When the government, in order to remedy the inconveniencies of a
dearth, orders all the dealers to sell their corn at what it supposes a
reasonable price, it either hinders them from bringing it to market,
which may sometimes produce a famine even in the beginning of the
season ; or if they bring it thither, it enables the people, and thereby
encourages them, to consume it so fast, as must necessarily produce a
famine before the end of the season. The unlimited, unrestrained
freedom of the corn trade, as it is the only effectual preventative of the
miseries of a famine, so it is the best palliative of the inconveniencies
of a dearth : for the inconveniencies of a real scarcity cannot be
remedied ; they can only be palliated. No trade deserves more the
full protection of the law, and no trade requires it so much ; because
no trade is so much exposed to popular odium.
In years of scarcity the inferior ranks of people impute their distress
to the avarice of the corn merchant, who becomes the object of their
hatred and indignation. Instead of making profit upon such occasions,
 412 ANCIENT POLICY OF EUROPE AGAINST FORESTALLING OF GRAIN,

therefore. he is often in danger of being utterly ruined, and of having

his magazines plundered and destroyed by their violence. It is in
years of scarcity, however, when prices are high, that the corn mer-
chant expects to make his principal profit. He is generally in con-
tract with some farmers to furnish him for a certain number of years
with a certain quantity of corn at a certain price. 175 This contract price
is settled according to what is supposed to be the moderate and reason-
able, that is, the ordinary or average price, which, before the late years
of scarcity, was commonly about eight-and-twenty shillings for the
quarter of wheat, and for that of other grain in proportion. In years
of scarcity, therefore, the corn merchant buys a great part of his corn
for the ordinary price, and sells it for a much higher. That this ex-
traordinary profit, however, is no more than sufficient to put his trade
upon a fair level with other trades, and to compensate the many losses
which he sustains upon other occasions, both from the perishable
nature of the commodity itself, and from the frequent and unforeseen
fluctuations of its price, seems evident enough, from this single circum-
stance, that great fortunes are as seldom made in this as in any other
trade. The popular odium, however, which attends it in years of
scarcity, the only years in which it can be very profitable, renders peo-
ple of character and fortune averse to enter into it. It is abandoned to
an inferior set of dealers ; and millers, bakers, mealmen, and meal
factors, together with a number of wretched hucksters, are almost the
only middle people that, in the home market, come between the grower
and the consumer.
The ancient policy of Europe, instead of discountenancing this popu-
lar odium against a trade so beneficial to the public, seems, on the con-
trary, to have authorised and encouraged it.
By the 5th and 6th of Edward VI. cap. 14, it was enacted, that
whoever should buy any corn or grain with intent to sell it again,
should be reputed an unlawful engrosser, and should, for the first fault,
suffer two months imprisonment, and forfeit the value of the corn ; for
the second, suffer six months imprisonment, and forfeit double the
value ; and for the third, be set in the pillory, suffer imprisonment
during the king's pleasure, and forfeit all his goods and chattels. The
ancient policy of most of the other parts of Europe was no better than
that of England.
Our ancestors seem to have imagined that the people would buy
their corn cheaper of the farmer than of the corn merchant, who, they
were afraid, would require, over and above the price which he paid to
the farmer, an exorbitant profit to himself. They endeavoured there-
fore, to annihilate his trade altogether. They even endeavoured to hin-
der as much as possible any middle man of any kind from coming in
between the grower and the consumer ; and this was the meaning of
the many restraints which they imposed upon the trade of those whom
--
‫ا‬
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 413

they called kidders or carriers of corn, a trade which nobody was

allowed to exercise without a license ascertaining his qualifications as
a man of probity and fair dealing. The authority of three justices of
the peace was, by the statute of Edward VI . necessary, in order to grant
this license. But even this restraint was afterwards thought insufficient,
and by a statute of Elizabeth, the privilege of granting it was confined
to the quarter-sessions.
The ancient policy of Europe endeavoured in this manner to regu-
late agriculture, the great trade of the country, by maxims quite dif-
ferent from those which it established with regard to manufactures,
the great trade of the towns. By leaving the farmer no other cus-
tomers but either the consumers or their immediate factors, the kidders L
and carriers of corn, it endeavoured to force him to exercise the trade,
not only of a farmer, but of a corn merchant or corn retailer. On the
contrary, it in many cases prohibited the manufacturer from exercising
the trade of a shopkeeper, or from selling his own goods by retail. It
meant by the one law to promote the general interest of the country,
or to render corn cheap, without, perhaps, its being well understood
how this was to be done. By the other it meant to promote that of a
particular order of men, the shopkeepers, who would be so much under-
sold by the manufacturer, it was supposed, that their trade would be
ruined if he was allowed to retail at all.
The manufacturer, however, though he had been allowed to keep a
shop, and to sell his own goods by retail, could not have undersold the
common shopkeeper. Whatever part of his capital he might have
placed in his shop, he must have withdrawn it from his manufacture.
In order to carry on his business on a level with that of other people,
as he must have had the profit of a manufacturer on the one part, so
he must have had that of a shopkeeper upon the other. Let us sup-
pose, for example, that in the particular town where he lived, ten per
cent. was the ordinary profit both of manufacturing and shopkeeping
stock ; he must in this case have charged upon every piece of his own
goods which he sold in his shop, a profit of twenty per cent. When he
carried them from his workhouse to his shop, he must have valued
them at the price for which he could have sold them to a dealer or shop-
keeper, who would have bought them by wholesale. If he valued them
lower, he lost a part of the profit of his manufacturing capital. When
again he sold them from his shop, uuless he got the same price at
which a shopkeeper would have sold them, he lost a part of the profit
of his shopkeeping capital. Though he might appear, therefore, to
make a double profit upon the same piece of goods, yet as these goods
made successively a part of two distinct capitals, he made but a single
profit upon the whole capital employed about them ; an if he made
less than his profit, he was a loser, or did not employ his whole capita
with the same advantage as the greater part of his neighbours.
414 LAWS REŠTŘICTING TRADE VIOLATIONS OF NATURAL LIBERTY.

What the manufacturer was prohibited to do, the farmer was in some
measure enjoined to do : to divide his capital between two different
employments ; to keep one part of it in his granaries and stack-yard,
for supplying the occasional demands of the market, and to employ
the other in cultivation of his land. But as he could not afford to em-
ploy the latter for less than the ordinary profits of farming stock, so
he could as little afford to employ the former for less than the ordinary
profits of mercantile stock. Whether the stock was really carried on
the business of the corn merchant belonged to the person who was
called a farmer, or to the person who was called a corn merchant, an
equal profit was in both cases requisite in order to indemnify its
owner for employing it in this manner ; in order to put his business
upon a level with other trades, and in order to hinder him from having
an interest to change it as soon as possible for some other. The
farmer, therefore, who was thus forced to exercise the trade of a corn
merchant, could not afford to sell his corn cheaper in the market than
any other corn merchant would have been obliged to do in the case of
a free competition.
The dealer who can employ his whole stock in one single branch of
business, has an advantage of the same kind with the workman who
can employ his whole labour in one single operation. As the latter
acquires a dexterity which enables him, with the same two hands, to
perform a much greater quantity of work ; so the former acquires so
easy and ready a method of transacting his business, of buying and
disposing of his goods, that with the same capital he can transact a
much greater quantity of business. As the one can commonly afford
his work a good deal cheaper, so the other can commonly afford his
goods somewhat cheaper than if his stock and attention were both
employed about a greater variety of objects. The greater part of
manufacturers could not afford to retail their own goods so cheap as a
vigilant and active shopkeeper, whose sole business it was to buy them by
wholesale, and to retail them again. The greater part of farmers
could still less afford to retail their own corn, to supply the inhabitants
of a town, at perhaps four or five miles distance from the greater part
of them , so cheap as a vigilant and active corn merchant, whose sole
business it was to purchase corn by wholesale, to collect it into a great
magazine, and to retail it again.
The law which prohibited the manufacturer from exercising the
trade of a shopkeeper, endeavoured to force this division in the em-
ployment of stock to go on faster than it might otherwise have done.
The law which obliged the farmer to exercise the trade of a corn mer-
chant, endeavoured to hinder it from going on so fast. Both laws
were evident violations of natural liberty, and therefore unjust ; and
they were both too as impolitic as they were unjust. It is the interest
of every society, that things of this kind should never either be forced
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 415

or obstructed. The man who employs either his labour or his stock in
a greater variety of ways than his situation renders necessary, can
never hurt his neighbour by underselling him. He may hurt himself.
and he generally does so. Jack of all trades will never be rich , says
the proverb. But the law ought always to trust people with the care of
their own interest, as in their local situations they must generally be
able to judge better of it than the legislator can do. The law, how-
ever, which obliged the farmer to exercise the trade of a corn merchant,
was by far the most pernicious of the two.
It obstructed not only that division in the employment of stock
which is so advantageous to every society, but it obstructed likewise
the improvement and cultivation of the land. By obliging the farmer
to carry on two trades instead of one, it forced him to divide his
capital into two parts, of which one only could be employed in cultiva-
tion. But if he had been at liberty to sell his whole crop to a corn
merchant as fast as he could thresh it out, his whole capital might
have returned immediately to the land, and have been employed in
buying more cattle, and hiring more servants, in order to improve and
cultivate it better. But by being obliged to sell his corn by retail, he
was obliged to keep a great part of his capital in his granaries and
stack-yard through the year, and could not therefore cultivate so well
as with the same capital he might otherwise have done. This law,
therefore, necessarily obstructed the improvement of the land, and,
instead of tending to render corn cheaper, must have tended to render
it scarcer, and therefore dearer, than it would otherwise have been.
After the business of the farmer, that of the corn merchant is in
reality the trade which, if properly protected and encouraged, would
contribute the most to the raising of corn. It would support the trade
of the farmer, in the same manner as the trade of the wholesale
dealer supports that of the manufacturer.
The wholesale dealer, by affording a ready market to the manu-
facturer, by taking his goods off his hand as fast as he can make them,
and by sometimes even advancing their price to him before he has
made them, enables him to keep his whole capital, and sometimes
even more than his whole capital, constantly employed in manu-
facturing, and consequently to manufacture a much greater quantity of
goods than if he was obliged to dispose of them himself to the imme-
diate consumers, or even to the retailers. As the capital of the
wholesale merchant too is generally sufficient to replace that of many
manufacturers, this intercourse between him and them interests the
owner of a large capital to support the owners of a great number of
small ones, and to assist them in those losses and misfortunes which
might otherwise prove ruinous to them.
An intercourse of the same kind universally established between
the farmers and the corn merchants, would be attended with effects
416 STATUTES OF OLD PASSED TO REGULATE TRADE IN CORN.

equally beneficial to the farmers. They would be enabled to keep their

whole capitals, and even more than their whole capitals, constantly
employed in cultivation. In case of any of those accidents, to which
no trade is more liable than theirs, they would find in their ordinary
customer, the wealthy corn merchant, a person who had both an interest
to support them, and the ability to do it, and they would not, as at
present, be entirely dependent upon the forbearance of their landlord
or the mercy of his steward. Were it possible, as perhaps it is not, to
establish this intercourse universally and all at once, were it possible
to turn all at once the whole farming stock of the kingdom to its proper
business, the cultivation of land, withdrawing it from every other
employment into which any part of it may be at present diverted, and
were it possible, in order to support and assist upon occasion the opera-
tions of this great stock, to provide all at once another stock almost
equally great, it is not perhaps very easy to imagine how great, how
extensive, and how sudden would be the improvement which this
change of circumstances would alone produce upon the whole face of
the country.
The statute of Edward VI., therefore, by prohibiting as much as
possible any middle man from coming in between the grower and the
consumer, endeavoured to annihilate a trade, of which the free exercise
is not only the best palliative of the inconveniencies of a dearth, but
the best preventative of that calamity ; after the trade of the farmer
no trade contributing so much to the growing of corn as that of the
corn merchant.
The rigour of this law was afterwards softened by several subse-
quent statutes, which successively permitted the engrossing of corn when
the price of wheat should not exceed twenty, twenty-four, thirty-two,
and forty shillings the quarter. At last, by the 15th of Charles II . c.
7, the engrossing or buying of corn in order to sell it again, as long as
the price of wheat did not exceed forty-eight shillings the quarter, and
that of other grain in proportion, was declared lawful to all persons
not being forestallers, that is, not selling again in the same market
within three months. All the freedom which the trade of the inland
corn dealer has ever yet enjoyed, was bestowed upon it by this statute.
The statute of the twelfth of the present king, which repeals almost
all the other ancient laws against engrossers and forestallers, does not
repeal the restrictions of this particular statute, which therefore still
continues in force. 176
This statute, however, authorises in some measure two very absurd
popular prejudices.
First, it supposes that when the price of wheat has risen so high as
forty-eight shillings the quarter, and that of other grain in proportion,
corn is likely to be so engrossed as to hurt the people. But from what
has been already said, it seems evident enough that corn can at no
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 417

price be so engrossed by the inland dealers as to hurt the people ; and

forty-eight shillings the quarter besides, though it may be considered as
a very high price, yet in years of scarcity it is a price which frequently
takes place immediately after harvest, when scarce any part of the
new crop can be sold off, and when it is impossible even for ignorance
to suppose that any part of it can be so engrossed as to hurt the people.
Secondly, it supposes that there is a certain price at which corn is
likely to be forestalled, that is, bought up in order to be sold again soon
after in the same market, so as to hurt the people. But if a merchant
ever buys up corn, either going to a particular market or in a particular
market, in order to sell it again soon after in the same market, it must
be because he judges that the market cannot be so liberally supplied
through the whole season as upon that particular occasion, and that
the price, therefore, must soon rise. if he judges wrong in this, and it
the price does not rise, he not only loses the whole profit of the stock
which he employs in this manner, but a part of the stock itself, by the
expense and loss which necessarily attend the storing and keeping of
corn. He hurts himself, therefore, much more essentially than he can
hurt even the particular people whom he may hinder from supplying
themselves upon that particular market day, because they may after-
wards supply themselves just as cheap upon any other market day. If
he judges right, instead of hurting the great body of the people, he
renders them a most important service. By making them feel the in-
conveniencies of a dearth somewhat earlier than they otherwise might
do, he prevents their feeling them afterwards so severely as they cer-
tainly would do, if the cheapness of price encouraged them to consume
faster than suited the real scarcity of the season. When the scarcity is
real, the best thing that can be done for the people is to divide the
inconveniencies of it as equally as possible through all the different
months and weeks and days of the year. The interest of the corn
merchant makes him study to do this as exactly as he can ; and as no
other person can have either the same interest, or the same knowledge,
or the same abilities to do it so exactly as he, this most important
operation of commerce ought to be trusted entirely to him ; or, in
other words, the corn trade, so far at least as concerns the supply of
the home market, ought to be left perfectly free.
The popular fear of engrossing and forestalling may be compared to
the popular terrors and suspicions of witchcraft. The unfortunate
wretches accused of this latter crime were not more innocent of the
misfortunes imputed to them than those who have been accused of the
former. The law which put an end to all prosecutions against witch-
craft, which put it out of any man's power to gratify his own malice by
accusing his neighbour of that imaginary crime, seems effectually to
have put an end to those fears and suspicions, by taking away the great
cause which encouraged and supported them. The law which should
27
418 INLAND GRAIN TRADE OF MORE IMPORTANCE THAN EXPORT.

restore entire freedom to the inland trade of corn, would probably

prove as effectual to put an end to the popular fears of engrossing and
forestalling.
The 15th of Charles II. c. 7, however, with all its imperfections, has
perhaps contributed more both to the plentiful supply of the home
market, and to the increase of tillage, than any other law in the statute
book. It is from this law that the inland corn trade has derived all the
liberty and protection which it has ever yet enjoyed ; and both the
supply of the home market, and the interest of tillage, are much more
effectually promoted by the inland, than either by the importation or
exportation trade.
The proportion of the average quantity of all sorts of grain imported
into Great Britain to that of all sorts of grain consumed, it has been
computed by the author of the tracts upon the corn trade, does not
exceed that of one to five hundred and seventy. For supplying the
home market, therefore, the importance of the inland trade must be
to that of the importation trade as five hundred and seventy to one.
The average quantity of all sorts of grain exported from Great Britain
does not, according to the same author, exceed the one-and-thirtieth
part of the annual produce. For the encouragement of tillage, therefore,
by providing a market for the home produce, the importance of the
inland trade must be to that of the exportation trade as thirty to one.177
I have no great faith in political arithmetic, and I mean not to war-
rant the exactness of either of these computations. I mention them
only in order to show of how much less consequence, in the opinion
of the most judicious and experienced persons, the foreign trade of
corn is than the home trade. The great cheapness of corn in the years
immediately preceding the establishment of the bounty, may perhaps,
with reason, be ascribed in some measure to the operation of this
statute of Charles II. , which had been enacted about five-and-twenty
years before, and which had therefore full time to produce its effect.
A very few words will sufficiently explain all that I have to say con-
cerning the other three branches of the corn trade.
II. The trade of the merchant importer of foreign corn for home
consumption, evidently contributes to the immediate supply of the
home market, and must so far be immediately beneficial to the great
body of the people. It tends indeed to lower somewhat the average
money price of corn, but not to diminish its real value, or the quantity of
labour which it is capable of maintaining. If importation was at all
times free, our farmers and country gentlemen would, probably, one year
with another, get less money for their corn than they do at present,
when importation is at most times in effect prohibited ; but the money
which they got would be of more value, would buy more goods of all
other kinds, and would employ more labour. Their real wealth, their
real revenue, therefore, would be the same as at present, though it
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 419

might be expressed by a smaller quantity of silver ; and they would

neither be disabled nor discouraged from cultivating corn as much as
they do at present. On the contrary, as the rise in the real value of
silver, in consequence of lowering the money price of corn, lowers
somewhat the money price of all other commodities, it gives the in-
dustry of the country, where it takes place, some advantage in all foreign
markets, and thereby tends to encourage and increase that industry.
3ut the extent of the home market for corn must be in proportion to
the general industry of the country where it grows, or to the number
of those who produce something else, and therefore have something
else, or what comes to the same thing, the price of something else, to
give in exchange for corn. But in every country the home market, as
it is the nearest and most convenient, so is it likewise the greatest and
most important market for corn. That rise in the real value of silver,
therefore, which is the effect of lowering the average money price of
corn, tends to enlarge the greatest and most important market for
corn, and thereby to encourage, instead of discouraging, its growth.
By the 22nd of Charles II. c. 13 , the importation of wheat, whenever
the price in the home market, did not exceed fifty-three shillings and
fourpence the quarter, was subjected to a duty of sixteen shillings the
quarter, and to a duty of eight shillings whenever the price did not
exceed four pounds. The former of these two prices has, for more
than a century past, taken place only in times of very great scarcity ;
and the latter has, so far as I know, not taken place at all. Yet, till
wheat had risen above this latter price, it was by this statute subjected
to a very high duty ; and, till it had risen above the former, to a duty
which amounted to a prohibition. The importation of other sorts of
grain was restrained at rates, and by duties, in proportion to the value
of the grain, almost equally high.* Subsequent laws still further in-
creased those duties.
The distress which, in years of scarcity, the strict execution of those
laws might have brought upon the people, would probably have been
very great. But, upon such occasions, its execution was generally
* Before the 13th of the present king, the following were the duties payable upon the im-
portation of the different sorts of grain :-
Grain. Duties. Duties. Dutier
Beans to 28s. per qr. 19s. 1od. after till 40s. 16s. 8d. then 12d.
Barley to 28s. 19s. 10d. 325. 165. 12d.
Malt is prohibited by the annual Malt-tax Bill.
Oats to 16s. 5s. 10d. after 9 d.
Pease to 40s. 16s. od. after 9&d.
Rye to 36s. Igs. Iod. till 405. 16s. 8d. then 12d.
Wheat to 445. DEV215. gd. till 53s. 4d. 175. then 8s.
till £4 and after that about 1s. 4d.
Buck wheat to 325. per qr. to pay 16s.
These different duties were imposed, partly by the 22nd of Charles II . in place of the Old
Subsidy, partly by the New Subsidy, by the One-third and Two-thirds Subsidy, and by the
Subsidy 1747.
27 *
420 RELATIVE EFFECTS OF FREEDOM, OR LIMITATION OF EXPORT.

suspended by temporary statutes, which permitted, for a limited time,

the importation of foreign corn. The necessity of these temporary
statutes sufficiently demonstrates the impropriety of this general one.
These restraints upon importation, though prior to the establishment
ofthe bounty, were dictated bythe same spirit, by the same principles,
which afterwards enacted that regulation. How hurtful soever in them-
selves, these or some other restraints upon importation became neces-
sary in consequence of that regulation. If when wheat was either
below forty-eight shillings the quarter, or not much above it, foreign
corn could have been imported, either duty free, or upon paying only a
small duty, it might have been exported again, with the benefit of the
bounty, to the great loss of the public revenue, and to the entire per-
version of the institution, of which the object was to extend the market
for the home growth, not that for that of foreign countries.
III. The trade of the merchant exporter of corn for foreign con-
sumption, certainly does not contribute directly to the plentiful supply
of the home market. It does so, however, indirectly. From whatever
source this supply may be usually drawn, whether from home growth
or from foreign importation, unless more corn is either usually grown,
or usually imported into the country, than what is usually consumed in
it, the supply of the home market can never be very plentiful. But unless
the surplus can, in all ordinary cases, be exported, the growers will be
careful never to grow more, and the importers never to import more,
than what the bare consumption of the home market requires. That
market will very seldom be overstocked , but it will generally be under-
stocked, the people, whose business it is to supply it, being generally
afraid lest their goods should be left upon their hands. The prohibition
of exportation limits the improvement and cultivation of the country to
what the supply of its inhabitants requires. The freedom of exportation
enables it to extend cultivation for the supply of foreign nations.
By the 12th of Charles II. c. 4, the exportation of corn was permitted
whenever the price of wheat did not exceed forty shillings the quarter,
and that of other grain in proportion. By the 15th of the same prince,
this liberty was extended till the price of wheat exceeded forty-eight
shillings the quarter ; and by the 22nd to all higher prices. A poundage,
indeed, was to be paid to the king upon such exportation. But all grain
was rated so low in the book of rates, that this poundage amounted
only upon wheat to a shilling, upon oats to fourpence, and upon all
other grain to sixpence the quarter. By the 1st of William and Mary,
the act which established the bounty, this small duty was virtually taken
off whenever the price of wheat did not exceed fortv-eight shillings the
quarter ; and by the 11th and 12th of William III. c. zo, it was ex-
pressly taken off at all higher prices.
The trade of the merchant exporter was, in this manner, not only
encouraged by a bounty, but rendered much more free than that of the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 421

inland dealer. By the last of these statutes, corn could be engrossed

at any price for exportation ; but it could not be engrossed for inland
sale, except when the price did not exceed forty-eight shillings the
quarter. The interest of the inland dealer, however, it has already
been shown, can never be opposite to that of the great body of the
people. That of the merchant exporter may, and in fact sometimes is.
If, while his own country labours under a dearth, a neighbouring
country should be afflicted with a famine, it might be his interest to
carry corn to the latter country in such quantities as might very much
aggravate the calamities of the dearth. The plentiful supply of the
home market was not the direct object of those statutes ; but, under
the pretence of encouraging agriculture, to raise the money price of
corn as high as possible, and thereby to occasion, as much as possible,
a constant dearth in the home market. By the discouragement of im-
portation, the supply of that market, even in times of great scarcity,
was confined to the home growth ; and by the encouragement of ex-
portation, when the price was so high as forty-eight shillings the
quarter, that market was not, even in times of considerable scarcity,
allowed to enjoy the whole of that growth. The temporary laws, pro-
hibiting for a limited time the exportation of corn, and taking off for a
limited time the duties upon its importation, expedients to which Great
Britain has been obliged so frequently to have recourse, sufficiently
demonstrate the impropriety of her general system. Had that system
been good, she would not so frequently have been reduced to the
necessity of departing from it.
Were all nations to follow the liberal system of free exportation and
free importation, the different states into which a great continent was
divided would so far resemble the different provinces of a great empire.
As among the different provinces of a great empire the freedom of the
inland trade appears, both from reason and experience, not only the
best palliative of a dearth, but the most effectual preventative of a
famine ; so would the freedom of the exportation and importation trade
be among the different states into which a great continent was divided.
The larger the continent, the easier the communication through all the
different parts of it, both by land and by water, the less would any one
particular part of it ever be exposed to either of these calamities : the
scarcity of any one country being more likely to be relieved by the
plenty of some other. But very few countries have entirely adopted
this liberal system. The freedom of the corn trade is almost everywhere
more or less restrained, and, in many countries, is confined by such
absurd regulations, as frequently aggravate the unavoidable misfortune
of a dearth into the dreadful calamity of a famine. The demand of
such countries for corn may frequently become so great and so urgent,
that a small state in their neighbourhood, which happened at the same
time to be labouring under some degree of dearth, could not venture to
 422 TRADE OF THE MERCHANT CARRIER LIMITED BY RESTRICTIONS.

supply them without exposing itself to the like dreadful calamity. The
very bad policy of one country may thus render it in some measure
dangerous and imprudent to establish what would otherwise be the
best policy in another. The unlimited freedom of exportation, however,
would be much less dangerous in great states, in which the growth
being much greater, the supply could seldom be much affected by any
quantity of corn that was likely to be exported. In a Swiss canton, or
in some of the little states of Italy, it may, perhaps, sometimes be
necessary to restrain the exportation of corn. In such great countries
as France or England it scarce ever can. To hinder, besides, the
farmer from sending his goods at all times to the best market, is evi-
dently to sacrifice the ordinary laws of justice to an idea of public
utility, to a sort of reasons of state ; an act of legislative authority
which ought to be exercised only, which can be pardoned only, in cases
of the most urgent necessity. The price at which the exportation of
corn is prohibited, if it is ever to be prohibited, ought always to be a
very high price.
The laws concerning corn may everywhere be compared to the laws
concerning religion. The people feel themselves so much interested
in what relates either to their subsistence in this life, or to their happi-
ness in a life to come, that government must yield to their prejudices,
and, in order to preserve the public tranquillity, establish that system
which they approve of. It is upon this account, perhaps, that we so
seldom find a reasonable system established with regard to either of
those two capital objects.
IV. The trade of the merchant carrier, or of the importer of foreign
corn in order to export it again, contributes to the plentiful supply of
• the home market. It is not indeed the direct purpose of his trade to
sell his corn there. But he will generally be willing to do so, and even
for a good deal less money than he might expect in a foreign market ;
because he saves in this manner the expense of loading and unloading,
of freight and insurance. The inhabitants of the country which, by
means of the carrying trade, becomes the magazine and storehouse for
the supply of other countries, can very seldom be in want themselves.
Though the carrying trade might thus contribute to reduce the average
money price of corn in the home market, it would not thereby lower
its real value. It would only raise somewhat the real value of silver.
The carrying trade was in effect prohibited in Great Britain, upon
all ordinary occasions, by the high duties upon the importation of
foreign corn, ofthe greater part of which there was no drawback ; and
upon extraordinary occasions, when a scarcity made it necessary to
suspend those duties by temporary statutes, exportation was always
prohibited. By this system of laws, therefore, the carrying trade was
in effect prohibited upon all occasions.
That system of laws, therefore, which is connected with the estab-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 423

lishment of the bounty, seems to deserve no part of the praise which

has been bestowed upon it. The improvement and prosperity of Great
Britain, which has been so often ascribed to those laws, may very easily
be accounted for by other causes. That security which the laws in
Great Britain give to every man that he shall enjoy the fruits of his
own labour, is alone sufficient to make any country flourish, notwith-
standing these and twenty other absurd regulations of commerce ; and
this security was perfected by the revolution, much about the same
time that the bounty was established. The natural effort of every in-
dividual to better his own condition, when suffered to exert itself with
freedom and security, is so powerful a principle, that it is alone, and
without any assistance, not only capable of carrying on the society to
wealth and prosperity, but of surmounting a hundred impertinent ob-
structions with which the folly of human laws too often encumbers its
operations ; though the effect of these obstructions is always more or
less either to encroach upon its freedom, or to diminish its security. In
Great Britain industry is perfectly secure ; and though far from being
perfectly free, it is as free or freer than in any other part of Europe.
Though the period of the greatest prosperity and improvement of
Great Britain has been posterior to that system of laws which is con-
nected with the bounty, we must not upon that account impute it to
those laws. It has been posterior likewise to the national debt. But
the national debt has most assuredly not been the cause of it.
Though the system of laws which is connected with the bounty, has
exactly the same tendency with the police of Spain and Portugal,—to
lower somewhat the value of the precious metals in the country where
it takes place,—yet Great Britain is certainly one of the richest countries
in Europe, while Spain and Portugal are perhaps among the most beg-
garly. This difference of situation, however, may easily be accounted
for from two different causes. First, the tax in Spain, the prohibition
in Portugal of exporting gold and silver, and the vigilant police which
watches over the execution of those laws, must, in two very poor coun-
tries, which between them import annually upwards of six millions
sterling, operate, not only more directly, but much more forcibly in re-
ducing the value of those metals there, than the corn laws can do in
Great Britain. And, secondly, this bad policy is not in those countries
counterbalanced by the general liberty and security of the people. In-
dustry is there neither free nor secure, and the civil and ecclesiastical
governments of both Spain and Portugal, are such as would alone be
sufficient to perpetuate their present state of poverty, even though their
regulations of commerce were as wise as the greater part of them are
absurd and foolish.
The 13th of the present king, c. 43 , seems to have established a new
system with regard to the corn laws, in many respects better than the
ancient one, but in one or two respects perhaps not quite so good.
i
424 THE SOONER BOUNTIES CEASE, THE BETTER.

By this statute the high duties upon importation for home consump
tion are taken off so soon as the price of middling wheat rises to forty
eight shillings the quarter ; that of middling rye, pease, or beans, to
thirty-two shillings ; that of barley to twenty-four shillings ; and that of
oats to sixteen shillings ; and instead of them a small duty is imposed
of only sixpence upon the quarter of wheat, and upon that of other
grain in proportion. With regard to all these different sorts of grain,
but particularly with regard to wheat, the home market is thus opened
to foreign supplies at prices considerably lower than before.
By the same statute the whole bounty of five shillings upon the ex-
portation of wheat ceases so soon as the price rises to forty-four shil-
lings the quarter, instead of forty-eight, the price at which it ceased
before ; that of two shillings and sixpence upon the exportation of
barley ceases so soon as the price rises to twenty-two shillings, instead
of twenty-four, the price at which it ceased before ; that of two shillings
and sixpence upon the exportation of oatmeal ceases so soon as the price
rises to fourteen shillings, instead of fifteen, the price at which it ceased
before. The bounty upon rye is reduced from three shillings and six-
pence to three shillings, and it ceases so soon as the price rises to twenty-
eight shillings, instead of thirty-two, the price at which it ceased before.
If bounties are as improper as I have endeavoured to prove them to be,
the sooner they cease, and the lower they are, so much the better.
The same statute permits, at the lowest prices, the importation of
corn, in order to be exported again, duty free, provided it is in the mean
time lodged in a warehouse under the joint locks of the king and the
importer. This liberty, indeed, extends to no more than twenty-five of
the different ports of Great Britain. They are, however, the principal
qnes, and there may not, perhaps, be warehouses proper for this pur-
pose in the greater part of the others.
So far this law seems evidently to be an improvement upon the
ancient system.
But by the same law a bounty of two shillings the quarter is given
for the exportation of oats whenever the price does not exceed fourteen
shillings. No bounty had ever been given before for the exportation
ofthis grain, no more than for that of pease or beans.
By the same law too, the exportation of wheat is prohibited so soon
as the price rises to forty-four shillings the quarter ; that of rye so soon
as it rises to twenty-eight shillings ; that of barley so soon as it rises
to twenty-two shillings ; and that of oats so soon as they rise to four-
teen shillings. Those several prices seem all of them a good deal too
low, and there seems to be an impropriety, besides, in prohibiting
exportation altogether at those precise prices at which that bounty,
which was given in order to force it, is withdrawn. The bounty ought
certainly either to have been withdrawn at a much lower price, or
exportation ought to have been allowed at a much higher.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 425

So far, therefore, this law seems to be inferior to the ancient system.

With all its imperfections, however, we may perhaps say of it what
was said of the laws of Solon, that, though not the best in itself, it is
the best which the interests, prejudices, and temper of the times would
admit of. It may perhaps in due time prepare the way for a better. 178

THE two following accounts are subjoined in order to illustrate and

confirm what is said in this chapter, concerning the tonnage bounty
to the white herring fishery. The reader, I believe, may depend
upon the accuracy of both accounts.

An Account ofBussesfitted out in Scotlandfor Eleven Years, with the

number of empty Barrels carried out, and the number ofBarrels of
Herrings caught ; also the Bounty at a medium on each Barrel of
Sea-sticks, and on each Barrel whenfully packed.

Years. Number of Empty out. Barrels

carriedBarrels ofHer- Bounty paid onthe
rings caught.
Busses. Busses.

296669666966
£ s. d.
1771 29 5948 2832 2085 0
1772 168 41316 22237 11055 7 6
1773 190 42333 42055 12510 8 6
1774 248 59303 56365 16952 2
1775 275 69144 52879 19315 15
1776 294 76329 51863 21290 7 6
1777 240 62679 43313 17592 2
1778 220 56390 40958 16316 2
1779 206 55194 29367 15287 0
1780 181 48315 19885 13445 12
1781 135 33992 16593 9613 12
Total . 2186 .550943 378347 155463 II O

Sea-sticks . · · 378347 Bounty at a medium for each

barrel of sea-sticks • • Lo 8 21
But a barrel of sea-sticks being
only reckoned two-thirds of a barrel
fully packed, one-third is deducted,
which brings the bounty to £o 12 31
+ deducted • • 126115

Barrels full packed • 252231+

And if the herrings are exported, there is besides a
premium of . 2 8
426 GOVERNMENT BOUNTIES TO HERRING BUSS ADVENTURERS.

So that the bounty paid by Government in money for

each barrel is 0 14 11
But if to this, the duty of the salt usually taken credit for
as expended in curing each barrel, which at a medium is of
foreign, one bushel and one-fourth of a bushel at Ios. a
bushel, be added, viz. • O 12 6

The bounty on each barrel would amount to . £1 7 51

If the herrings are cured with British salt, it will stand thus, viz.
Bounty as before . • • £o 14 11
--but ifto this bounty the duty on two bushels of Scots salt
at Is. 6d. per bushel, supposed to be the quantity at a
medium used in curing each barrel is added, to wit O 30

The bounty on each barrel will amount to .£o 17 11

And when buss herrings are entered for home consump-
tion in Scotland, and pay the shilling a barrel of duty, the
bounty stands thus, to wit as before • O 12 31
From which is. per barrel is to be deducted • • O I O

O II 3
But to that there is to be added again, the duty of the
foreign salt used in curing a barrel of herrings, viz. • • O 12 6

So that the premium allowed for each barrel of herrings

entered for home consumption is . . I 3 9

Ifthe herrings are cured with British salt, it will stand as follows, viz.
Bounty on each barrel brought in by the busses as above Lo 12 3
From which deduct the Is. a barrel paid at the time they
are entered for home consumption • O IO

£0 11 3
But ifto the bounty the duty on two bushels of Scots salt,
at Is. 6d. per bushel, supposed to be the quantity at a
medium used in curing each barrel, is added, to wit •

The premium for each barrel entered for home consump-

tion will be • • · Lo 14 3

Though the loss of duties upon herrings exported cannot, perhaps

properly be considered as bounty ; that upon herrings entered for
home consumption certainly may.
 SMITH O
ONN THE CAUSES OF THE WEAL
S TH OF NATIONS . 427

An Accountofthe Quantity of Foreign Salt imported into Scotland,

and ofScots Salt delivered Duty free from the Works there for the
Fishery, from the 5th of April, 1771, to the 5th ofApril, 1782, with
a Medium ofbothfor one Year.

Scots Salt de
PERIOD. Foreign Salt livered from
imported . the Works.
Bushels. Bushels.
From the 5th of April, 1771 , to 168226
the 5th of April, 1782 936974

Medium for one Year . 85179 152931

It is to be observed that the bushel of Foreign salt weighs 84lb.

that of British salt 56lb. only.

CHAP. VI.- Of Treaties of Commerce. 179

WHEN a nation binds itself by treaty either to permit the entry of cer-
tain goods from one foreign country which it prohibits from all others,
or to exempt the goods of one country from duties to which it subjects
those of all others, the country, or at least the merchants and manu-
facturers of the country, whose commerce is so favoured, must neces-
sarily derive great advantage from the treaty. Those merchants and
manufacturers enjoy a sort of monopoly in the country which is so
indulgent to them. That country becomes a market both more exten .
sive and more advantageous for their goods : more extensive, because
the goods of other nations being either excluded or subjected to heavier
duties, it takes off a greater quantity of theirs : more advantageous,
because the merchants of the favoured country, enjoying a sort of mo-
1 nopoly there, will often sell their goods for a better price than if ex-
posed to the free competition of all other nations, 280
Such treaties, however, though they may be advantageous to the
merchants and manufacturers of the favoured, are necessarily disad-
vantageous to those of the favouring country. A monopoly is thus
granted against them to a foreign nation ; and they must frequently
buy the foreign goods they have occasion for, dearer than if the free
competition of other nations was admitted. That part of its own pro-
duce with which such a nation purchases foreign goods, must conse-
428 SUPPOSED ADVANTAGES FROM TREATIES OF COMMERCE.

quently be sold cheaper, because when two things are exchanged for
one another, the cheapness of the one is a necessary consequence, or
rather is the same thing with the dearness of the other. The exchange-
able value of its annual produce, therefore, is likely to be diminished
by every such treaty. This diminution, however, can scarce amount
to any positive loss, but only to a lessening of the gain which it might
otherwise make. Though it sells its goods cheaper than it otherwise
might do, it will not probably sell them for less than they cost ; nor, as
in the case of bounties, for a price which will not replace the capital
employed in bringing them to market, together with the ordinary pro-
fits of stock. The trade could not go on long if it did. Even the
favouring country, therefore, may still gain by the trade, though less
than if there was a free competition.
Some treaties of commerce, however, have been supposed advan-
tageous upon principles very different from these ; and a commercial
country has sometimes granted a monopoly of this kind against itself
to certain goods of a foreign nation, because it expected that in the
whole commerce between them, it would annually sell more than it
would buy, and that a balance in gold and silver would be annually
returned to it. It is upon this principle that the treaty of commerce
between England and Portugal, concluded in 1703 , by Mr. Methuen,
has been so much commended. The following is a literal translation
of that treaty, which consists of three articles only :—
ART. I. His Sacred Royal Majesty of Portugal promises, both in his
own name, and that of his successors, to admit, for ever hereafter,
into Portugal, the woollen cloths and the rest of the woollen manu、
factures of the British, as was accustomed till they were prohibited by
the law ; nevertheless upon this condition :
ART. II. That is to say, that Her Sacred Royal Majesty of Great
Britain shall, in her own name, and that of her successors, be
obliged, for ever hereafter, to admit the wines of the growth of Portu-
gal into Britain : so that at no time, whether there shall be peace or
war between the kingdoms of Britain and France, anything more shall
be demanded for these wines by the name of custom or duty, or by
whatsoever other title, directly or indirectly, whether they shall be im-
ported into Great Britain in pipes or hogsheads, or other casks, than
what shall be demanded for the like quantity or measure of French '
wine, deducting or abating a third part of the custom or duty. But if
at any time this deduction or abatement of customs, which is to be
made as aforesaid, shall in any manner be attempted and prejudiced,
it shall be just and lawful for His Sacred Royal Majesty of Portugal,
again to prohibit the woollen cloths and the rest of the British woollen
manufactures.
ART. III. The Most Excellent Lords the Plenipotentiaries promise
and take upon themselves, that their above-named masters shall ratify
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 429

this treaty ; and within the space of two months the ratifications shall
be exchanged.
By this treaty the crown of Portugal becomes bound to admit the
English woollens upon the same footing as before the prohibition ; that
is, not to raise the duties which had been paid before that time. But
it does not become bound to admit them upon any better terms than
those of any other nation, of France or Holland for example. The
crown of Great Britain, on the contrary, becomes bound to admit the
wines of Portugal, upon paying only two-thirds of the duty, which is
paid for those of France, the wines most likely to come into competi-
tion with them. So far this treaty, therefore, is evidently advantage-
ous to Portugal and disadvantageous to Great Britain.
It has been celebrated, however, as a masterpiece of the commercial
policy of England. Portugal receives annually from the Brazils a
greater quantity of gold than can be employed in its domestic com-
merce, whetherin the shape of coin or of plate. The surplus is too
valuable to be allowed to lie idle and locked up in coffers, and as it can
rind no advantageous market at home, it must, notwithstanding any
prohibition, be sent abroad, and exchanged for something for which
there is a more advantageous market at home. A large share of it
comes annually to England, in return for English goods, or for those
of other European nations that receive their returns through England.
Mr. Baretti was informed that the weekly packet-boat from Lisbon
brings, one week with another, more than fifty thousand pounds in
gold to England. The sum had probably been exaggerated. It would
amount to more than two millions six hundred thousand pounds a year,
which is more than the Brazils are supposed to afford.
Our merchants were some years ago out of humour with the crown
of Portugal. Some privileges which had been granted them, not by
treaty, but by the free grace of that crown, at the solicitation , indeed,
it is probable, and in return for much greater favours, defence and pro-
tection, from the crown of Great Britain, had been either infringed or
revoked. The people, therefore, usually most interested in celebrating
the Portugal trade, were then rather disposed to represent it as less
advantageous than it had commonly been imagined. The far greater
part, almost the whole, they pretended, of this annual importation of
gold, was not on account of Great Britain, but of other European
nations ; the fruits and wines of Portugal annually imported into Great
Britain nearly compensating the value of the British goods sent thither.
Let us suppose, however, that the whole was on account of Great
Britain, and that it amounted to a still greater sum than Mr. Baretti
seems to imagine : this trade would not, upon that account, be more
advantageous than any other in which, for the same value sent out, we
received an equal value of consumable goods in return.
It is but a very small part of this importation which, it can be
430 THE EFFECTUAL DEMAND FOR GOLD IS LIMITED TO A CERTAIN

supposed, is employed as an annual addition either to the plate or to

the coin of the kingdom. The rest must all be sent abroad and ex-
changed for consumable goods of some kind or other. But if those
consumable goods were purchased directly with the produce of English
industry, it would be more for the advantage of England, than first to
purchase with that produce the gold of Portugal, and afterwards to
purchase with that gold those consumable goods. A direct foreign
trade of consumption is always more advantageous than a round-about
one ; and to bring the same value of foreign goods to the home market,
requires a much smaller capital in the one way than in the other. If
a smaller share of its industry therefore had been employed in pro-
ducing goods fit for the Portugal market, and a greater in producing
those fit for the other markets, where those consumable goods for
which there is a demand in Great Britain are to be had, it would
have been more for the advantage of England. To procure both the
gold, which it wants for its own use, and the consumable goods, would
in this way employ a much smaller capital than at present. There
would be a spare capital therefore to be employed for other purposes,
in exciting an additional quantity of industry, and in raising a greater
annual produce.
Though Britain was entirely excluded from the Portugal trade, it
could find very little difficulty in procuring all the annual supplies of
gold which it wants, either for the purpose of plate, or of coin, or of
foreign trade. Gold, like every other commodity, is always somewhere
or another to be got for its value by those who have that value to give
for it. The annual surplus of gold in Portugal, besides, would still be
sent abroad, and though not carried away by Great Britain, would be
carried away by some other nation, which would be glad to sell it
again for its price, in the same manner as Great Britain does at
present. In buying gold of Portugal, indeed, we buy it at the first
hand ; whereas, in buying it of any other nation, except Spain, we
should buy it at the second, and might pay somewhat dearer. This
difference, however, would surely be too insignificant to deserve the
public attention.
Almost all our gold, it is said, comes from Portugal. With other
nations the balance of trade is either against us, or not much in our
favour. But we should remember, that the more gold we import from
one country, the less we must necessarily import from all others. The
effectual demand for gold, like that for every other commodity, is in
every country limited to a certain quantity. If nine-tenths of this
quantity are imported from one country, there remains a tenth only to
be imported from all others. The more gold besides that is annually
imported from some particular countries, over and above what is
requisite for plate and for coin, the more must necessarily be exported
to some others ; and the more that most insignificant object of modern
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 431

policy, the balance of trade, appears to be in our favour with some

particular countries, the more it must necessarily appear to be against
us with many others.
It was upon this silly notion, however, that England could not sub-
sist without the Portugal trade, that, towards the end of the late war,
France and Spain, without pretending either offence or provocation,
required the King of Portugal to exclude all British ships from his
ports, and for the security of this exclusion, to receive into them
French or Spanish garrisons. Had the King of Portugal submitted to
those ignominious terms which his brother-in-law the King of Spain
proposed to him, Britain would have been freed from a much greater
inconveniency than the loss of the Portugal trade, the burden of sup-
porting a very weak ally, so unprovided of everything for his own
defence, that the whole power of England, had it been directed to that
single purpose, could scarce perhaps have defended him for another
campaign. The loss of the Portugal trade would, no doubt, have occa-
sioned a considerable embarrassment to the merchants at that time
engaged in it, who might not, perhaps, have found out, for a year or
two, any other equally advantageous method of employing their
capitals ; and in this would probably have consisted all the incon-
veniency which England could have suffered from this notable piece of
commercial policy.
The great annual importation of gold and silver is neither for the
purpose of plate nor of coin, but of foreign trade. A round-about
foreign trade of consumption can be carried on more advantageously
by means of these metals than of almost any other goods. As they
are the universal instruments of commerce, they are more readily received
in return for all commodities than any other goods ; and on account of
their small bulk and great value, it costs less to transport them back-
ward and forward from one place to another than almost any other
sort of merchandise, and they lose less of their value by being sc
transported. Of all the commodities therefore which are brought in
one foreign country, for no other purpose but to be sold or exchanged
again for some other goods in another, there are none so convenient as
gold and silver. In facilitating all the different round-about foreign
trades of consumption which are carried on in Great Britain, consists
the principal advantage of the Portugal trade ; and though it is not a
capital advantage, it is, no doubt, a considerable one.
That any annual addition which, it can reasonably be supposed, is
made either to the plate or to the coin of the kingdom, could require
but a very small annual importation of gold and silver, seems evident
enough ; and though we had no direct trade with Portugal, this small
quantity could always, somewhere or another, be easily got.
Though the goldsmith's trade be very considerable in Great Britain
the far greater part of the new plate which they annually sell, is made
432 A PROFIT MADE BY MELTING DOWN NEW COINED MONEY.

from other old plate melted down ; so that the addition annually made
to the whole plate of the kingdom cannot be very great, and could
require but a very small annual importation.
It is the same case with the coin. Nobody imagines, I believe, that
even the greater part of the annual coinage, amounting, for ten years
together, before the late reformation of the gold coin, to upwards of
eight hundred thousand pounds a year in gold, was an annual addition
to the money before current in the kingdom. In a country where the
expense of the coinage is defrayed by the government, the value of the
coin, even when it contains its full standard weight of gold and silver,
can never be much greater than that of an equal quantity of those
metals uncoined ; because it requires only the trouble of going to the
mint, and the delay perhaps of a few weeks, to procure for any quantity
of uncoined gold and silver an equal quantity of those metals in coin.
But, in every country, the greater part of the current coin is almost
always more or less worn, or otherwise degenerated from its standard.
In Great Britain it was, before the late reformation, a good deal so,
the gold being more than two per cent. and the silver more than eight
per cent. below its standard weight. But if forty-four guineas and a
half, containing their full standard weight, a pound weight of gold,
could purchase very little more than a pound weight of uncoined gold ,
forty-four guineas and a half wanting a part of their weight could not
purchase a pound weight, and something was to be added in order to
make up the deficiency. The current price of gold bullion at market,
therefore, instead of being the same with the mint price, or 467. 145.
6d. was then about 477. 14s. and sometimes about forty-eight pounds.
When the greater part of the coin, however, was in this degenerate con-
dition, forty-four guineas and a half, fresh from the mint, would pur-
chase no more goods in the market than any other ordinary guineas,
because when they came into the coffers of the merchant, being con-
founded with other money, they could not afterwards be distinguished
without more trouble than the difference was worth. Like other
guineas they were worth no more than 467. 14s. 6d. If thrown into the
melting pot, however, they produced, without any sensible loss, a
pound weight of standard gold, which could be sold at any time for
between 477. 14s. and 487. either in gold or silver, as fit for all the pur-
poses of coin as that which had been melted down. There was an
evident profit therefore in melting down new coined money, and it was
done so instantaneously that no precaution of government could pre-
vent it. The operations of the mint were, upon this account, some-
what like the web of Penelope ; the work that was done in the day
was undone in the night. The mint was employed, not so much in
making daily additions to the coin, as in replacing the very best part
of it which was daily melted down.
Were the "rivate people, who carry their gold and silver to the mint
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 433

to pay themselves for the coinage, it would add to the value of those
metals in the same manner as the fashion does to that of plate. Coined
gold and silver would be more valuable than uncoined. The seignor-
age, if it was not exorbitant, would add to the bullion the whole value
of the duty ; because, the government having everywhere the exclusive
privilege of coining, no coin can come to market cheaper than they
think proper to afford it. If the duty was exorbitant indeed, that is,
if it was very much above the real value of the labour and expense re-
quisite for coinage, false coiners, both at home and abroad, might be
encouraged, by the great difference between the value of bullion and
that of coin, to pour in so great a quantity of counterfeit money as
might reduce the value of the government money. In France, however,
though the seignorage is eight per cent. , no sensible inconveniency of
this kind is found to arise from it. The dangers to which a false
coiner is everywhere exposed, if he lives in the country of which he
counterfeits the coin, and to which his agents or correspondents are
exposed if he lives in a foreign country, are by far too great to be in-
curred for the sake of a profit of six or seven per cent.
The seignorage in France raises the value of the coin higher than in
proportion to the quantity of pure gold which it contains. Thus by
the edict of January 1726,* the mint price of fine gold of twenty-four
carats was fixed at seven hundred and forty livres nine sous and one
denier one-eleventh, the mark of eight Paris ounces. The gold coin of
France, making an allowance for the remedy of the mint, contains
twenty-one carats and three-fourths of fine gold, and two carats one-
fourth of alloy. The mark of standard gold, therefore, is worth no
more than about six hundred and seventy-one livres ten deniers. But
in France, this mark of standard gold is coined into thirty Louis-d'ors
of twenty-four livres each, or into seven hundred and twenty livres.
The coinage, therefore, increases the value of a mark of standard gold
bullion, by the difference between six hundred and seventy-one livres
ten deniers, and seven hundred and twenty livres ; or by forty- eight
livres nineteen sous and two deniers.
A seignorage will in many cases take away altogether, and will in
all cases diminish, the profit of melting down the new coin. This pro-
fit always arises from the difference between the quantity of bullion
which the common currency ought to contain, and that which it actually
does contain. If this difference is less than the seignorage, there will
be loss instead of profit. If it is equal to the seignorage, there will
neither be profit nor loss. If it is greater than the seignorage, there will
indeed be some profit, but less than if there was no seignorage. If,
before the late reformation of the gold coin, for example, there had
been a seignorage of five per cent. upon the coinage, there would have
* See Dictionnaire des Monnaies, tom. ii. article Seigneurage, p. 489, par M: Abot de
Bazinghen, Conseiller-Commissaire en la Cour des Monnaies Paris.
28
434 SEIGNORAGE ON GOLD TENDS TO PREVENT ITS EXPORTATION.

been a loss of three per cent. upon the melting down of the gold coin.
If the seignorage had been two per cent., there would have been neither
profit nor loss. If the seignorage had been one per cent. , there would
have been a profit, but of one per cent. only instead of two per cent.
Wherever money is received by tale, therefore, and not by weight, a
seignorage is the most effectual preventative of the melting down of
the coin, and, for the same reason, of its exportation. It is the best and
heaviest pieces that are commonly either melted down or exported,
because it is upon such that the largest profits are made.
The law for the encouragement of the coinage, by rendering it duty
free, was first enacted, during the reign of Charles II. , for a limited
time ; and afterwards continued, by different prolongations, till 1769,
when it was rendered perpetual. The bank of England, in order to
replenish their coffers with money, are frequently obliged to carry
bullion to the mint ; and it was more for their interest, they probably
imagined, that the coinage should be at the expense of the government,
than at their own. It was, probably, out of complaisance to this great
company that the government agreed to render this law perpetual.
Should the custom of weighing gold, however, come to be disused, as
it is very likely to be on account of its inconveniency ; should the gold
coin of England come to be received by tale, as it was before the late
recoinage, this great company may, perhaps, find that they have upon
this, as upon some other occasions, mistaken their own interest and
that not a little.
Before the late recoinage, when the gold currency of England was two
per cent. below its standard weight, as there was no seignorage, it was
two per cent. below the value of that quantity of standard gold bullion
which it ought to have contained. When this great company, there-
fore, bought gold bullion in order to have it coined, they were obliged
to pay for it two per cent. more than it was worth after the coinage.
But if there had been a seignorage of two per cent. upon the coinage,
the common gold currency, though two per cent. below its standard
weight, would notwithstanding have been equal in value to the quantity
of standard gold which it ought to have contained ; the value of the
fashion compensating in this case the diminution of the weight. They
would indeed have had the seignorage to pay, which being two per
cent., their loss upon the whole transaction would have been two per
cent.: exactly the same, but no greater than it actually was.
Ifthe seignorage had been five per cent., and the gold currency only
two per cent. below its standard weight, the bank would in this case
have gained three per cent. upon the price of the bullion ; but as they
would have had a seignorage of five per cent. to pay upon the coinage,
their loss upon the whole transaction would, in the same manner, have
been exactly two per cent.
If the seignorage had been only one per cent. and the gold currency
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 435

two per cent. below its standard weight, the bank would in this case
have lost only one per cent. upon the price of the bullion ; but as they
would likewise have had a seignorage of one per cent. to pay, their loss
upon the whole transaction would have been exactly two per cent. in
the same manner as in all other cases.
If there was a reasonable seignorage, while at the same time the
coin contained its full standard weight, as it has done very nearly since
the late recoinage, whatever the bank might lose by the seignorage,
they would gain upon the price of the bullion; and whatever they might
gain upon the price of the bullion, they would lose by the seignorage.
They would neither lose nor gain, therefore, upon the whole transaction,
and they would in this, as in all the foregoing cases, be exactly in the
same situation as ifthere was no seignorage.
When the tax upon a commodity is so moderate as not to encourage
smuggling, the merchant who deals in it, though he advances, does not
properly pay the tax, as he gets it back in the price of the commodity.
The tax is finally paid by the last purchaser or consumer. But money
is a commodity with regard to which every man is a merchant. Nobody
buys it but in order to sell it again ; and with regard to it there is in
ordinary cases no last purchaser or consumer. When the tax upon
coinage, therefore, is so moderate as not to encourage false coining,
though everybody advances the tax, nobody finally pays it ; because
everybody gets it back in the advanced value of the coin.
A moderate seignorage therefore would not in any case augment the
expense of the bank, or of any other private persons who carry their
bullion to the mint in order to be coined, and the want of a moderate
seignorage does not in any case diminish it. Whether there is or is
not a seignorage, if the currency contains its full standard weight, the
coinage costs nothing to anybody, and if it is short of that weight, the
coinage must always cost the difference between the quantity of
bullion which ought to be contained in it, and that which actually is
contained in it.
The government, therefore, when it defrays the expense of coinage,
not only incurs some small expense, but loses some small revenue which
it might get by a proper duty ; and neither the bank nor any other
private persons are in the smallest degree benefited by this useless
piece of public generosity.
The directors of the bank, however, would probably be unwilling to
agree to the imposition of a seignorage upon the authority of a specula-
tion which promises them no gain, but only pretends to insure them
from any loss. In the present state of the gold coin, and as long as it
continues to be received by weight, they certainly would gain nothing
by such a change. But if the custom of weighing the gold coin should
ever go into disuse, as it is very likely to do, and if the gold coin
should ever fall into the same state of degradation in which it was
28 *
436 BOUNTY ON PRODUCTION OF MONEY ENRICHES THE COUNTRY.

before the late recoinage, the gain, or more properly the savings of the
bank, in consequence of the imposition of a seignorage, would probably
be very considerable. The bank of England is the only company
which sends any considerable quantity of bullion to the mint, and the
burden of the annual coinage falls entirely, or almost entirely, upon it.
If this annual coinage had nothing to do but to repair the unavoidable
losses and necessary wear and tear of the coin, it could seldom exceed
fifty thousand or at mast a hundred thousand pounds. But when the
coin is degraded below its standard weight, the annual coinage must,
besides this, fill up the large vacuities which exportation and the melt-
ing pot are continually making in the current coin. It was upon this
account that during the ten or twelve years immediately preceding the
late reformation of the gold coin, the annual coinage amounted at an
average to more than eight hundred and fifty thousand pounds. But
if there had been a seignorage of four or five per cent. upon the gold
coin, it would probably, even in the state in which things then were,
have put an effectual stop to the business both of exportation and of
the melting pot. The bank, instead of losing every year about two
and a half per cent. upon the bullion which was to be coined into more
than eight hundred and fifty thousand pounds, or incurring an annual
loss of more than twenty-one thousand two hundred an¹ fifty pounds,
would not probably have incurred the tenth part of that loss.
The revenue allotted by parliament for defraying the expense of the
coinage is but fourteen thousand pounds a year, and the real expense
which it costs the government, or the fees of the officers of the mint,
do not upon ordinary occasions, I am assured, exceed the half of that
sum . The saving of so very small a sum, or even the gaining of
another which could not well be much larger, are objects too incon-
siderable, it may be thought, to deserve the serious attention of govern-
ment. But the saving of eighteen or twenty thousand pounds a year
in case of an event which is not improbable, which has frequently
happened before, and which is very likely to happen again, is surely
an object which well deserves the serious attention even of so great a
company as the bank of England.
Some of the foregoing reasonings and observations might perhaps
have been more properly placed in those chapters of the first book
which treat of the origin and use of money, and of the difference
between the real and the nominal price of commodities. But as the
law for the encouragement of coinage derives its origin from those
vulgar prejudices which have been introduced by the mercantile
system, I judged it more proper to reserve them for this chapter.
Nothing could be more agreeable to the spirit of that system than a
sort of bounty upon the production of money, the very thing which, it
supposes, constitutes the wealth of every nation. It is one of its
many admirable expedients for enriching the country. 182
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS 437

CHAP. VII.- Of Colonies.

PART I.- Of the Motives for establishing new Colonies.

THE interest which occasioned the first settlement of the different
European colonies in America and the West Indies, was not altogether
so plain and distinct as that which directed the establishment of those
of ancient Greece and Rome.
All the different states of ancient Greece possessed , each of them,
but a very small territory, and when the people in any one of them
multiplied beyond what that territory could easily maintain, a part of
them were sent in quest of a new habitation in some remote and
distant part of the world ; the warlike neighbours who surrounded
them on all sides, rendering it difficult for any of them to enlarge very
much its territory at home. The colonies of the Dorians resorted
chiefly to Italy and Sicily, which, in the times preceding the foundation
of Rome, were inhabited by barbarous and uncivilized nations : those
of the Ionians and Eolians, the two other great tribes of the Greeks,
to Asia Minor and the islands of the Egean Sea, of which the inhabit-
ants seem at that time to have been pretty much in the same state as
those of Sicily and Italy. The mother city, though she considered
the colony as a child, at all times entitled to great favour and assist-
ance, and owing in return much gratitude and respect, yet considered
it as an emancipated child, over whom she pretended to claim no
direct authority or jurisdiction. The colony settled its own form of
government, enacted its own laws, elected its own magistrates, and
made peace or war with its neighbours as an independent state, which
had no occasion to wait for the approbation or consent of the mother
city. Nothing can be more plain and distinct than the interest which
directed every such establishment.
Rome, like most of the other ancient republics, was originally
founded upon an agrarian law, which divided the public territory in a
certain proportion among the different citizens who composed the state.
The course of human affairs, by marriage, by succession, and by
alienation, necessarily deranged this original division, and frequently
threw the lands, which had been allotted for the maintenance of many
different families into the possession of a single person. To remedy
this disorder, for such it was supposed to be, a law was made, restrict-
ing the quantity of land which any citizen could possess to five hundred
jugera, about three hundred and fifty English acres. This law, how-
ever, though we read of its having been executed upon one or two
occasions, was either neglected or evaded, and the inequality of for-
tunes went on continually increasing. The greater part of the citizens
had no land, and without it the manners and customs of those times
rendered it difficult for a freeman to maintain his independency. In
438 WHEREIN A ROMAN COLONY DIFFERED FROM A GREEK ONE.

the present times, though a poor man has no land of his own, if he
has a little stock, he may either farm the lands of another, or he may
carry on some little retail trade ; and if he has no stock, he may find
employment either as a country labourer or as an artificer. But,
among the ancient Romans, the lands of the rich were all cultivated
by slaves, who wrought under an overseer, who was likewise a slave ;
so that a poor freeman had little chance of being employed either as a
farmer or as a labourer. All trades and manufactures too, even the
retail trade, were carried on by the slaves of the rich for the benefit of
their masters, whose wealth, authority, and protection made it difficult
for a poor freeman to maintain the competition against them. The
citizens, therefore, who had no land, had scarce any other means of
subsistence but the bounties of the candidates at the annual elections.
The tribunes, when they had a mind to animate the people against the
rich and the great, put them in mind of the ancient division of lands,
and represented that law which restricted this sort of private property
as the fundamental law of the republic. The people became clamor-
ous to get land, and the rich and the great, we may believe, were
perfectly determined not to give them any part of theirs. To satisfy
them in some measure, therefore, they frequently proposed to send out
a new colony. But conquering Rome was, even upon such occasions,
under no necessity of turning out her citizens to seek their fortune, if
one may say so, through the wide world, without knowing where they
were to settle. She assigned them lands generally in the conquered
provinces of Italy, where, being within the dominions of the republic,
they could never form any independent state ; but were at best but a
sort of corporation, which, though it had the power of enacting bye-
laws for its own government, was at all times subject to the correction,
jurisdiction, and legislative authority of the mother city. The sending
out a colony of this kind, not only gave some satisfaction to the people,
but often established a sort of garrison too in a newly conquered pro-
vince, of which the obedience might otherwise have been doubtful. A
Roman colony, therefore, whether we consider the nature of the
establishment itself, or the motives for making it, was altogether dif-
ferent from a Greek one. The words accordingly, which in the original
languages denote those different establishments, have very different
meanings. The Latin word (colonia) signifies simply a plantation.
The Greek word (añoiкia), on the contrary, signifies a separation of
dwelling, a departure from home, a going out of the house. But,
though the Roman colonies were in many respects different from the
Greek ones, the interest which prompted to establish them was equally
plain and distinct. Both institutions derived their origin either from
irresistible necessity, or from clear and evident utility, 188
The establishment of the European colonies in America and the
West Indies arose from no necessity ; and though the utility which
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 439

has resulted from them has been very great, it is not altogether so
clear and evident. It was not understood at their first establishment,
and was not the motive either of that establishment or of the dis-
coveries which gave occasion to it ; and the nature, extent, and limits
of that utility are not, perhaps, well understood at this day.
The Venetians, during the fourteenth and fifteenth centuries, carried
on a very advantageous commerce in spiceries and other East India
goods, which they distributed among the other nations of Europe.
They purchased them chiefly in Egypt, at that time under the dominion
of the Mamelukes, the enemies of the Turks, of whom the Venetians
were the enemies ; and this union of interest, assisted by the money
of Venice, formed such a connection as gave the Venetians almost a
monopoly of the trade.
The great profits of the Venetians tempted the avidity of the
Portuguese. They had been endeavouring, during the course of the
fifteenth century, to find out by sea a way to the countries from which
the Moors brought them ivory and gold dust across the desert. They
discovered the Madeiras, the Canaries, the Azores, the Cape de Verd
Islands, the coast of Guinea, that of Loango, Congo, Angola, and
Benguela, and finally the Cape of Good Hope. They had long wished
to share in the profitable traffic of the Venetians, and this last discovery
opened to them a probable prospect of doing so. In 1497, Vasco de
Gama sailed from the port of Lisbon with a fleet of four ships , and
after a navigation of eleven months, arrived upon the coast of Hin-
dostan, and thus completed a course of discoveries which had been
pursued with great steadiness, and with very little interruption, for
near a century together.
Some years before this, while the expectations of Europe were in
suspense about the projects of the Portuguese, of which the success
appeared yet to be doubtful, a Genoese pilot formed the yet more
daring project of sailing to the East Indies by the west. The situation
of those countries was at that time imperfectly known in Europe.
The few European travellers who had been there had magnified the
distance, perhaps through simplicity and ignorance : what was really
very great, appearing almost infinite to those who could not measure it ,
or, perhaps, in order to increase somewhat more the marvellous of their
own adventures in visiting regions so immensely remote from Europe.
The longer the way was by the east, Columbus veryjustly concluded, the
shorter it would be by the west. He proposed, therefore, to take that
way, as both the shortest and the surest, and he had the good fortune to
convince Isabella of Castile of the probability of his project. He sailed
from the port of Palos in August, 1492, near five years before the expedi-
tion of Vasco de Gama set out from Portugal, and after a voyage of be-
tween two and three months, discovered first some ofthe small Bahama
or Lucayan Islands, and afterwards the great island of St. Domingo.
440 FEW ANIMALS IN ST. DOMINGO WHEN DISCOVERED.

But the countries which Columbus discovered, either in this or in

any of his subsequent voyages, had no resemblance to those which
he had gone in quest of Instead of the wealth, cultivation and
populousness of China and Hindostan, he found, in St. Domingo, and
in all the other parts of the New World which he ever visited, nothing
but a country quite covered with wood, uncultivated, and inhabited
only by some tribes of naked and miserable savages. He was not
very willing, however, to believe that they were not the same with
some of the countries described by Marco Polo, the first European who
had visited, or at least had left behind him any description of China
or the East Indies ; and a very slight resemblance, such as that which
he found between the name of Cibao, a mountain in St. Domingo, and
that of Cipango, mentioned by Marco Polo, was frequently sufficient
to make him return to his favourite prepossession, though contrary to
the clearest evidence. In his letters to Ferdinand and Isabella he
called the countries which he had discovered, the Indies. He enter-
tained no doubt but that they were the extremity of those which had
been described by Marco Polo, and that they were not very distant
from the Ganges, or from the countries which had been conquered by
Alexander. Even when at last convinced that they were different, he
still flattered himself that those rich countries were at no great distance,
and in a subsequent voyage, accordingly, went in quest of them along
the coast of Terra Firma, and towards the isthmus of Darien.
In consequence of this mistake of Columbus, the name of the Indies
has stuck to those unfortunate countries ever since ; and when it was
at last clearly discovered that the new were altogether different from
the old Indies, the former were called the West, in contradistinction to
the latter, which were called the East Indies.
It was of importance to Columbus, however, that the countries which
he had discovered, whatever they were, should be represented to the
court of Spain as of very great consequence ; and, in what constitutes
the real riches of every country, the animal and vegetable productions
of the soil, there was at that time nothing which could well justify such
a representation of them.
The cori, something between a rat and a rabbit, and supposed by
Mr. Buffon to be the same with the aperea of Brazil, was the larg st
viviparous quadruped in St. Domingo. This species seems never to
have been very numerous, and the dogs and cats of the Spaniards are
said to have long ago almost entirely extirpated it, as well as some
other tribes of a still smaller size. These, however, together with a
pretty large lizard, called the ivano or iguana, constituted the principal
part of the animal food which the land afforded.
The vegetable food of the inhabitants, though from their want of in-
dustry not very abundant, was not altogether so scanty. It consisted
in Indian corn, yams, potatoes, bananas, etc,, plants which were then
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 441

altogether unknown in Europe, and which have never since been very
much esteemed in it, or supposed to yield a subsistence equal to what
is drawn from the common sorts of grain and pulse, which have been
cultivated in this part of the world time out of mind.
The cotton plant indeed afforded the material of a very important
manufacture, and was at that time to Europeans undoubtedly the most
valuable of all the vegetable productions of those islands. But though
in the end of the fifteenth century the muslins and other cotton goods
of the East Indies were much esteemed in every part of Europe, the
cotton manufacture itself was not cultivated in any part of it. Even
this production, therefore, could not at that time appear in the eyes of
Europeans to be of very great consequence.
Finding nothing either in the animals or vegetables of the newly dis-
covered countries, which could justify a very advantageous representa-
tion of them, Columbus turned his view towards their minerals ; and
in the richness of the productions of this third kingdom, he flattered
himself, he had found a full compensation for the insignificancy of those
of the other two. The little bits of gold with which the inhabitants
ornamented their dress, and which, he was informed, they frequently
found in the rivulets and torrents that fell from the mountains, were
sufficient to satisfy him that those mountains abounded with the richest
gold mines. St. Domingo, therefore, was represented as a country
abounding with gold, and, upon that account (according to the pre-
judices not only of the present times, but of those times), an inex-
haustible source of real wealth to the crown and kingdom of Spain.
When Columbus, upon his return from his first voyage, was introduced
with a sort of triumphal honours to the sovereigns of Castile and Arra-
gon, the principal productions of the countries which he had discovered
were carried in solemn procession before him. The only valuable part
of them consisted in some little fillets, bracelets, and other ornaments
of gold, and in some bales of cotton. The rest were mere objects of
vulgar wonder and curiosity ; some reeds of an extraordinary size, some
birds of a very beautiful plumage, and some stuffed skins of the huge
alligator and manati ; all of which were preceded by six or seven ofthe
wretched natives, whose singular colour and appearance added greatly
to the novelty of the show.
In consequence of the representations of Columbus, the council of
Castile determined to take possession of countries of which the inhabit-
ants were plainly incapable of defending themselves. The pious pur-
pose of converting them to Christianity sanctified the injustice of the
project. But the hope of finding treasures of gold there, was the sole
motive which prompted to undertake it ; and to give this motive the
greater weight, it was proposed by Columbus that the half of all the
gold and silver that should be found there should belong to the crown,
This proposal was approved of by the council.
442 SPANIARDS SOON ROBBED THE NATIONS OF THEIR GOLD.

As long as the whole or the far greater part of the gold which the
first adventurers imported into Europe, was got by so very easy a
method as the plundering of the defenceless natives, it was not perhaps
very difficult to pay even this heavy tax. But when the natives were
once fairly stript of all that they had, which, in St. Domingo, and in
all the other countries discovered by Columbus, was done completely
in six or eight years, and when in order to find more it had become
necessary to dig for it in the mines, there was no longer any possibility
of paying this tax. The rigorous exaction of it, accordingly, first occa-
sioned, it is said, the total abandoning of the mines of St. Domingo,
which have never been wrought since. It was soon reduced, therefore,
to a third ; then to a fifth ; afterwards to a tenth ; and at last to a twen-
tieth part of the gross produce of the gold mines. The tax upon silver
continued for a long time to be a fifth of the gross produce. It was
reduced to a tenth only in the course of the present century. But the
first adventurers do not appear to have been much interested about
silver. It appears that nothing less precious than gold seemed worthy
of their attention.
All the other enterprises of the Spaniards in the New World, subse-
quent to those of Columbus, seem to have been prompted by the same
motive. It was the sacred thirst of gold that carried Oieda, Nicuessa,
and Vasco Nuñes de Bilboa, to the isthmus of Darien, that carried
Cortez to Mexico, and Almagro and Pizarro to Chili and Peru. When
those adventurers arrived upon any unknown coast, their first inquiry
was always if there was any gold to be found there ; and according to
the information which they received concerning this particular, they
determined either to quit the country or to settle in it.
Of all those expensive and uncertain projects, however, which bring
bankruptcy upon the greater part of the people who engage in them,
there is none perhaps more perfectly ruinous than the search after new
silver and gold mines. It is perhaps the most disadvantageous lottery
in the world, or the one in which the gain of those who draw the prizes
bears the least proportion to the loss of those who draw the blanks :
for though the prizes are few and the blanks many, the common price
of a ticket is the whole fortune of a very rich man. Projects of mining,
instead of replacing the capital employed in them, together with the
ordinary profits of stock, commonly absorb both capital and profit.
They are the projects, therefore, to which of all others a prudent law-
giver, who desired to increase the capital of his nation, would least
choose to give any extraordinary encouragement, or to turn towards
them a greater share of that capital than what would go to them of its
own accord. Such in reality is the absurd confidence which almost
all men have in their own good fortune, that wherever there is the least
probability of success, too great a share of it is apt to go to them of its
own accord
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 443

But though the judgment of sober reason and experience concerning

such projects has always been extremely unfavourable, that of human
avidity has commonly been quite otherwise. The same passion which
has suggested to so many people the absurd idea of the philosopher's
stone, has suggested to others the equally absurd one of immense rich
mines ofgold and silver. They did not consider that the value of those
metals has, in all ages and nations, arisen chiefly from their scarcity,
and that their scarcity has arisen from the very small quantities of
them which nature has anywhere deposited in one place, from the hard
and intractable substances with which she has almost everywhere sur-
rounded those small quantities, and consequently from the labour and
expense which are everywhere necessary in order to penetrate to and
get at them. They flattered themselves that veins of those metals
might in many places be found as large and as abundant as those
which are commonly found of lead, or copper, or tin, or iron. The
dream of Sir Walter Raleigh concerning the golden city and country
of Eldorado, may satisfy us that even wise men are not always exempt
from such strange delusions. More than a hundred years after the
death of that great man, the Jesuit Gumila was still convinced of the
reality of that wonderful country, and expressed with great warmth, and
I dare say with great sincerity, how happy he should be to carry the
light of the gospel to a people who could so well reward the pious
labours of their missionary.
In the countries first discovered by the Spaniards, no gold or silver
mines are at present known which are supposed to be worth the work-
ing. The quantities of those metals which the first adventurers are
said to have found there, had probably been very much magnified, as
well as the fertility of the mines which were wrought immediately after
the first discovery. What those adventurers are reported to have found,
however, was sufficient to inflame the avidity of all their countrymen.
Every Spaniard who sailed to America expected to find an Eldorado
Fortune too did upon this what she has done upon very few other oc-
casions. She realized in some measure the extravagant hopes of her
votaries, and in the discovery and the conquest of Mexico and Peru (of
which the one happened about thirty, the other about forty years after
the first expedition of Columbus), she presented them with something
which was not very unlike that profusion of the precious metals which
they sought for.
A project of commerce to the East Indies, therefore, gave occasion 1
to the first discovery of the West. A project of conquest gave occasion
to all the establishments of the Spaniards in those newly discovered
countries. The motive which excited them to this conquest was a
project of gold and silver mines ; and a course of accidents, which no
human wisdom could foresee, rendered this project much more suc-
cessful than the undertakers had any reasonable ground for expecting.
444 THE HOPES OF THE FIRST SETTLERS IN NORTH AMERICA.

The first adventurers of all the other nations of Europe, who at

tempted to make settlements in America, were animated by the like
chimerical views ; but they were not equally successful. It was more
than a hundred years after the first settlement of the Brazils, before
any silver, gold, or diamond mines were discovered there. In the
English, French, Dutch, and Danish colonies, none have ever yet been
discovered, at least none that are at present supposed to be worth the
working. The first English settlers in North America, however, offered
a fifth of all the gold and silver which should be found there to the
king, as a motive for granting them their patents. In the patents to
Sir Walter Raleigh, to the London and Plymouth companies, to the
council of Plymouth, etc., this fifth was accordingly reserved to the
crown. To the expectation of finding gold and silver mines, those first
settlers too joined that of discovering a north-west passage to the East
Indies. They have hitherto been disappointed in both.

PART II.— Causes ofthe Prosperity of new Colonies.

THE colony of a civilized nation which takes possession, either of a
waste country, or of one so thinly inhabited that the natives easily give
place to the new settlers, advances more rapidly to wealth and great-
ness than any other human society.
The colonists carry out with them a knowledge of agriculture and of
other useful arts, superior to what can grow up of its own accord in the
course of many centuries among savage and barbarous nations. They
carry out with them too the habit of subordination, some notion of the
regular government which takes place in their own country, of the sys-
tem of laws which supports it, and of a regular administration of
justice ; and they naturally establish something of the same kind in a
new settlement. But among savage and barbarous nations, the natural
progress of law and government is still slower than the natural progress
of arts, after law and government have been so far established as is
necessary for their protection. Every colonist gets more land than he
can possibly cultivate. He has no rent and scarce any taxes to pay.
No landlord shares with him in its produce, and the share of the sove-
reign is commonly but a trifle. He has every motive to render as
great as possible a produce which is thus to be almost entirely his own.
But his land is commonly so extensive, that with all his own industry,
and with all the industry of other people whom he can get to employ,
he can seldom make it produce the tenth part of what it is capable of
producing. He is eager, therefore, to collect labourers from all quar-
ters, and to reward them with the most liberal wages. But those liberal
wages, joined to the plenty and cheapness of land, soon make those
labourers leave him, in order to become landlords themselves, and to
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 445

reward, with equal liberality, other labourers, who soon leave them for
the same reason that they left their first master. The liberal reward of
labour encourages marriage. The children, during the tender years of
infancy, are well fed and properly taken care of, and when they are
grown up, the value of their labour greatly overpays their maintenance.
When arrived at maturity, the high price of labour, and the low price of
land, enable them to establish themselves in the same manner as their
fathers did before them.
In other countries, rent and profit eat up wages, and the two superior
orders of people oppress the inferior one. But in new colonies, the
interest of the two superior orders obliges them to treat the inferior one
with more generosity and humanity, at least where that inferior one
is not in a state of slavery. Waste lands of the greatest natural fer-
tility, are to be had for a trifle. The increase of revenue which the
proprietor, who is always the undertaker, expects from their improve-
ment, constitutes his profit ; which in these circumstances is commonly
very great. But this great profit cannot be made without employing
the labour of other people in clearing and cultivating the land ; and the
disproportion between the great extent of the land and the small num-
ber of the people, which commonly takes place in new colonies, makes
it difficult for him to get this labour. He does not, therefore, dispute
about wages, but is willing to employ labour at any price. The high
wages of labour encourage population. The cheapness and plenty of
good land encourage improvement, and enable the proprietor to pay
those high wages. In those wages consists almost the whole price of
the land ; and though they are high considered as the wages of
labour, they are low considered as the price of what is so very valuable.
What encourages the progress of population and improvement, encou-
rages that of real wealth and greatness.
The progress of many of the ancient Greek colonies towards wealth
and greatness, seems accordingly to have been very rapid. In the
course of a century or two, several of them appear to have rivalled, and
even to have surpassed their mother cities. Syracuse and Agrigentum
in Sicily, Tarentum and Locri in Italy, Ephesus and Miletus in Les ser
Asia, appear by all accounts to have been at least equal to any of he
cities of ancient Greece. Though posterior in their establishment, yet
all the arts of refinement, philosophy, poetry, and eloquence, seem to
have been cultivated as early, and to have been improved as highly ir
them, as in any part of the mother country. The schools of the two
oldest Greek philosophers, those of Thales and Pythagoras, were
established, it is remarkable, not in ancient Greece, but the one in an
Asiatic, the other in an Italian colony. All those colonies had estab-
lished themselves in countries inhabited by savage and barbarous
nations, who easily gave place to the new settlers. They had plenty of
good land, and as they were altogether independent of the mother city,
446 THE ROGRESS OF ROMAN COLONIES VERY SLOW.

they were at liberty to manage their own affairs in the way that they
judged was most suitable to their own interest.
The history of the Roman colonies is by no means so brilliant.
Some of them, indeed, such as Florence, have, in the course of many
ages, and after the fall of the mother city, grown up to be considerable
states. But the progress of no one of them seems ever to have been
very rapid. They were all established in conquered provinces, which,
in most cases, had been fully inhabited before. The quantity of land
assigned to each colonist was seldom very considerable, and as the
colony was not independent, they were not always at liberty to manage
their own affairs in the way that they judged was most suitable to
their own interest.
In the plenty of good land, the European colonies established in
America and the West Indies resemble, and even greatly surpass, those
of ancient Greece. In their dependency upon the mother state, they
resemble those of ancient Rome ; but their great distance from Europe
has in all of them alleviated more or less the effects of this dependency.
Their situation has placed them less in the view and less in the power
of their mother country. In pursuing their interest their own way,
their conduct has, upon many occasions, been overlooked, either because
not known or not understood in Europe ; and upon some occasions it
has been fairly suffered and submitted to, because their distance ren-
dered it difficult to restrain it. Even the violent and arbitrary govern-
ment of Spain has, upon many occasions, been obliged to recall or
soften the orders which had been given for the government of her
colonies, for fear of a general insurrection. The progress of all the
European colonies in wealth, population, and improvement, has accor-
dingly been very great.
The crown of Spain, by its share of the gold and silver, derived
some revenue from its colonies from the moment of their first estab-
lishment. It was a revenue too of a nature to excite in human avidity
the most extravagant expectations of still greater riches. The Spanish
colonies, therefore, from the moment of their first establishment, at-
tracted very much the attention of their mother country ; while those
of the other European nations were for a long time in a great measure
neglected. The former did not, perhaps, thrive the better in conse-
quence of this attention ; nor the latter the worse in consequence of
this neglect. In proportion to the extent of the country which they
in some measure possess, the Spanish colonies are considered as less
populous and thriving than those of almost any other European nation.
The progress even of the Spanish colonies, however, in population and
improvement, has certainly been very rapid and very great. The city
of Lima, founded since the conquest, is represented by Ulloa, as con-
taining fifty thousand inhabitants near thirty years ago. Quito, which
had been but a miserable hamlet of Indians, is represented bythe same
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 447

author as in his time equally populous. Gemelli Carreri, a pretended

traveller, it is said, indeed, but who seems everywhere to have written
upon extreme good information, represents the city of Mexico as con-
taining a hundred thousand inhabitants ; a number which, in spite of
all the exaggerations of the Spanish writers, is probably more than
five times greater than what it contained in the time of Montezuma.
These numbers exceed greatly those of Boston, New York, and Phila-
delphia, the three greatest cities of the English colonies.15 Before the
conquest of the Spaniards there were no cattle fit for draught, either
in Mexico or Peru. The lama was their only beast of burden, and its
strength seems to have been a good deal inferior to that of a common
ass. The plough was unknown among them. They were ignorant of
the use of iron. They had no coined money, nor any established
instrument of commerce of any kind. Their commerce was carried
on by barter. A sort of wooden spade was their principal instrument
of agriculture. Sharp stones served them for knives and hatchets to
cut with ; fish bones and the hard sinews of certain animals served
them for needles to sew with ; and these seem to have been their princi-
pal instruments of trade. In this state of things, it seems impossible,
that either of those empires could have been so much improved or so
well cultivated as at present, when they are plentifully furnished with
all sorts of European cattle, and when the use of iron, of the plough,
and of many of the arts of Europe, has been introduced among them .
But the populousness of every country must be in proportion to the
degree of its improvement and cultivation. In spite of the cruel des-
truction of the natives which followed the conquest, these two great
empires are probably more populous now than they ever were before,
and the people are surely very different ; for we must acknowledge, I
apprehend, that the Spanish creoles are in many respects superior to
the ancient Indians.
After the settlements of the Spaniards, that of the Portuguese in
Brazil is the oldest of any European nation in America. But as for a
long time after the first discovery, neither gold nor silver mines were
found in it, and as it afforded, upon that account, little or no revenue
to the crown, it was for a long time in a great measure neglected ; and
during this state of neglect, it grew up to be a great and powerful
colony. While Portugal was under the dominion of Spain, Brazil was
attacked by the Dutch, who got possesion of seven of the fourteen
provinces into which it is divided. They expected soon to conquer the
other seven, when Portugal recovered its independency, by the eleva-
tion of the family of Braganza to the throne. The Dutch then, as
enemies to the Spaniards, became friends to the Portuguese, who were
likewise the enemies of the Spaniards. They agreed, therefore, to
leave that part of Brazil, which they had not conquered, to the king of
Portugal, who agreed to leave that part which they had conquered to
448 DUTCH DRIVEN FROM BRAZIL. SWEDES IN NEW JERSEY.

them, as a matter not worth disputing about with such good allies.
But the Dutch government soon began to oppress the Portuguese
colonists, who, instead of amusing themselves with complaints, took
arms against their new masters, and by their own valour and resolution,
with the connivance, indeed, but without any avowed assistance from
the mother country, drove them out of Brazil. The Dutch, therefore,
finding it impossible to keep any part of the country to themselves,
were contented that it should be entirely restored to the crown of
Portugal. In this colony there are said to be more than six hundred
thousand people, either Portuguese, or descended from Portuguese,
creoles, mulattoes, and a mixed race between Portuguese and Brazi-
lians. No one colony in America is supposed to contain so great a
number of people of European extraction.
Towards the end of the fifteenth, and during the greater part of the
sixteenth century, Spain and Portugal were the two great naval powers
upon the ocean ; for though the commerce of Venice extended to every
part of Europe, its fleets had scarce ever sailed beyond the Mediter-
ranean. The Spaniards, in virtue of the first discovery, claimed all
America as their own ; and though they could not hinder so great a
naval power as that of Portugal from settling in Brazil, such was at
that time the terror of their name, that the greater part of the other
nations of Europe were afraid to establish themselves in any other
part of that great continent. The French, who attempted to settle in
Florida, were all murdered by the Spaniards. But the declension of
the naval power of this latter nation, in consequence of the defeat or
miscarriage of what they called their Invincible Armada, which hap-
pened towards the end of the sixteenth century, put it out of their
power to obstruct any longer the settlements of the other European
nations. In the course of the seventeeth century, therefore, the
English, French, Dutch, Danes, and Swedes, all the great nations who
had any ports upon the ocean, attempted to make some settlement
in the New World.
The Swedes established themselves in New Jersey ; and the number
of Swedish families still to be found there, sufficiently demonstrates
that this colony was very likely to prosper, had it been protected by the
mother country. But being neglected by Sweden, it was soon swallowed
up by the Dutch colony of New York, which, again, in 1674, fell under
the dominion of the English.
The small islands of St. Thomas and Santa Cruz are the only coun-
tries in the New World that have ever been possessed by the Danes.
These little settlements too were under the government of an exclusive
company, which had the sole right, both of purchasing the surplus
produce of the colonists, and of supplying them with such goods of
other countries as they wanted, and which, therefore, both in its pur-
chases and sales, had not only the power of oppressing them, but the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 449

greatest temptation to do so. The government of an exclusive com-

pany of merchants is, perhaps, the worst of all governments for any
country whatever. It was not, however, able to stop altogether the
progress of these colonies, though it rendered it more slow and languid.
The late king of Denmark dissolved this company, and since that time
the prosperity of these colonies has been very great.
The Dutch settlements in the West, as well as those in the East
Indies, were originally put under the government of an exclusive com-
pany. The progress of some of them, therefore, though it has been
considerable in comparison with that of almost any country that has
been long peopled and established, has been languid and slow in com-
parison with that of the greater part of new colonies. The colony of
Surinam, though very considerable, is still inferior to the greater part
of the sugar colonies of the other European nations. The colony of
Nova Belgia, now divided into the two provinces of New York and
New Jersey, would probably have soon become considerable too, even
though it had remained under the government of the Dutch. The
plenty and cheapness of good land are such powerful causes of pros-
perity, that the very worst government is scarce capable of checking
altogether the efficacy of their operation. The great distance too from
the mother country would enable the colonists to evade more or less,
by smuggling, the monopoly which the company enjoyed against them .
At present the company allows all Dutch ships to trade to Surinam
upon paying two and a half per cent. upon the value of their cargo for
a licence ; and only reserves to itself exclusively the direct trade from
Africa to America, which consists almost entirely in the slave trade.
This relaxation in the exclusive privileges of the company, is probably
the principal cause of that degree of prosperity which that colony at
present enjoys. Curaçoa and Eustatia, the two principal islands
belonging to the Dutch, are free ports, open to the ships of all nations ;
and this freedom, in the midst of better colonies whose ports are open
to those one nation only, has been the great cause of the prosperity of
those two barren islands.
The French colony of Canada was, during the greater part of the
last century, and some part of the present, under the government of
an exclusive company. Under so unfavourable an administration its
progress was necessarily very slow in comparison with that of other
new colonies ; but it became much more rapid when this company was
dissolved after the fall of what is called the Mississippi scheme. When
the English got possession of this country, they found in it near double
the number of inhabitants which Father Charlevoix had assigned to it
between twenty and thirty years before. That Jesuit had travelled
over the whole country, and had no inclination to represent it as less
considerable than it really was.
The French colony of St. Domingo was established by pirates and
29
450 POLITICAL INSTITUTIONS OF THE ENGLISH COLONIES

freebooters, who, for a long time, neither required the protection nor
acknowledged the authority of France ; and when that race of banditti
became so far citizens as to acknowledge this authority, it was for a
long time necessary to exercise it with very great gentleness. During
this period the population and improvement of this colony increased
very fast. Even the oppression of the exclusive company, to which it
was for some time subjected, with all the other colonies of France,
though it no doubt retarded, had not been able to stop its progress
altogether. The course of its prosperity returned as soon as it was
relieved from that oppression. It is now the most important of the
sugar colonies of the West Indies, and its produce is said to be greater
than that of all the English sugar colonies put together. The other
sugar colonies of France are in general all very thriving, 185
But there are no colonies of which the progress has been more rapid
than that of the English in North America.
Plenty of good land, and liberty to manage their own affairs their
own way, seem to be the two great causes of the prosperity of all new
colonies.
In the plenty of good land the English colonies of North America,
though no doubt very abundantly provided, are, however, inferior to
those of the Spaniards and Portuguese, and not superior to some of
those possessed by the French before the late war. But the political
institutions of the English colonies have been more favourable to the
improvement and cultivation of this land, than those of any of the
other three nations.
First, the engrossing of uncultivated land, though it has by no means
been prevented altogether, has been more restrained in the English
colonies than in any other. The colony law which imposes upon
every proprietor the obligation of improving and cultivating within a
limited time, a certain proportion of his lands, and which, in case of
failure, declares those neglected lands grantable to any other person ;
though it has not, perhaps, being very strictly executed, has, however,
had some effect.
Secondly, in Pennsylvania there is no right of primogeniture, and
lands, like movables, are divided equally among all the children of
the family. In three of the provinces of New England the oldest has
only a double share, as in the Mosaical law. Though in those
provinces, therefore, too great a quantity of land should sometimes be
engrossed by a particular individual, it is likely, in the course of a
generation or two, to be sufficiently divided again. In the other
English colonies, indeed, the right of primogeniture takes place, as in
the law of England. But in all the English colonies the tenure of the
lands, which are held by free socage, facilitates alienation, and the
grantee of any extensive tract of land , generally finds it for his Interest
to alienate as fast as he can the greater part of it, reserving only a
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 451

small quit-rent. In the Spanish and Portuguese colonies, what is

called the right of Majorazzo takes place in the succession of all
those great estates to which any title of honour is annexed. Such
estates go all to one person, and are in effect entailed and unalienable .
The French colonies, indeed, are subject to the custom of Paris,
which, in the inheritance of land, is much more favourable to the
younger children than the law of England. But, in the French
colonies, if any part of an estate, held by the noble tenure of chivalry
and homage is alienated , it is for a limited time, subject to the right of
redemption, either by the heir of the superior or by the heir of the
family ; and all the largest estates of the country are held by such
noble tenures, which necessarily embarrass alienation. But, in a new
colony, a great uncultivated estate is likely to be much more speedily
divided by alienation than by succession. The plenty and cheapness
of good land, it has already been observed , are the principal
causes of the rapid prosperity of new colonies. The engrossing of
land, in effect, destroys this plenty and cheapness. The engrossing of
uncultivated land besides , is the greatest obstruction to its improve-
ment. But the labour that is employed in the improvement and culti-
vation of land affords the greatest and most valuable produce to the
society. The produce of labour, in this case, pays not only its own
wages, and the profit of the stock which employs it, but the rent of the
land too upon which it is employed. The labour of the English colonists ,
therefore, being more employed in the improvement and cultivation of
land, is likely to afford a greater and more valuable produce than that
of any of the other three nations , which, by the engrossing of land, is
more or less diverted towards other employments .
Thirdly, the labour of the English colonists is not only likely to
afford a greater and more valuable produce, but, in consequence of the
moderation of their taxes, a greater proportion of this produce belongs
to themselves, which they may store up and employ in putting into
motion a still greater quantity of labour. The English colonists have
never yet contributed anything toward the defence of the mother
country, or towards the support of its civil government. They them-
selves, on the contrary, have hitherto been defended almost entirely at
the expense of the mother country. But the expense of fleets and
armies is out of all proportion greater than the necessary expense of
civil government. The expense of their own civil government has
always been very moderate. It has generally been confined to what
was necessary for paying competent salaries to the governor, to the
judges, and to some other officers of police, and for maintaining a few
of the most useful public works. The expense of the civil establish-
ment of Massachusett's Bay, before the commencement of the present
disturbances, used to be but about 18,000l. a year. That of New
savo el todn Jus Majoratus.
29 *
 452 DEFENCE OF COLONIES HAS FALLEN ON MOTHER COUNTRY.

Hampshire and Rhode Island 3,500l. each. That of Connecticut

4,000l. That of New York and Pennsylvania 4,500l. each. That of
New Jersey 1,200/. That of Virginia and South Carolina 8,000l. each.
The civil establishments of Nova Scotia and Georgia are partly sup-
ported by an annual grant of parliament. But Nova Scotia pays be-
sides, about 7,000l. a year towards the public expenses of the colony ;
and Georgia about 2,500l. a year. All the different civil establish-
ments in North America, in short, exclusive of those of Maryland and
North Carolina, of which no exact account has been got, did not,
before the commencement of the present disturbances, cost the in-
habitants above 64,700l. a year ; an ever memorable example at how
small an expense three millions of people may not only be governed,
but well governed. The most important part of the expense of
government, indeed, that of defence and protection, has constantly
fallen upon the mother country. The ceremonial too of the civil
government in the colonies, upon the reception of a new governor,
upon the opening of a new assembly, etc., though sufficiently decent,
is not accompanied with any expensive pomp or parade. Their ec-
clesiastical government is conducted upon a plan equally frugal.
Tithes are unknown among them ; and their clergy, who are far from
being numerous, are maintained either by moderate stipends, or by
the voluntary contributions of the people. The power of Spain and
Portugal, on the contrary, derives some support from the taxes levied
upon their colonies. France, indeed, has never drawn any consider-
able revenue from its colonies, the taxes which it levies upon them
being generally spent among them. But the colony government of all
these three nations is conducted upon a much more expensive plan,
and is accompanied with a much more expensive ceremonial. The
sums spent upon the reception of a new viceroy of Peru, for example,
have frequently been enormous. Such ceremonials are not only real
taxes paid by the rich colonists upon those particular occasions, but
they serve to introduce among them the habit of vanity and expense
upon all other occasions. They are not only very grievous occasional
taxes, but they contribute to establish perpetual taxes of the same
kind still more grievous ; the ruinous taxes of private luxury and ex-
travagance. In the colonies of all those three nations too, the eccle-
siastical government is extremely oppressive. Tithes take place in all
of them, and are levied with the utmost rigour in those of Spain and
Portugal. All of them besides are oppressed with a numerous race of
mendicant friars, whose beggary being not only licensed, but conse
crated by religion, is a most grievous tax upon the poor people, who
are most carefully taught that it is a duty to give and a very great sin
to refuse them their charity. Over and above all this, the clergy are,
in all of them, the greatest engrossers of land.
Fourthly, in the disposal of their surplus produce, or of what is over
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 453

and above their own consumption, the English colonies have been more
favoured, and have been allowed a more extensive market, than those
of any other European nation. Every European nation has endea-
voured more or less to monopolise to itself the commerce of its
colonies, and, upon that account, has prohibited the ships of foreign
nations from trading to them, and has prohibited them from import-
ing European goods from any foreign nation. But the manner in
which this monopoly has been exercised in different nations has been
very different.
Some nations have given up the whole commerce of their colonies to
an exclusive company, of whom the colonies were obliged to buy all
such European goods as they wanted, and to whom they were obliged
to sell the whole of their own surplus produce. It was the interest of the
company, therefore, not only to sell the former as dear, and to buy the
latter as cheap as possible, but to buy no more of the latter, even at
this low price, than what they could dispose of for a very high price
in Europe. It was their interest, not only to degrade in all cases the
value of the surplus produce of the colony, but in many cases to dis-
courage and keep down the natural increase of its quantity. Of all
the expedients that can well be contrived to stunt the natural growth
of a new colony, that of an exclusive company, is undoubtedly the most
effectual. This, however, has been the policy of Holland, though their
company, in the course of the present century, has given up in many
respects the exertion of their exclusive privilege. This too was the
policy of Denmark till the reign of the late king. It has occasionally
been the policy of France, and of late, since 1755, after it had been
abandoned by all other nations, on account of its absurdity, it has
become the policy of Portugal with regard at least to two of the
principal provinces of Brazil, Pernambuco and Marannon.
Other nations, without establishing an exclusive company, have con-
fined the whole commerce of their colonies to a particular port of the
mother country, from whence no ship was allowed to sail, but either in
a fleet and at a particular season, or, if single, in consequence of a par-
cular licence, which in most cases was very well paid for. This policy
pened, indeed, the trade of the colonies to all the natives of the
mother country, provided they traded from the proper port, at the
proper season, and in the proper vessels. But as all the different
merchants who joined their stocks in order fit out those licensed
vessels would find it for their interest to act in concert, the trade which
was carried on in this manner would necessarily be conducted very
nearly upon the same principles as that of an exclusive company. The
profit of those merchants would be almost equally exorbitant and
oppressive. The colonies would be ill supplied, and would be obliged
both to buy very dear and to sell very cheap. This, however, till
within these few years, had always been the policy of Spain, and the
454 EXPORTATION OF SURPLUS PRODUCE BY COLONIES.

price of all European goods, accordingly, is said to have been enor-

mous in the Spanish West Indies. At Quito, we are told by Ulloa, a
pound of iron sold for about four and sixpence, and a pound of steel for
about six and ninepence sterling. But it is chiefly in order to purchase
European goods that the colonies part with their own produce. The
more, therefore, they pay for the one, the less they really get for the
other, and the dearness of the one is the same thing with the cheapness
of the other. The policy of Portugal is in this respect the same as the
ancient policy of Spain, with regard to all its colonies, except Pernam-
buco and Marannon, and with regard to these it has lately adopted a
still worse.
Other nations leave the trade of their colonies free to all their sub-
jects, who may carry it on from all the different ports of the mother
country, and who have occasion for no other licence than the common
dispatches of the custom-house. In this case the number and dispersed
situation of the different traders render it impossible for them to enter
into any general combination, and their competition is sufficient to
hinder them from making very exorbitant profits. Under so liberal a
policy the colonies are enabled both to sell their own produce and to
buy the goods of Europe at a reasonable price. But since the disso-
lution of the Plymouth company, when our colonies were but in their
infancy, this has always been the policy of England. It has generally
too been that of France, and has been uniformly so since the dissolu-
tion of what, in England, is commonly called the Mississippi company.
The profits of the trade, therefore, which France and England carry on
with their colonies, though no doubt somewhat higher than if the com-
petition was free to all other nations, are, however, by no means exorbi-
tant ; and the price of European goods accordingly is not extravagantly
high in the greater part of the colonies of either of those nations.
In the exportation of their own surplus produce too, it is only with
regard to certain commodities that the colonies of Great Britain are con-
fined to the market of the mother country. These commodities having
been enumerated in the act of navigation and in some other subsequent
acts, have upon that account been called enumerated commodities. The
rest are called non-enumerated, and may be exported directly to other
countries, provided it is in British or plantation ships, of which the
owners and three-fourths of the mariners are British subjects.
Among the non-enumerated commodities are some of the most
important productions of America and the West Indies ; grain of all
sorts, lumber, salt provisions, fish, sugar, and rum.
Grain is naturally the first and principle object of the culture of all
new colonies. By allowing them a very extensive market for it, the
law encourages them to extend this culture much beyond the consump-
tion of a thinly inhabited country, and thus to provide beforehand an
ample subsistence for a continually increasing population.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 455

In a country quite covered with wood, where timber consequently is

of little or no value, the expense of clearing the ground is the principal
obstacle to improvement. By allowing the colonies a very extensive
market for their lumber, the law endeavours to facilitate improvement
by raising the price of a commodity which would otherwise be of little
value, and thereby enabling them to make some profit of what would
otherwise be mere expense.
In a country neither half peopled nor half cultivated, cattle natur- ·
ally multiply beyond the consumption of the inhabitants, and are ofter
upon that account of little or no value. But it is necessary, it has al
ready been shown, that the price of cattle should bear a certain propor-
tion to that of corn before the greater part of the lands of any country
can be improved. By allowing to American cattle, in all shapes, dead
and alive, a very extensive market, the law endeavours to raise the
value of a commodity of which the high price is so very essential to
improvement. The good effects of this liberty, however, must be some-
what diminished by the 4th of George III. c. 15, which puts hides and
skins among the enumerated commodities, and thereby tends to reduce
the value of American cattle.
To increase the shipping and naval power of Great Britain, by the
extension of the fisheries of our colonies, is an object which the legis-
lature seems to have had almost constantly in view. Those fisheries,
upon this account, have had all the encouragement which freedom can
give them, and they have flourished accordingly. The New England
fishery in particular was, before the late disturbances, one of the most
important, perhaps, in the world. The whale-fishery, which, notwith-
standing an extravagant bounty, is in Great Britain carried on to so
little purpose, that in the opinion of many people (which I do not, how-
ever, pretend to warrant) the whole produce does not much exceed the
value of the bounties which are annually paid for it, is in New England
carried on without any bounty to a very great extent. Fish is one of
the principal articles with which the North Americans trade to Spain,
Portugal, and the Mediterranean.
Sugar was originally an enumerated commodity which could be ex-
ported only to Great Britain. But in 1731, upon a representation of
the sugar planters, its exportation was permitted to all parts of the
world. The restrictions, however, with which this liberty was granted
joined to the high price of sugar in Great Britain, have rendered it, in
a great measure, ineffectual. Great Britain and her colonies still con-
tinue to be almost the sole market for all the sugar produced in the
British plantations. Their consumption increases so fast, that, though
in consequence of the increasing improvement of Jamaica, as well as
of the Ceded Islands, the importation of sugar has increased very
greatly within these twenty years, the exportation to foreign countries
is said to be not much greater than before.
456 SLAVE TRADE. PRODUCE OF THE COLONIES.

Rum is a very important article in the trade which the Americans

carry on to the coast of Africa, from which they bring back negro slaves
in return.
If the whole surplus produce of America in grain of all sorts, in salt
provisions, and in fish, had been put into the enumeration, and thereby
forced into the market of Great Britain, it would have interfered too
much with the produce of the industry of our own people. It was pro-
bably not so much from any regard to the interest of America, as from
a jealousy of this interference, that those important commodities have
not only been kept out of the enumeration, but that the importation
into Great Britain of all grain, except rice, and of salt provisions, has,
in the ordinary state of the law, been prohibited.
The non-enumerated commodities could originally be exported to all
parts of the world. Lumber and rice, having been once put into the
enumeration, when they were afterwards taken out of it were confined,
as to the European market, to the countries that lie south of Cape Finis-
terre. By the 6th of George III. c. 52, all non-enumerated commod-
ities were subjected to the like restriction. The parts of Europe which
lie south of Cape Finisterre, are not manufacturing countries, and we
were less jealous of the colony ships carrying home from them any
manufactures which could interfere with our own.
The enumerated commodities are of two sorts : first, such as are
either the peculiar produce of America, or as cannot be produced, or at
least, are not produced, in the mother country. Of this kind are,
molasses, coffee, cocoa-nuts, tobacco, pimento, ginger, whale-fins, raw
silk, cotton-wool, beaver and other peltry ofAmerica, indigo, fustic, and
other dying woods ; secondly, such as are not the peculiar produce of
America, but which are and may be produced in the mother country,
though not in such quantities as to supply the greater part of her
demand, which is principally supplied from foreign countries. Of this
kind are all naval stores, masts, yards, and bowsprits, tar, pitch, and
turpentine, pig and bar iron, copper ore, hides and skins, pot and pearl
ashes. The largest importation of commodities of the first kind could
not discourage the growth or interfere with the sale of any part of the
produce of the mother country. By confining them to the home mar-
ket, our merchants, it was expected, would not only be enabled to buy
them cheaper in the plantations, and consequently to sell them with a
better profit at home, but to establish between the plantations and fo-
reign countries an advantageous carrying trade, of which Great Britain
was necessarily to be the centre or emporium, as the European country
into which those commodities were first to be imported. The importa-
tion of commodities of the second kind might be so managed too, it
was supposed, as to interfere, not with the sale of those of the same
kind which were produced at home, but with that of those which were
imported from foreign countries ; because, by means of proper duties,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 457

they might be rendered always somewhat dearer than the former, and
yet a good deal cheaper than the latter. By confining such commodi-
ties to the home market, therefore, it was proposed to discourage the
produce, not of Great Britain, but of some foreign countries with
which the balance of trade was believed to be unfavourable to Great
Britain.
The prohibition of exporting from the colonies, to any other country
but Great Britain, masts, yards, and bowsprits, tar, pitch, and tur-
pentine, naturally tended to lower the price of timber in the colonies,
and consequently to increase the expense of clearing their lands, the
principal obstacle to their improvement. But about the beginning of
the present century, in 1703 , the pitch and tar company of Sweden
endeavoured to raise the price of their commodities to Great Britain,
by prohibiting their exportation, except in their own ships, at their own
price, and in such quantities as they thought proper. In order to
counteract this notable piece of mercantile policy, and to render herself
as much as possible independent, not only of Sweden, but of all the
other northern powers, Great Britain gave a bounty upon the importa-
tion of naval stores from America, and the effect of this bounty was to
raise the price of timber in America, much more than the confinement
to the home market could lower it ; and as both regulations were
enacted at the same time, their joint effect was rather to encourage
than discourage the clearing of land in America.
Though pig and bar iron too have been put among the enumerated
commodities, yet as, when imported from America, they are exempted
from considerable duties to which they are subject when imported from
any other country, the one part of the regulation contributes more to
encourage the erection of furnaces in America, than the other to dis-
courage it. There is no manufacture which occasions so great a con-
sumption of wood as a furnace, or which can contribute so much to the
clearing of a country overgrown with it.
The tendency of some of these regulations to raise the value of
timber in America, and thereby to facilitate the clearing of the land,
was neither, perhaps, intended nor understood by the legislature.
Though their beneficial effects, however, have been in this respect
accidental, they have not upon that account been less real.
The most perfect freedom of trade is permitted between the British
colonies of America and the West Indies, both in the enumerated and
in the non-enumerated commodities. Those colonies are now become
so populous and thriving, that each of them finds in some of the others
a great and extensive market for every part of its produce. All of
them taken together, they make a great internal market for the produce
of one another.
The liberality of England, however, towards the trade of her colonies
has been confined chiefly to what concerns the market for their produce,
458 RESTRAINTS OF TRADE IMPOSED ON THE COLONIES.

either in its rude state, or in what may be called the very first stage of
manufacture. The more advanced or more refined manufactures even
of the colony produce, the merchants and manufacturers of Great
Britain choose to reserve to themselves, and have prevailed upon the
legislature to prevent their establishment in the colonies, sometimes by
high duties, and sometimes by absolute prohibitions.
While, for example, muscovado sugars from the British plantations,
pay upon importation only 6s. 4d. the hundredweight ; white sugars
pay 17 ss. Id.; and refined, either double or single, in loaves 41 25. 5d.
When those high duties were imposed, Great Britain was the sole, and
she still continues to be the principal market to which the sugars of the
British colonies could be exported . They amounted therefore to a
prohibition, at first of claying or refining sugar for any foreign market,
and at present of claying or refining it for the market, which takes off,
perhaps, more than nine-tenths of the whole produce. The manu-
facture of claying or refining sugar accordingly, though it has flourished
in all the sugar colonies of France, has been little cultivated in any of
those of England, except for the market of the colonies themselves.
While Grenada was in the hands of the French, there was a refinery
of sugar, by claying at least, upon almost every plantation. Since it
fell into those of the English, almost all works of this kind have been
given up, and there are at present, October 1773, I am assured, not
above two or three remaining in the island. At present, however, by
an indulgence of the custom-house, clayed or refined sugar, if reduced
from loaves into powder, is commonly imported as muscovado.cor
While Great Britain encourages in America the manufactures of pig
and bar iron, by exempting them from duties to which the like com-
modities are subject when imported from any other country, she
imposes an absolute prohibition upon the erection of steel furnaces
and slit-mills in any of her American plantations. She will not suffer
her colonists to work in those more refined manufactures even
for their own consumption ; but insists upon their purchasing of her
merchants and manufacturers all goods of this kind which they have
need for.
She prohibits the exportation from one province to another by water,
and even the carriage by land upon horseback or in a cart, of hats, of
vools and woollen goods, if the produce of America ; a regulation
which effectually prevents the establishment of any manufacture of such
commodities for distant sale, and confines the industry of her colonists
in this way to such coarse and household manufactures, as a private
family commonly makes for its own use, or for that of some of its
neighbours in the same province.
To prohibit a great people, however, from making all that they can
of every part of their own produce, or from employing their stock and
industry in the way that they judge most advantageous to themselves,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 459

is a manifest violation of the most sacred rights of mankind. Unjust,

however, as such prohibitions may be, they have not hitherto been very
hurtful to the colonies. Land is still so cheap, and, consequently,
labour so dear among them, that they can import from the mother
country, almost all the more refined or more advanced manufactures
cheaper than they could make them for themselves. Though they had
not, therefore, been prohibited from establishing such manufactures,
yet in their present state of improvement, a regard to their own interest
would, probably, have prevented them from doing so. In their present
state of improvement, those prohibitions, perhaps, without cramping
their industry, or restraining it from any employment to which it would
have gone of its own accord, are only impertinent badges of slavery
imposed upon them, without any sufficient reason, by the groundless
jealousy of the merchants and manufacturers of the mother country.
In a more advanced state they might be really oppressive and
insupportable.
Great Britain too, as she confines to her own market some of the
most important productions of the colonies, so in compensation she
gives to some of them an advantage in that market ; sometimes by
imposing higher duties upon the like productions when imported from
other countries, and sometimes by giving bounties upon their importa-
tion from the colonies. In the first way she gives an advantage in the
home market to the sugar, tobacco, and iron of her own colonies, and
in the second to their raw silk, to their hemp and flax, to their indigo,
to their naval-stores, and to their building-timber. This second way
of encouraging the colony produce by bounties upon importation, is,
so far as I have been able to learn, peculiar to Great Britain. The
first is not. Portugal does not content herself with imposing higher
duties upon the importation of tobacco from any other country, but
prohibits it under the severest penalties.
With regard to the importation of goods from Europe, England has
likewise dealt more liberally with her colonies than any other nation.
Great Britain allows a part, almost always the half, generally a larger
portion, and sometimes the whole of the duty which is paid upon the
importation of foreign goods, to be drawn back upon their exportation
to any foreign country. No independent foreign country, it was easy
to foresee, would receive them if they came to it loaded with the heavy
duties to which almost all foreign goods are subjected on their importa-
tion into Great Britain. Unless, therefore, some part of those duties
was drawn back upon exportation, there was an end of the carrying
trade ; a trade so much favoured by the mercantile system .
Our colonies, however, are by no means independent foreign coun-
tries ; and Great Britain having assumed to herself the exclusive right
of supplying them with all goods from Europe, might have forced them
(in the same manner as other countries have done their colonies) to
460 THE COLONIAL PRODUCE OF GREAT BRITAIN.

receive such goods, loaded with all the same duties which they paid in
the mother country. But, on the contrary, till 1763, the same draw-
backs were paid upon the exportation of the greater part of foreign goods
to our colonies as to any independent foreign country. In 1763, in-
deed, by the 4th of Geo. III. c. 15, this indulgence was a good deal
abated, and it was enacted, That no part of the duty called the old
' subsidy should be drawn back for any goods of the growth, produc-
" tion, or manufacture of Europe or the East Indies, which should be
"" exported from this kingdom to any British colony or plantation in
America ; wines, white calicoes, and muslins excepted.' Before this
law, many different sorts of foreign goods might have been bought
cheaper in the plantations than in the mother country ; and some may
be so still.
Ofthe greater part of the regulations concerning the colony trade,
the merchants who carry it on, it must be observed, have been the prin-
cipal advisers. We must not wonder, therefore, if in the greater part
ofthem, their interest has been more considered than either that of the
colonies or that of the mother country. In their exclusive privilege of
supplying the colonies with all the goods which they wanted from
Europe, and of purchasing all such parts of their surplus produce as
could not interfere with any of the trades which they themselves carried
on at home, the interest of the colonies was sacrified to the interest of
those merchants. In allowing the same drawbacks upon the re-export-
ation of the greater part of European and East India goods to the
colonies, as upon their re-exportation to any independent country, the
interest of the mother country was sacrificed to it, even according to the
mercantile ideas of that interest. It was for the interest of the mer-
chants to pay as little as possible for the foreign goods which they sent
to the colonies, and consequently, to get back as much as possible of
the duties which they advanced upon their importation into Great
Britain. They might thereby be enabled to sell in the colonies, either
the same quantity of goods with a greater profit, or a greater quantity
with the same profit, and, consequently, to gain something either in the
one way or the other. It was, likewise, for the interest of the colonies
to get all such goods as cheap and in as great abundance as possible.
But this might not always be for the interest of the mother country.
She might frequently suffer both in her revenue, by giving back a great
part of the duties which had been paid upon the importation of such
goods ; and in her manufactures, by being undersold in the colony
market, in consequence of the easy terms upon which foreign manu-
factures could be carried thither by means of those drawbacks. The
progress of the linen manufacture of Great Britain, it is commonly said,
has been a good deal retarded by the drawbacks upon the re-export.
ation of German linen to the American colonies.
But though the policy of Great Britain with regard to the trade of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 461

her colonies has been dictated by the same mercantile spirit as that of
other nations, it has, however, upon the whole, been less illiberal and
oppressive than that of any of them.
In everything except their foreign trade, the liberty of the English
colonists to manage their own affairs their own way is complete. It is
in every respect equal to that of their fellow-citizens at home, and is
secured in the same manner, by an assembly of the representatives of
the people, who claim the sole right of imposing taxes for the support
of the colony government. The authority of this assembly overawes
the executive power, and neither the meanest nor the most obnoxious
colonist, as long as he obeys the law, has anything to fear from the re-
sentment, either of the governor, or of any other civil or military offi-
cer in the province. The colony assemblies, though, like the house of
commons in England, they are not always a very equal representation
of the people, yet they approach more nearly to that character ; and as
the executive power either has not the means to corrupt them or, on
account ofthe support which it receives from the mother country, is
not under the necessity of doing so, they are perhaps in general more
influenced by the inclinations of their constituents. The councils which
in the colony legislatures, correspond to the house of lords in Great
Britain, are not composed of an hereditary nobility. In some of the
colonies, as in three of the governments of New England, those coun-
cils are not appointed by the king, but chosen by the representatives
of the people. In none of the English colonies is there an hereditary
nobility. In all of them, indeed, as in all other free countries, the de-
scendant of an old colony family is more respected than an upstart of
equal merit and fortune : but he is only more respected, and he has no
privileges by which he can be troublesome to his neighbours. Before
the commencement of the present disturbances, the colony assemblies
had not only the legislative, but a part of the executive power. In Con-
necticut and Rhode Island, they elected the governor. In the other
colonies they appointed the revenue officers who collected the taxes
imposed by those respective assemblies, to whom those officers were
immediately responsible. There is more equality, therefore, among
the English colonists than among the inhabitants of the mother coun-
try. Their manners are more republican, and their governments, those
of three of the provinces of New England in particular, have hitherto
been more republican too.
The absolute governments of Spain, Portugal, and France, on the
contrary, take place in their colonies ; and the discretionary powers
which such governments commonly delegate to all their inferior officers
are, on account of the great distance, naturally exercised there with
more than ordinary violence. Under all absolute governments there
is more liberty in the capital than in any other part of the country.
The sovereign himself can never have either interest or inclination to
462 THE SUGAR COLONIES ENJOY FREE GOVERNMENT.

pervert the order of justice, or to oppress the great body of the people.
In the capital his presence overawes more or less all his inferior offi
cers, who in the remoter provinces, from whence the complaints of the
people are less likely to reach him, can exercise their tyranny with
much more safety. But the European colonies in America are more
remote than the most distant provinces of the greatest empires which
had ever been known before. The government of the English colonies
is perhaps the only one which, since the world began, could give per-
fect security to the inhabitants of so very distant a province. The
administration of the French colonies, however, has always been con-
ducted with more gentleness and moderation than that of the Spanish
and Portuguese. This superiority of conduct is suitable both to the
character of the French nation, and to what forms the character of
every nation : the nature of their government, which, though arbitrary
and violent in comparison with that of Great Britain, is legal and free
in comparison with those of Spain and Portugal.
It is in the progress of the North American colonies, however, that
the superiority of the English policy chiefly appears. The progress of
the sugar colonies of France has been at least equal, perhaps superior,
to that of the greater part of those of England ; and yet the sugar
colonies of England enjoy a free government nearly of the same kind
with that which takes place in her colonies of North America. But
the sugar colonies of France are not discouraged, like those of Eng-
land, from refining their own sugar ; and, what is of still greater im-
portance, the genius of their government naturally introduces a better
management of their negro slaves.
In all European colonies the culture of the sugar-cane is carried on
by negro slaves. The constitution of those who have been born in the
temperate climate of Europe could not, it is supposed, support the
labour of digging the ground under the burning sun ofthe West Indies ;
and the culture of the sugar-cane, as it is managed at present, is all
hand-labour, though, in the opinion of many, the drill plough might be
introduced into it with great advantage. But, as the profit and success
of the cultivation which is carried on by means of cattle, depend very
much upon the good management of those cattle ; so the profit and
success of that which is carried on by slaves, must depend equally
upon the good management of those slaves ; and in the good manage-
ment of their slaves the French planters, I think it is generally allowed,
are superior to the English. The law, so far as it gives some weak
protection to the slave against the violence of his master, is likely to be
better executed in a colony where the government is in a great measure
arbitrary, than in one where it is altogether free. In every country
where the unfortunate law of slavery is established, the magistrate,
when he protects the slave, intermeddles in some measure in the
management of the private property of the master ; and, in a free
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 463

country, where the master is perhaps either a member of the colony

assembly, or an elect or of such a member, he dare not do this but with
the greatest caution and circumspection. The respect which he is
obliged to pay to the master, renders it more difficult for him to pro-
tect the slave. But in a country where the government is in a great
measure arbitrary, where it is usual for the magistrate to intermeddle
even in the management ofthe private property of individuals, and to
send thein, perhaps, a lettre de cachet if they do not manage it accord-
ing to his liking, it is much easier for him to give some protection to
the slave ; and common humanity naturally disposes him to do so. The
protection of the magistrate renders the slave less contemptible in the
eyes of his master, who is thereby induced to consider him with more
regard, and to treat him with more gentleness. Gentle usage renders
the slave not only more faithful, but more intelligent, and therefore,
upon a double account, more useful. He approaces more to the con-
dition of a free servant, and may possess some degree of integrity and
attachment to his master's interest, virtues which frequently belong to
free servants, but which never can belong to a slave, who is treated as
slaves commonly are in countries where the master is perfectly free and
quite secure.
That the condition of a slave is better under an arbitrary than under
a free government is, I believe, supported by the history of all ages
and nations. In the Roman history, the first time we read of the
magistrate interposing to protect the slave from the violence of his
master, is under the emperors. When Vedius Pollio, in the presence
of Augustus, ordered one of his slaves, who had committed a slight
fault, to be cut into pieces and thrown into his fish-pond in order to
feed his fishes, the emperor commanded him, with indignation, to
emancipate immediately, not only that slave, but all the others that
belonged to him. Under the republic no magistrate could have had
authority enough to protect the slave, much less to punish the master.
The stock, it is to be observed, which has improved the sugar colo-
nies of France, particularly the great colony of St. Domingo, has been
raised almost entirely from the gradual improvement and cultivation
of those colonies. It has been almost altogether the produce of the
soil and of the industry of the colonists, or, what comes to the same
thing, the price of that produce gradually accumulated by good
management, and employed in raising a still greater produce. But the
stock which has improved and cultivated the sugar colonies of England
has, a great part of it, been sent out from England, and has by no
means been altogether the produce of the soil and industry of the
colonists. The prosperity of the English sugar colonies has been, in a
great measure, owing to the great riches of England, of which a part
has overflowed, if one may say so, upon those colonies. But the pros-
perity of the sugar colonies of France has been entirely owing to the
464 ENGLISH PURITANS FOUND FREEDOM IN AMERICA.

good conduct of the colonists, which must therefore have had some
superiority over that of the English ; and this superiority has been
remarked in nothing so much as in the good management of their
slaves.
Such have been the general outlines of the policy of the different
European nations with regard to their colonies.
The policy of Europe, therefore, has very little to boast of, either
in the original establishment, or, so far as concerns their internal
government, in the subsequent prosperity of the colonies of America.
Folly and injustice seem to have been the principles which presided
over and directed the first project of establishing those colonies ; the
folly of hunting after gold and silver mines, and the injustice of covet-
ing the possession of a country whose harmless natives, far from having
ever injured the people of Europe, had received the first adventurers
with every mark of kindness and hospitality.
The adventurers, indeed, who formed some of the later establish-
ments, joined, to the chimerical project of finding gold and silver mines,
other motives more reasonable and more laudable ; but even these
motives do very little honour to the policy of Europe.
The English puritans, restrained at home, fled for freedom to
America, and established there the four governments of New England.
The English catholics, treated with much greater injustice, established
that of Maryland ; the Quakers, that of Pennsylvania. The Portuguese
Jews, persecuted by the inquisition, stript of their fortunes, and banished
to Brazil, introduced, by their example, some sort of order and industry
among the transported felons and strumpets, by whom that colony
was originally peopled, and taught them the culture of the sugar-cane.
Upon all these different occasions it was, not the wisdom and policy,
but the disorder and injustice of the European governments, which
peopled and cultivated America.
In effectuating some of the most important of these establishments,
the different governments of Europe had as little merit as in projecting
them. The conquest of Mexico was the project, not of the council of
Spain, but of a governor of Cuba ; and it was effectuated by the spirit
of the bold adventurer to whom it was entrusted, in spite of everything
which that governor, who soon repented of having trusted such a per-
son, could do to thwart it. The conquerors of Chili and Peru, and of
almost all the other Spanish settlements upon the continent of America,
carried out with them no other public encouragement, but a general
permission to make settlements and conquests in the name of the king
of Spain. Those adventures were all at the private risk and expense
of the adventurers. The government of Spain contributed scarce any-
thing to any of them. That of England contributed as little towards
effectuating the establishment of some of its most important colonies
in North America.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 465

When those establishments were effectuated, and had become so

considerable as to attract the attention of the mother country, the first
regulations which she made with regard to them had always in view to
secure to herself the monopoly of their commerce ; to confine their
market, and to enlarge her own at their expense, and, consequently,
rather to damp and discourage, than to quicken and forward the course
of their prosperity. In the different ways in which this monopoly l.as
been exercised, consists one of the most essential differences in the
policy of the different European nations with regard to their colonies.
The best of them all, that of England, is only somewhat less illiberal
and oppressive than that of any of the rest.
In what way, therefore, has the policy of Europe contributed either
to the first establishment, or to the present grandeur of the colonies of
America ? In one way, and in one way only, it has contributed a good
deal. Magna virûm mater ! It bred and formed the men who were
capable of achieving such great actions, and of laying the foundation
of so great an empire ; and there is no other quarter of the world of
which the policy is capable of forming, or has ever actually and in fact
formed such men. The colonies owe to the policy of Europe the edu-
▾cation and great views of their active and enterprising founders ; and
some ofthe greatest and most important of them, so far as concerns
their internal government, owe to it scarce anything else.

PART III.—Of the Advantages which Europe has derived from the
Discovery ofAmerica, andfrom that ofa Passage to the East Indies
by the Cape of Good Hope.
SUCH are the advantages which the colonies of America have derived
from the policy of Europe.
What are those which Europe has derived from the discovery and
colonization of America ?
Those advantages may be divided, first, into the general advantages
which Europe, considered as one great country, has derived from those
great events ; and, secondly, into the particular advantages which each
colonizing country has derived from the colonies which particularly
belong to it, in consequence of the authority or dominion which it
exercises over them.
The general advantages which Europe, considered as one great
country, has derived from the discovery and colonization of America,
consist, first, in the increase of its enjoyments ; and secondly, in the
augmentation of its industry.
The surplus produce of America, imported into Europe, furnishes
the inhabitants of this great continent with a variety of commodities
30
 466 EFFECT OF DISCOVERY OF AMERICA ON EUROPEAN INDUSTRY.

which they could not otherwise have possessed, some for conveniency
and use, some for pleasure, and some for ornament, and thereby con.
tributes to increase their enjoyments.
The discovery and colonization of America, it will readily be allowed,
have contributed to augment the industry, first, of all the countries
which trade to it directly, such as Spain, Portugal, France, and Eng-
land ; and, secondly, of all those which, without trading to it directly,
send, through the medium of other countries, goods to it of their own
produce, such as Austrian Flanders, and some provinces of Germany,
which, through the medium of other countries before mentioned, send
to it a considerable quantity of linen and other goods. All such coun-
tries have evidently gained a more extensive market for their surplus
produce, and must consequently have been encouraged to increase its
quantity.
But, that those great events should likewise have contributed to en-
courage the industry of countries, such as Hungary and Poland, which
may never, perhaps, have sent a single commodity of their own pro-
duce to America, is not, perhaps, altogether so evident. That those
events have done so, however, cannot be doubted. Some part of the
produce of America is consumed in Hungary and Poland, and there is
some demand there for the sugar, chocolate, and tobacco, of that new
quarter of the world. But those commodities must be purchased with
something which is either the produce of the industry of Hungary and
Poland, or with something which had been purchased with some part
of that produce. Those commodities of America are new values, new
equivalents, introduced into Hungary and Poland to be exchanged
there for the surplus produce of those countries. By being carried
thither they create a new and more extensive market for that surplus
produce. They raise its value, and thereby contribute to encourage its
increase. Though no part of it may ever be carried to America, it may
be carried to other countries which purchase it with a part of their
share of the surplus produce of America ; and it may find a market by
means ofthe circulation of that trade which was originally put into
motion by the surplus produce of America.
Those great events may even have contributed to increase the en-
joyments and to augment the industry of countries which, not only
never sent any commodities to America, but never received any from
it. Even such countries may have received a greater abundance of
other commodities from countries of which the surplus produce had
been augmented by means of the American trade. This greater abun-
dance, as it must necessarily have increased their enjoyments, so it
must likewise have augmented their industry. A greater number of
new equivalents of some kind or other must have been presented to
them to be exchanged for the surplus produce of that industry. A
more extensive market must have been created for that surplus pro-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 467

duce, so as to raise its value, and thereby encourage its increase. The
mass of commodities annually thrown into the great circle of European
commerce, and by its various revolutions annually distributed among
all the different nations comprehended within it, must have been aug-
mented by the whole surplus produce of America. A greater share
of this greater mass, therefore, is likely to have fallen to each of
those nations, to have increased their enjoyments and augmented
their industry.
The exclusive trade of the mother countries tends to diminish or, at
least, to keep down below what they would otherwise rise to, both the
enjoyments and industry of all those nations in general, and of the
American colonies in particular. It is a dead weight upon the action
of one of the great springs which puts into motion a great part of the
business of mankind. By rendering the colony produce dearer in all
other countries, it lessens its consumption, and thereby cramps the
industry of the colonies, and both the enjoyments and the industry of
all other countries, which both enjoy less when they pay more for what
they enjoy, and produce less when they get less for what they produce.
By rendering the produce of all other countries dearer in the colonies,
it cramps, in the same manner, the industry of all other countries, and
both the enjoyments and the industry of the colonies. It is a clog
which, for the supposed benefit of some particular countries, embar-
rasses the pleasures and encumbers the industry of all other countries,
but of the colonies more than of any other. It not only excludes, as
much as possible, all other countries from one particular market, but it
confines, as much as possible, the colonies to one particular market ;
and the difference is very great between being excluded from one par-
ticular market, when all others are open, and being confined to one
particular market, when all others are shut up. The surplus produce
of the colonies, however, is the original source of all that increase of
enjoyments and industry which Europe derives from the discovery and
colonization of America ; and the exclusive trade of the mother coun-
tries tends to render this source much less abundant than it otherwise
would be.
The particular advantages which each colonizing country derives
from the colonies which particularly belong to it, are of two different
kinds ; first, those common advantages which every empire derives
from the provinces subject to its dominion ; and, secondly, those pecu-
liar advantages which are supposed to result from provinces of so very
peculiar a nature as the European colonies of America.
The common advantages which every empire derives from the pro-
vinces subject to its dominion, consist, first, in the military force
which they furnish for its defence ; and, secondly, in the revenue which
they furnish for the support of its civil government. The Roman
colonies furnished occasionally both the one and the other. The Greek
30 *
468 EUROPEAN COLONIES WEAKEN THE MOTHER COUNTRY.

colonies sometimes furnished a military force, but seldom any

revenue. They seldom acknowledged themselves subject to the
dominion of the mother city. They were generally her allies in war,
but very seldom her subjects in peace.
The European colonies of America have never yet furnished any
military force for the defence of the mother country. Their military
force has never yet been sufficient for their own defence ; and in the
different wars in which the mother countries have been engaged, the
defence of their colonies has generally occasioned a very considerable
distraction of the military force of those countries. In this respect,
therefore, all the European colonies have, without exception, been a
cause rather of weakness than of strength to their respective mother
countries.
The colonies of Spain and Portugal only have contributed any
revenue towards the defence of the mother country, or the support of
her civil government. The taxes which have been levied upon those
of other European nations, upon those of England in particular, have
seldom been equal to the expense laid out upon them in time of peace,
and never sufficient to defray that which they occasioned in time of
war. Such colonies, therefore, have been a source of expense and not
of revenue to their respective mother countries.
The advantages of such colonies to their respective mother countries,
consist altogether in those peculiar advantages which are supposed to
result from provinces of so very peculiar a nature as the European
colonies of America ; and the exclusive trade, it is acknowledged, is
the sole source of all those peculiar advantages.
In consequence of this exclusive trade, all that part of the surplus
produce of the English colonies, for example, which consists in what
are called enumerated commodities, can be sent to no other country
but England. Other countries must afterwards buy it of her. It must
be cheaper therefore in England than it can be in any other country,
and must contribute more to increase the enjoyments of England than
those of any other country. It must likewise contribute more to
encourage her industry. For all those parts of her own surplus pro-
duce which England exchanges for those enumerated commodities ,
she must get a better price than any other countries can get for the
like parts of theirs, when they exchange them for the same commodi-
ties. The manufactures of England, for example, will purchase a
greater quantity of the sugar and tobacco of her own colonies, than
the like manufactures of other countries can purchase of that sugar
and tobacco. So far, therefore, as the manufactures of England and
those of other countries are both to be exchanged for the sugar and
tobacco of the English colonies, this superiority of price gives an
encouragement to the former, beyond what the latter can in these
circumstances enjoy. The exclusive trade of the colonies, therefore,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS, 469

as it diminishes, or, at least, keeps down below what they would other-
wise rise to, both the enjoyments and the industry of the countries
which do not possess it ; so it gives an evident advantage to the coun-
tries which do possess it over those other countries.
This advantage, however, will, perhaps, be found to be rather what
may be called a relative than an absolute advantage ; and to give a
superiority to the country which enjoys it, rather by depressing the
industry and produce of other countries, than by raising those of that
particular country above what they would naturally rise to in the case
of a free trade.
The tobacco of Maryland and Virginia, for example, by means of
the monopoly which England enjoys of it, certainly comes cheaper to
England than it can do to France, to whom England commonly sells
a considerable part of it. But had France, and all other European
countries been, at all times, allowed a free trade to Maryland and
Virginia, the tobacco of those colonies might, by this time, have come
cheaper than it actually does, not only to all those other countries, but
likewise to England. The produce of tobacco, in consequence of a
market so much more extensive than any which it has hitherto enjoyed,
might, and probably would, by this time, have been so much increased
as to reduce the profits of a tobacco plantation to their natural level
with those of a corn plantation, which, it is supposed, they are still
somewhat above. The price of tobacco might, and probably would,
by this time, have fallen somewhat lower than it is at present. An
equal quantity of the commodities either of England, or of those other
countries, might have purchased in Maryland and Virginia a greater
quantity of tobacco than it can do at present, and, consequently, have
been sold there for so much a better price. So far as that weed, there-
fore, can, by its cheapness and abundance, increase the enjoyments or
augment the industry either of England or of any other country, it
would, probably, in the case of a free trade, have produced both these
effects in somewhat a greater degree than it can do at present. Eng-
land, indeed, would not in this case have, had any advantage over other
countries. She might have bought the tobacco of her colonies some-
what cheaper, and, consequently, have sold some of her own com-
modities somewhat dearer than she actually does. But she could
neither have bought the one cheaper nor sold the other dearer than
any other country might have done. She might, perhaps, have gained
an absolute, but she would certainly have lost a relative advantage.
In order, however, to obtain this relative advantage in the colony
trade, in order to execute the invidious and malignant project of ex-
cluding as much as possible other nations from any share in it, England,
there are very probable reasons for believing, has not only sacrificed a
part of the absolute advantage, which she, as well as every other
nation, might have derived from that trade, but has subjected herself
470 MONOPOLY OF TRADE, AND ENGLISH ACT OF NAVIGATION.

both to an absolute and to a relative disadvantage in almost every

other branch of trade.
When, by the act of navigation, England assumed to herself the
monopoly of the colony trade, the foreign capitals which had before
been employed in it were necessarily withdrawn from it. The English
capital, which had before carried on but a part of it, was now to carry
on the whole. The capital which had before supplied the colonies
with but a part of the goods which they wanted from Europe, was now
all that was employed to supply them with the whole. But it could
not supply them with the whole, and the goods with which it did
supply them were necessarily sold very dear. The capital which had
before bought but a part of the surplus produce of the colonies, was
now all that was employed to buy the whole. But it could not buy the
whole at anything near the old price, and, therefore, whatever it did
buy it necessarily bought very cheap. But in an employment of capital
in which the merchant sold very dear and bought very cheap, the
profit must have been very great, and much above the ordinary level
of profit in other branches of trade. This superiority of profit in the
colony trade could not fail to draw from other branches of trade a
part of the capital which had before been employed in them. But
this revulsion of capital, as it must have gradually increased the com-
petition of capitals in the colony trade, so it must have gradually
diminished that competition in all those other branches of trade ; as
it must have gradually lowered the profits of the one, so it must have
gradually raised those of the other, till the profits of all came to a new
level, different from and somewhat higher than that at which they had
been before. 186
This double effect, of drawing capital from all other trades, and of
raising the rate of profit somewhat higher than it otherwise would
have been in all trades, was not only produced by this monopoly upon
its first establishment, but has continued to be produced by it ever
since.
First, this monopoly has been continually drawing capital from all
other trades to be employed in that of the colonies.
Though the wealth of Great Britain has increased very much since
the establishment of the act of navigation, it certainly has not in
creased in the same proportion as that of the colonies. But the foreign
trade of every country naturally increases in proportion to its wealth,
its surplus produce in proportion to its whole produce ; and Great
Britain having engrossed to herself almost the whole of what may be
called the foreign trade of the colonies, and her capital not having
increased in the same proportion as the extent of that trade, she could
not carry it on without continually withdrawing from other branches of
trade some part of the capital which had before been employed in
them, as well as withholding from them a great deal more which would
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 471

otherwise have gone to them. Since the establishment of the act of

navigation, accordingly, the colony trade has been continually increas-
ing, while many other branches of foreign trade, particularly of that
to other parts of Europe, have been continually decaying. 187 Our
manufactures for foreign sale, instead of being suited, as before the
act of navigation, to the neighbouring market of Europe, or to the
more distant one of the countries which lie round the Mediterranean
sea, have, the greater part of them, been accommodated to the still
more distant one of the colonies, to the market in which they have the
monopoly, rather than to that in which they have many competitors.
The causes of decay in other branches of foreign trade, which, by Sir
Matthew Decker and other writers, have been sought for in the excess
and improper mode of taxation, in the high price of labour, in the
increase of luxury, etc. , may all be found in the overgrowth of the
colony trade. The mercantile capital of Great Britain, though very
great, yet not being infinite ; and though greatly increased since the
act of navigation, yet not being increased in the same proportion as
the colony trade, that trade could not possibly be carried on without
withdrawing some part of that capital from other branches of trade,
nor consequently without some decay of those other branches.
England, it must be observed, was a great trading country, her
mercantile capital was very great and likely to become still greater and
greater every day, not only before the act of navigation had established
the monopoly of the colony trade, but before that trade was very con
siderable. In the Dutch war, during the government of Cromwell, her
navy was superior to that of Holland ; and in that which broke out in
the beginning of the reign of Charles II . it was at least equal, perhaps
superior, to the united navies of France and Holland. Its superiority,
perhaps, would scarce appear greater in the present times ; at least if
the Dutch navy was to bear the same proportion to the Dutch com-
merce now which it did then. But this great naval power could not,
in either of those wars, be owing to the act of navigation. During the
first of them the plan of that act had been but just formed ; and though
before the breaking out of the second it had been fully enacted by legal
authority ; yet no part of it could have had time to produce any con-
siderable effect, and least of all that part which established the exclu-
sive trade to the colonies. Both the colonies and their trade were
inconsiderable then in comparison of what they are now. The island
of Jamaica was an unwholsome desert, little inhabited, and less culti-
vated. New York and New Jersey were in the possession of the Dutch ;
the half of St. Christopher's in that of the French. The island of
Antigua, the two Carolinas, Pennsylvania, Georgia, and Nova Scotia,
were not planted. Virginia, Maryland, and New England were planted ;
and though they were very thriving colonies, yet there was not, per-
haps, at that time, either in Europe or America, a single person who
472 EFFECT OF MONOPOLY OF COLONIAL TRADE BY ENGLAND.

foresaw or even suspected the rapid progress which they have since
made in wealth, population, and improvement. The island of Barba-
does, in short, was the only British colony of any consequence of
which the condition at that time bore any resemblance to what it is at
present. The trade of the colonies, of which England, even for some
time after the act of navigation, enjoyed but a part (for the act of
navigation was not very strictly executed till several years after it was
enacted), could not at that time be the cause of the great trade of
England, nor of the great naval power which was supported by that
trade. The trade which at that time supported that great naval power
was the trade of Europe, and of the countries which lie round the Medi-
terranean sea. But the share which Great Britain at present enjoys
of that trade could not support any such great naval power. Had the
growing trade of the colonies been left free to all nations, whatever
share of it might have fallen to Great Britain, and a very considerable
share would probably have fallen to her, must have been all an addi-
tion to this great trade of which she was before in possession. In con
sequence of the monopoly, the increase of the colony trade has not so
much occasioned an addition to the trade which Great Britain had
before, as a total change in its direction.
Secondly, this monopoly has necessarily contributed to keep up the
rate of profit in all the different branches of British trade higher than
it naturally would have been had all nations been allowed a free trade
to the British colonies. 16
The monopoly of the colony trade, as it necessarily drew towards
that trade a greater proportion of the capital of Great Britain than
what would have gone to it of its own accord ; so by the expulsion of
all foreign capitals it necessarily reduced the whole quantity of capital
employed in that trade below what it naturally would have been in the
case of a free trade. But, by lessening the competition of capitals in
that branch of trade, it necessarily raised the rate of profit in that
branch. By lessening too the competition of British capitals in all
other branches of trade, it necessarily raised the rate of British profit
in all those other branches. Whatever may have been, at any par-
ticular period since the establishment of the act of navigation, the state
or extent of the mercantile capital of Great Britain, the monopoly of
the colony trade must, during the continuance of that state, have raised
the ordinary rate of British profit higher than it otherwise would have
been, both in that and in all the other branches of British trade. If,
since the establishment of the act of navigation, the ordinary rate of
British profit has fallen considerably, as it certainly has, it must have
fallen still lower had not the monopoly established by that act contri-
buted to keep it up.
But whatever raises in any country the ordinary rate of profit higher
than it otherwise would be, necessarily subjects that country both to an
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 473

absolute and to a relative disadvantage in every branch of trade of

which she has not the monopoly. 188
It subjects her to an absolute disadvantage ; because in such branches
of trade her merchants cannot get this greater profit, without selling
dearer than they otherwise do both the goods of foreign countries
which they import into their own, and the goods of their own country
which they export to foreign countries. Their own country must both
buy dearer and sell dearer ; must both buy less and sell less ; must
both enjoy less and produce less than she otherwise would do. 189
It subjects her to a relative disadvantage ; because in such branches
of trade it sets other countries which are not subject to the same abso-
lute disadvantage, either more above her or less below her than they
otherwise would be. It enables them both to enjoy more and to pro-
duce more in proportion to what she enjoys and produces. It renders
their superiority greater or their inferiority less than it otherwise would
be. By raising the price of her produce above what it otherwise would
be, it enables the merchants of other countries to undersell her in
foreign markets, and thereby to justle her out of almost all those
branches of trade of which she has not the monopoly.
Our merchants frequently complain of the high wages of British labour
as the cause of their manufactures being undersold in foreign markets ;
but they are silent about the high profits of stock. They complain of
the extravagant gain of other people ; but they say nothing of their
own. The high profits of British stock, however, may contribute to-
wards raising the price of British manufactures in many cases as much,
190
and in some perhaps more, than the high wages of British labour.
It is in this manner that the capital of Great Britain, one may justly
say, has partly been drawn (and partly been driven from the greater
part of the different branches of trade of which she has not the mono-
poly ; from the trade of Europe in particular, and from that of the
countries which lie round the Mediterranean sea.
It has partly been drawn from those branches of trade ; by the attrac-
tion of superior profit in the colony trade in consequence of the con-
tinual increase of that trade, and of the continual insufficiency of the
capital which had carried it on one year to carry it on the next.
It has partly been driven from them ; by the advantage which the
high rate of profit, established in Great Britain , gives to other coun-
tries, in all the different branches of trade of which Great Britain has
not the monopoly, w
As the monoply of the colony trade has drawn from those other
branches a part of the British capital which would otherwise have
been employed in them, so it has forced into them many foreign
capitals which would never have gone to them, had they not been
expelled from the colony trade. In those other branches of trade it
has diminished the competition of British capitals, and thereby raised
474 THE MOST ADVANTAGEOUS EMPLOYMENT OF CAPITAL.

the rate of British profit higher than it otherwise would have been.
On the contrary, it has increased the competition of foreign capitals,
and thereby sunk the rate of foreign profit lower than it otherwise
would have been. Both in the one way and in the other it must evi-
dently have subjected Great Britain to a relative disadvantage in all
those other branches of trade.
The colony trade, however, it may perhaps be said, is more advan-
tageous to Great Britain than any other ; and the monopoly, by forcing
into that trade a greater proportion of the capital of Great Britain
than would otherwise have gone to it, has turned that capital into an
employment more advantageous to the country than any other which
it could have found.
The most advantageous employment of any capital to the country to
which it belongs, is that which maintains there the greatest quantity
of productive labour, and increases the most the annual produce of the
land and labour of that country. But the quantity of productive
labour which any capital employed in the foreign trade of consumption
can maintain, is exactly in proportion, it has been shown in the second
book, to the frequency of its returns. A capital of a thousand pounds,
for example, employed in a foreign trade of consumption, of which the
returns are made regularly once in the year, can keep in constant em-
ployment, in the country to which it belongs, a quantity of productive
labour equal to what a thousand pounds can maintain there for a year.
If the returns are made twice or thrice in a year, it can keep in
constant employment a quantity of productive labour equal to what
two or three thousand pounds can maintain there for a year.192A foreign
trade of consumption carried on with a neighbouring, is, upon this
account, in general, more advantageous than one carried on with a
distant country ; and for the same reason a direct foreign trade of con-
sumption, as it has likewise been shown in the second book, is in
general more advantageous than a round-about one.
But the monopoly of the colony trade, so far as it has operated upon
the employment of the capital of Great Britain, has in all cases forced
some part of it from a foreign trade of consumption carried on with a
neighbouring, to one carried on with a more distant country, and in
many cases from a direct foreign trade of consumption to a round-
about one.
First, the monopoly of the colony trade has in all cases forced some
part of the capital of Great Britain from a foreign trade of consump-
tion carried on with a neighbouring, to one carried on with a more
distant country.
It has, in all cases, forced some part of that capital from the trade
with Europe, and with the countries which lie round about the Medi-
terranean sea, to that with the more distant regions of America and
the West Indies, from which the returns are necessarily less frequent,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 475

not only on account of the greater distance, but on account of the

peculiar circumstances of those countries. New colonies, it has
already been observed, are always understocked. Their capital is
always much less than what they could employ with great profit and
advantage in the improvement and cultivation of their land. They
have a constant demand, therefore, for more capital than they have of
their own ; and, in order to supply the deficiency of their own, they
endeavour to borrow as much as they can of the mother country, to
whom they are therefore always in debt. The most common way in
which the colonists contract this debt, is not by borrowing upon bond
of the rich people of the mother country, though they sometimes do
this too, but by running as much in arrear to their correspondents,
who supply them with goods from Europe, as those correspondents
will allow them. Their annual returns frequently do not amount to
more than a third, and sometimes not so great a proportion of what
they owe. The whole capital, therefore, which their correspondents
advance to them is seldomed returned to Britain in less than three, and
sometimes not in less than four of five years. But a British capital of
a thousand pounds, for example, which is returned to Great Britain
only once in five years, can keep in constant employment only one-fifth
part of the British industry which it could maintain if the whole was
returned once in the year ; and, instead of the quantity of industry
which a thousand pounds could maintain for a year, can keep in con-
stant employment the quantity only which two hundred pounds can
maintain for a year.* The planter, no doubt, by the high price which
he pays for the goods from Europe, by the interest upon the bills which
he grants at distant dates, and by the commission upon the renewal of
those which he grants at near dates, makes up, and probably more
than makes up, all the loss which his correspondent can sustain by this
delay. But though he may make up the loss of his correspondent, he
cannot make up that of Great Britain. In a trade of which the
returns are very distant, the profit of the merchant may be as great or
greater than in one in which they are very frequent and near ; but the
advantage of the country in which he resides, the quantity of pro-
ductive labour constantly maintained there, the annual produce of the
land and labour must always be much less. That the returns of the
trade to America, and still more those of that to the West Indies, are,
in general, not only more distant, but more irregular, and more un-
certain too, than those of the trade to any part of Europe, or even of
the countries which lie round the Mediterranean sea, will readily be
allowed, I imagine, by everybody who has any experience of those
different branches of trade.
Secondly, the monoply of the colony trade has, in many cases,
forced some part of the capital of Great Britain from a direct foreign
trade of consumption, into a round-about one.
• See note 126,
476 RULE OF TRADE IN LONDON IMPORTS OF TOBACCO.

Among the enumerated commodities which can be sent to no other

market but Great Britain, there are several of which the quantity ex-
ceeds very much the consumption of Great Britain, and of which a
part therefore must be exported to other countries. But this cannot
be done without forcing some part of the capital of Great Britain into
a round-about foreign trade of consumption. Maryland and Virginia,
for example, send annually to Great Britain upwards of ninety-six
thousand hogsheads of tobacco, and the consumption of Great Britain
is said not to exceed fourteen thousand. Upwards of eighty-two thousand
hogsheads therefore must be exported to other countries, to France, to
Holland, and to the countries which lie round the Baltic and Mediter-
ranean seas. But that part of the capital of Great Britain which
brings those eighty-two thousand hogsheads to Great Britain, which re-
exports them from thence to those other countries, and which brings
back from those other countries to Great Britain either goods or money
in return, is employed in a round-about foreign trade of consumption,
and is necessarily forced into this employment in order to dispose of
this great surplus. If we would compute in how many years the whole
of this capital is likely to come back to Great Britain, we must add to
the distance of the American returns that of the returns from those
other countries. If, in the direct foreign trade of consumption which we
carry on with America, the whole capital employed frequently does not
come back in less than three or four years, the whole capital employed
in this round-about one is not likely to come back again in less than
four or five. If the one can keep in constant employment but a third
or a fourth part of the domestic industry which could be maintained
by a capital returned once in the year, the other can keep in constant
employment but a fourth or a fifth part of that industry. At some of
the outports a credit is commonly given to those foreign correspon-
dents to whom they export their tobacco. At the port of London,
indeed, it is commonly sold for ready money. The rule is, Weigh
and Pay. At the port of London, therefore, the final returns of the
whole round-about trade are more distant than the returns from
America by the time only which the goods may lie unsold in the ware-
house ; where, however, they may sometimes lie long enough. But, had
not the colonies been confined to the market of Great Britain for the
sale of their tobacco, very little more of it would probably have come
to us than what was necessary for the home consumption. The goods
which Great Britain purchases at present for her own consumption
with the great surplus of tobacco which she exports to other countries,
she would, in this case, probably have purchased with the immediate
produce of her own industry, or with some part of her own manu-
factures. That produce, those manufactures, instead of being almost
entirely suited to one great market, as at present, would probably have
been fitted to a great number of smaller markets. Instead of one
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 477

great round-about foreign trade of consumption, Great Britain would

probably have carried on a great number of small direct foreign trades
of the same kind. On account of the frequency of the returns, a
part, and probably but a small part, perhaps not above a third or a
fourth of the capital which at present carries on this great round-about
trade, might have been sufficient to carry on all those small direct ones,
might have kept in constant employment an equal quantity of British
industry, and have equally supported the annual produce of the land
and labour of Great Britain. All the purposes of this trade being, in
this manner, answered by a much smaller capital, there would have
been a large spare capital to apply to other purposes ; to improve the
lands, to increase the manufactures, and to extend the commerce of
Great Britain ; to come into competition at least with the other British
capitals employed in all those different ways, to reduce the rate of pro-
fit in them all, and thereby to give to Great Britain, in all of them, a
superiority over all other countries still greater than what she at
present enjoys.
The monopoly of the colony trade too has forced some part of the
capital of Great Britain from all foreign trade of consumption to a
carrying trade ; and, consequently, from supporting more or less the
industry of Great Britain, to be employed altogether in supporting
partly that of the colonies, and partly that of some other countries.
The goods, for example, which are annually purchased with the great
surplus of eighty-two thousand hogsheads of tobacco annually re
exported from Great Britain, are not all consumed in Great Britain
Part of them, linen from Germany and Holland, for example, is
returned to the colonies for their particular consumption. But, that
part of the capital of Great Britain which buys the tobacco with which
this linen is afterwards bought, is necessarily withdrawn from supporting
the industry of Great Britain, to be employed altogether in supporting,
partly that of the colonies, and partly that of the particular countries
193
who pay for this tobacco with the produce of their own industry.
The monopoly of the colony trade besides, by forcing towards it a
much greater proportion of the capital of Great Britain than what
would naturally have gone to it, seems to have broken altogether that
natural balance which would otherwise have taken place among all
the different branches of British industry. The industry of Great
Britain, instead of being accommodated to a great number of small
markets, has been principally suited to one great market. Her com-
merce, instead of running in a great number of small channels, has
been taught to run principally in one great channel. But the whole
system of her industry and commerce has thereby been rendered less
secure, the whole state of her body politic less healthful than it other-
wise would have been. In her present condition, Great Britain resem-
bles one of those unwholesome bodies in which some of the vital
478 RELAXATION NEEDFUL OF LAWS AFFECTING COLONIES.

parts are overgrown, and which, upon that account, are liable to many
dangerous disorders scarce incident to those in which all the parts
are more properly proportioned. A small stop in that great blood-
vessel, which has been artificially swelled beyond its natural dimen-
sions, and through which an unnatural proportion of the industry and
commerce of the country has been forced to circulate, is very likely to
bring on the most dangerous disorders upon the whole body politic.
The expectation of a rupture with the colonies, accordingly, has struck
the people of Great Britain with more terror than they ever felt
for a Spanish armada or a French invasion. It was this terror,
whether well or ill grounded, which rendered the repeal of the stamp
act, among the merchants at least, a popular measure. In the total
exclusion from the colony market, was it to last only for a few years,
the greater part of our merchants used to fancy that they foresaw an
entire stop to their trade ; the greater part of our master manufacturers,
the entire ruin of their business ; and the greater part of our workmen,
an end of their employment. A rupture with any of our neighbours
upon the continent, though likely too to occasion some stop or inter-
ruption in the employments of some of all these different orders of
people, is foreseen, however, without any such general emotion. The
blood, of which the circulation is stopped in some of the smaller
vessels, easily disgorges itself into the greater, without occasioning any
dangerous disorder ; but, when it is stopped in any of the greater
vessels, convulsions, apoplexy, or death, are the immediate and un-
avoidable consequences. If but one of those overgrown manufactures,
which by means either of bounties, or of the monopoly of the home
and colony markets, have been artificially raised up to an unnatural
height, finds some small stop or interruption in its employment, it fre-
quently occasions a mutiny and disorder alarming to government, and
embarrassing even to the deliberations of the legislature. How great,
therefore, would be the disorder and confusion, it was thought, which
must necessarily be occasioned by a sudden and entire stop in the
employment of so great a proportion of our principal manufacturers ?194
Some moderate and gradual relaxation of the laws which give to
Great Britain the exclusive trade to the colonies, till it is rendered in a
measure free, seems to be the only expedient which can, in all future
times, deliver her from this danger, which can enable her or even
force her to withdraw some part of her capital from this overgrown
employment, and to turn it, though with less profit, towards other
employments ; and which, by gradually diminishing one branch of her
industry and gradually increasing all the rest, can by degrees restore
all the different branches of it to that natural, healthful, and proper
proportion which perfect liberty necessarily establishes, and which per
fect liberty can alone preserve. To open the colony trade all at once
to all nations, might not only occasion some transitory inconveniency
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 479

but a great permanent loss to the greater part of those whose industry
or capital is at present engaged in it. The sudden loss of the employ-
ment even of the ships which import the eighty-two thousand hogs-
heads of tobacco, which are over and above the consumption af Great
Britain, might alone be felt very sensibly. Such are the unfortunate
effects of all the regulations of the mercantile system ! They not only
introduce very dangerous disorders into the state of the body politic, but
disorders which it is often difficult to remedy without occasioning, for a
time at least, still greater disorders. In what manner, therefore, the
colony trade ought gradually to be opened ; what are the restraints
which ought first, and what are those which ought last to be taken
away ; or in what manner the natural system of perfect liberty and
justice ought gradually to be restored , we must leave to the wisdom of
future statesmen and legislators to determine.
Five different events, unforeseen and unthought of, have very fortu-
nately concurred to hinder Great Britain from feeling, so sensibly as
it was generally expected she would, the total exclusion which has now
taken place for more than a year (from the first of December, 1774)
from a very important branch of the colony trade, that of the twelve
associated provinces of North America. First, those colonies, in pre-
paring themselves for their non-importation agreement, drained Great
Britain completely of all the commodities which were fit for their
market : secondly, the extraordinary demand of the Spanish Flota has,
this year, drained Germany and the North of many commodities, linen
in particular, which used to come into competition, even in the British
market, with the manufactures of Great Britain : thirdly, the peace
between Russia and Turkey has occasioned an extraordinary demand
from the Turkey market, which, during the distress of the country, and
while a Russian fleet was cruising in the Archipelago, had been very
poorly supplied : fourthly, the demand of the North of Europe for the
manufactures of Great Britain, has been increasing from year to year
for some time past : and, fifthly, the late partition and consequential
pacification of Poland, by opening the market of that great country, have
this year added an extraordinary demand from thence to the increasing
demand of the North. These events are all, except the fourth, in their
nature transitory and accidental, and the exclusion from so important
a branch of the colony trade, if unfortunately it should continue much
longer, may still occasion some degree of distress. This distress, how-
ever, as it will come on gradually, will be felt much less severely than
if it had come on all at once ; and, in the meantime, the industry and
capital of the country may find a new employment and direction, so as
to prevent this distress from ever rising to any considerable height.
The monopoly of the colony trade, therefore, so far as it has turned
towards that trade a greater proportion of the capital of Great Britain
than what would otherwise have gone to it, hạs in all cases turned it,
480 FREE TRADE WITH AND TO THE COLONIES ADVOCATED.

from a foreign trade of consumption with a neighbouring, into one with

a more distant country ; in many cases, from a direct foreign trade of
consumption, into a round-about one ; and in some cases, from all
foreign trade of consumption, into a carrying trade. It has in all cases,
therefore, turned it, from a direction in which it would have maintained
a greater quantity of productive labour, into one in which it can main-
tain a much smaller quantity. By suiting, besides, to one particular
market only, so great a part of the industry and commerce of Great
Britain, it has rendered the whole state of that industry and commerce
more precarious and less secure, than if their produce had been
accommodated to a greater variety of markets.
We must carefully distinguish between the effects of the colony trade
and those of the monopoly of that trade. The former are always and
necessarily beneficial ; the latter always and necessarily hurtful. But
the former are so beneficial, that the colony trade, though subject to a
monopoly, and notwithstanding the hurtful effects of that monopoly, is
still upon the whole beneficial, and greatly beneficial ; though a good
deal less so than it otherwise would be.
The effect of the colony trade in its natural and free state, is to open
a great, though distant market for such parts of the produce of British
industry as may exceed the demand of the markets nearer home, of
those of Europe, and of the countries which lie round the Mediter-
ranean sea. In its natural and free state, the colony trade, without
drawing from those markets any part of the produce which had ever
been sent to them, encourages Great Britain to increase the surplus
continually, by continually presenting new equivalents to be exchanged
for it. In its natural and free state, the colony trade tends to increase
the quantity of productive labour in Great Britain, but without altering
in any respect the direction of that which had been employed there
before. In the natural and free state of the colony trade, the competi-
tion of all other nations would hinder the rate of profit from rising
above the commor level either in the new market, or in the new
employment. The new market, without drawing anything from the olo
one, would create, if one may say so, a new produce for its own supply
and that new produce would constitute a new capital for carrying c
the new employment, which in the same manner would draw nothing
from the old one.
The monopoly of the colony trade, on the contrary, by excluding the
competition of other nations, and thereby raising the rate of profit both
in the new market and in the new employment, draws produce from the
old market and capital from the old employment. To augment our
share of the colony trade beyond what it otherwise would be, is the
avowed purpose of the monopoly. If our share of that trade were to
be no greater with, than it would have been without the monopoly,
there could have been no reason for establishing the monopoly. But
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. a481

whatever forces into a branch of trade of which the returns are slower
and more distant than those of the greater part of other trades, a
greater proportion of the capital of any country than what of its own
accord would go to that branch, necessarily renders the whole quantity
of productive labour annually maintained there, the whole annual pro-
duce of the land and labour of that country, less than they otherwise
would be. It keeps down the revenue of the inhabitants of that
country, below what it would naturally rise to, and thereby diminishes
their power of accumulation. It not only hinders, at all times, their
capital from maintaining so great a quantity of productive labour as it
would otherwise maintain, but it hinders it from increasing so fast as it
would otherwise increase, and consequently from maintaining a still
greater quantity of productive labour.
The natural good effects of the colonial trade, however, more than
counterbalance to Great Britain the bad effects of the monopoly, so
that, monopoly and all together, that trade, even as it is carried on at
present, is not only advantageous, but greatly advantageous. The new
market and the new employment which are opened by the colony trade,
are of much greater extent than that portion of the old market and of
the old employment which is lost by the monopoly. The new produce
and the new capital which has been created, if one may say so, by the
colonial trade, maintain in Great Britain a greater quantity of productive
labour, than what can have been thrown out of employment by the
revulsion of capital from other trades of which the returns are more
frequent. If the colonial trade, however, even as it is carried on at
present, is advantageous to Great Britain, it is not by means of the
monopoly, but in spite of the monopoly.
It is rather for the manufactured than for the rude produce of Europe,
that the colonial trade opens a new market. Agriculture is the proper
business of all new colonies ; a business which the cheapness of land
renders more advantageous than any other. They abound, therefore,
in the rude produce of land, and instead of importing it from other
countries, they have generally a large surplus to export. In new
colonies, agriculture either draws hands from all other employments,
or keeps them from going to any other employment. There are few
hands to spare for the necessary, and none for the ornamental manu-
factures. The greater part of the manufactures of both kinds, they
find it cheaper to purchase of other countries than to make for them-
selves. It is chiefly by encouraging the manufactures of Europe, that
the colonial trade indirectly encourages its agriculture. The manu-
facturers of Europe, to whom that trade gives employment, constitute
a new market for the produce of the land ; and the most advantageous
of all markets, the home market for the corn and cattle, for the bread
and butcher's-meat of Europe. is thus greatly extended by means of
the trade to America,
31
482 EFFECT OF COLONIAL TRADE ON HOME MARKETS.

But that the monopoly of the trade of populous and thriving colonies
is not alone sufficient to establish, or even to maintain manufactures in
any country, the examples of Spain and Portugal sufficiently demon-
strate. Spain and Portugal were manufacturing countries before they
had any considerable colonies. Since they had the richest and most
fertile in the world, they have both ceased to be so.
In Spain and Portugal, the bad effects of the monopoly, aggravated
by other causes, have, perhaps, nearly overbalanced the natural good
effects of the colony trade. These causes seem to be, other monopolies
of different kinds ; the degradation of the value of gold and silver below
what it is in most other countries ; the exclusion from foreign markets
by improper taxes upon exportation, and the narrowing of the home
market, by still more improper taxes upon the transportation of goods
from one part of the country to another ; but above all, that irregular
and partial administration of justice, which often protects the rich and
powerful debtor from the pursuit of his injured creditor, and which
makes the industrious part of the nation afraid to prepare goods for
the consumption of those haughty and great men, to whom they dare
not refuse to sell upon credit, and from whom they are altogether un-
certain of repayment.
In England, on the contrary, the natural good effects of the colonial
trade, assisted by other causes, have in a great measure conquered the
bad effects of the monopoly. These causes seem to be, the general
liberty of trade, which, notwithstanding some restraints, is at least
equal, perhaps superior, to what it is in any other country ; the liberty
of exporting, duty free, almost all sorts of goods which are the produce
of domestic industry, to almost any foreign country ; and what, per-
haps, is of still greater importance, the unbounded liberty of transport-
ing them from any one part of our own country to any other, without
oeing obliged to give any account to any public office, without being
liable to question or examination of any kind ; but above all, that equal
and impartial administration of justice which renders the rights of the
meanest British subject respectable to the greatest, and which, by
securing to every man the fruits of his own industry, gives the greatest
and most effectual encouragement to every sort of industry.
If the manufactures of Great Britain, however, have been advanced,
as they certainly have, by the colonial trade, it has not been by means
of the monopoly of that trade, but in spite of the monopoly. The effect
of the monopoly has been, not to augment the quantity, but to alter
the quality and shape of a part of the manufactures of Great Britain,
and to accommodate to a market, from which the returns are slow and
distant, what would otherwise have been accommodated to one from
which the returns are frequent and near. Its effect has consequently
been to turn a part of the gapital of Great Britain from an employment
in which it would have maintained a greater quantity of manufacturing
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS.

industry, to one in which it maintains a much smaller, and thereby

diminish, instead of increasing, the whole quantity of manufacturing
industry maintained in Great Britain.
The monopoly of the colonial trade, therefore, like all the other mean
and malignant expedients of the mercantile system, depresses the in-
dustry of all other countries, but chiefly that of the colonies, without in
the least increasing, but on the contrary diminishing, that of the country
in whose favour it is established.
The monopoly hinders the capital of that country, whatever may at
any particular time be the extent of that capital, from maintaining so
great a quantity of productive labour as it would otherwise maintain,
and from affording so great a revenue to the industrious inhabitants
as it would otherwise afford. But as capital can be increased only by
savings from revenue, the monopoly, by hindering it from affording so
great a revenue as it would otherwise afford, necessarily hinders it from
increasing so fast as it would otherwise increase, and consequently
from maintaining a still greater quantity of productive labour, and
affoiling a still greater revenue to the industrious inhabitants of that
country. One great original source of revenue, therefore, the wages of
labour, the monopoly must necessarily have rendered at all times less
abundant than it otherwise would have been.
By raising the rate of mercantile profit, the monopoly discourages
the improvement of land. The profit of improvement depends upon
the difference between what the land actually produces, and what, by
the application of a certain capital, it can be made to produce. If this
difference affords a greater profit than what can be drawn from an
equal capital in any mercantile employment, the improvement of land
will draw capital from all mercantile employments. If the profit is
less, mercantile employments will draw capital from the improvement
ofland. Whatever therefore raises the rate of mercantile profit, either
lessens the superiority or increases the inferiority of the profit of im-
provement ; and in the one case hinders capital from going to improve-
ment, and in the other draws capital from it. But by discouraging
improvement, the monopoly necessarily retards the natural increase
of another great original source of revenuc, the rent of land. By
raising the rate of profit too, the monopoly necessarily keeps up the
market rate of interest higher than it otherwise would be. But the
price of land in proportion to the rent which it affords, the number of
years purchase which is commonly paid for it, necessarily falls as the
rate of interest rises, and rises as the rate of interest falls. The mono-
poly, therefore, hurts the interest of the landlord two different ways ; by
retarding the natural increase, first, of his rent, and secondly, of the
price which he would get for his land in proportion to the rent which
: affords.
The monopoly,indeed, raises the rate of mercantile profit, and there-
31 *
 484 HIGH PROFITS ABATE PARSIMONY IN MERCHANTS .

by augments somewhat the gain of our merchants. But as it obstructs

the natural increase of capital, it tends rather to diminish than to in-
crease the sum total of the revenue which the inhabitants of the country
derive from the profits of stock ; a small profit upon a great capital
generally affording a greater revenue than a great profit upon a small
one. The monopoly raises the rate of profit, but it hinders the sum of
profit from rising so high as it otherwise would do. 195
All the original sources of revenue, the wages of labour, the rent of
land, and the profits of stock, the monopoly renders much less abun-
dant than they otherwise would be. To promote the little interest of
: one little order of men in one country, it hurts the interest of all other
orders of men in that country, and of all men in all other countries.
It is solely by raising the ordinary rate of profit that the monopoly
either has proved or could prove advantageous to any one particular
order of men. But besides all the bad effects to the country in general,
which have already been mentioned as necessarily resulting from a
high rate of profit ; there is one more fatal, perhaps, than all these put
together, but which, if we may judge from experience, is inseparably
connected with it. The high rate of profit seems everywhere to destroy
that parsimony which in other circumstances is natural to the character
of the merchant. 196When profits are high, that sober virtue seems to
be superfluous, and expensive luxury to suit better the affluence of his
situation. But the owners of the great mercantile capitals are neces-
sarily the leaders and conductors of the whole industry of every nation ,
and their example has a much greater influence upon the manners of
the whole industrious part of it than that of any other order of men.
If his employer is attentive and parsimonious, the workman is very
likely to be so too ; but if the master is dissolute and disorderly, the
servant who shapes his work according to the pattern which his master
prescribes to him, will shape his life too according to the example which
he sets him. Accumulation is thus prevented in the hands of all those
who are naturally the most disposed to accumulate ; and the funds
destined for the maintenance of productive labour receive no augment-
ation from the revenue of those who ought naturally to augment them
he most. The capital of the country, instead of increasing, gradually
dwindles away, and the quantity of productive labour maintained in it
grows every day less and less. Have the exorbitant profits of the
merchants of Cadiz and Lisbon augmented the capital of Spain and
Portugal ? Have they alleviated the poverty, have they promoted the
industry of those two beggarly countries ? Such has been the tone of
mercantile expense in those two trading cities, that those exorbitant
profits, far from augmenting the general capital of the country, seem
scarce to have been sufficient to keep up the capitals upon which they
were made. Foreign capitals are every day intruding themselves,
if I may say so, more and more into the trade of Cadiz and Lisbon
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 485

It is to expel those foreign capitals from a trade which their own grows
every day more and more insufficient for carrying on, that the Spaniards
and Portuguese endeavour every day to straiten more and more the
galling bands of their absurd monopoly. Compare the mercantile
manners of Cadiz and Lisbon with those of Amsterdam, and you will
be sensible how differently the conduct and character of merchants are
affected by the high and bythe low profits of stock. The merchants of
London, indeed, have not yet generally become such magnificent lords
as those of Cadiz and Lisbon ; but neither are they in general such
attentive and parsimonious burghers as those of Amsterdam. They are
supposed, however, many of them, to be a good deal richer than the
greater part of the former, and not quite so rich as many of the latter.
But the rate of their profit is commonly much lower than that of the
former, and a good deal higher than that of the latter. Light come
light go, says the proverb : and the ordinary tone of expense seems
everywhere to be regulated, not so much according to the real ability
of spending, as to the supposed facility of getting money to spend.
It is thus that the single advantage which the monopoly procures to
a single order of men, is in many different ways hurtful to the general
interest of the country.
To found a great empire for the sole purpose of raising up a people
of customers, may at first sight appear a project fit only for a nation of
shopkeepers. It is, however, a project altogether unfit for a nation of
shopkeepers ; but extremely fit for a nation whose government is influ-
enced by shopkeepers. Such statesmen, and such statesmen only, are
capable of fancying that they will find some advantage in employing
the blood and treasure of their fellow-citizens, to found and maintain
such an empire. Say to a shopkeeper, Buy me a good estate, and I
shall always buy my clothes at your shop, even though I should pay
somewhat dearer than what I can have them for at other shops ; and
you will not find him very forward to embrace your proposal. But
should any other person buy you such an estate, the shopkeeper would
be much obliged to your benefactor if he would enjoin you to buy all
your clothes at his shop. England purchased for some of her subjects, ·
who found themselves uneasy at home, a great estate in a distant
country. The price, indeed, was very small, and instead of thirty years
purchase, the ordinary price of land in the present times, it amounted
to little more than the expense of the different equipments which made
the first discovery, reconnoitred the coast, and took a fictitious posses-
sion of the country. The land was good and of great extent, and the
cultivators having plenty of good ground to work upon, and being for
some time at liberty to sell their produce where they pleased, became
in the course of little more than thirty or forty years (between 1620
and 1660) so numerous and thriving a people, that the shopkeepers and
other raders of England wished to secure to themselves the monopoly
486 THE SOLE END OF THE MAINTENANCE OF MONOPOLY.

of their custom. Without pretending, therefore, that they had paid

any part, either of the original purchase-money or of the subsequent
expense of improvement, they petitioned the parliament that the culti-
vators of America might for the future be confined to their shop ; first,
for buying all the goods which they wanted from Europe ; and,
secondly, for selling all such parts of their own produce as those traders
might find it convenient to buy. For they did not find it convenient to
buy every part of it. Some parts of it imported into England might
have interfered with some of the trades which they themselves carried
on at home. Those particular parts of it, therefore, they were willing
that the colonists should sell where they could—the farther off the
better ; and upon that account proposed that their market should be
confined to the countries south of Cape Finisterre. A clause in the
famous act of navigation established this truly shopkeeper proposal
into a law.
The maintenance of this monopoly has hitherto been the principal,
or more properly perhaps the sole end and purpose of the dominion
which Great Britain assumes over her colonies. In the exclusive
trade, it is supposed, consists the great advantages of provinces which
have never yet afforded either revenue or military force for the support
of the civil government or the defence of the mother country. The
monopoly is the principal badge of their dependency, and it is the sole
fruit which has hitherto been gathered from that dependency. What-
ever expense Great Britain has hitherto laid out in maintaining this de-
pendency, has really been laid out in order to support this monopoly. The
expense of the ordinary peace establishment of the colonies amounted,
before the commencement of the present disturbances, to the pay of
twenty regiments of foot ; to the expense of the artillery, stores, and
extraordinary provisions with which it was necessary to supply them ;
and to the expense of a very considerable naval force which was con-
stantly kept up, in order to guard, from the smuggling vessels of other
nations, the immense coasts of North America and that of our West
Indian Islands. The whole expense of this peace establishment was
a charge upon the revenue of Great Britain, and was, at the same time,
the smallest part of what the dominion of the colonies has cost the
mother country. If we would know the amount of the whole, we must
add to the annual expense of this peace establishment the interest of
the sums which, in consequence of her considering her colonies as
provinces subject to her dominion, Great Britain has upon different
occasions laid out upon their defence. We must add to it, in particular,
the whole expense of the late war, and a great part of that of the war
which preceded it. The late war was altogether a colony quarrel, and the
whole expense of it, in whatever part of the world it may have been
laid out, whether in Germany or the East Indies, ought justly to be
stated to the account of the colonies. It amounted to more than ninety
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 487

millions sterling, including not only the newdebt which was contracted,
but the two shillings in the pound additional land tax, and the sums
which were every year borrowed from the sinking fund. The Spanish
war which began in 1739, was principally a colony quarrel. Its princi-
pal object was to prevent the search of the colony ships which carried
on a contraband trade with the Spanish main. This whole expense is ,
in reality, a bounty which has been given in order to support a mono-
poly. The pretended purpose of it was to encourage the manufactures,
and to increase the commerce of Great Britain. But its real effect has
been to raise the rate of mercantile profit, and to enable our merchants
to turn into a branch of trade, of which the returns are more slow and
distant than those of the greater part of other trades, a greater propor-
tion of their capital than they otherwise would have done ; two events
which if a bounty could have prevented, it might perhaps have been
very well worth while to give such a bounty.
Under the present system of management, therefore, Great Britain
derives nothing but loss from the dominion which she has assumed
over her colonies.
To propose that Great Britain should voluntarily give up all author-
ity over her colonies, and leave them to elect their own magistrates, to
enact their own laws, and to make peace and war as they might think
proper, would be to propose such a measure as never was and never
will be adopted by any nation in the world. No nation ever volunta-
rily gave up the dominion of any province, how troublesome soever it
might be to govern it, and how small soever the revenue which it
afforded might be in proportion to the expense which it occasioned.
Such sacrifices, though they might frequently be agreeable to the
interest, are always mortifying to the pride of every nation ; and what is
perhaps of still greater consequence, they are always contrary to the
private interest of the governing part of it, who would thereby be
deprived of the disposal of many places of trust and profit, of many
opportunities of acquiring wealth and distinction, which the possession
of the most turbulent, and, to the great body of the people, the most
unprofitable province seldom fails to afford. The most visionary en-
thusiast would scarce be capable of proposing such a measure, with
any serious hopes at least of its ever being adopted. If it was adopted,
however, Great Britain would not only be immediately freed from the
whole annual expense of the peace establishment of the colonies, but
might settle with them such a treaty of commerce as would effectually
secure to her a free trade, more advantageous to the great body of the
people, though less so to the merchants, than the monopoly which she
at present enjoys.108By thus parting good friends, the natural affection
of the colonies to the mother country, which, perhaps, our late dissen-
sions have well nigh extinguished, would quickly revive. It might dis-
pose them not only to respect, for whole centuries together, that treaty
488 MONOPOLY IN BRITAIN A TAX ON THE COLONIES.

of commerce which they had concluded with us at parting, but to favour

us in war as well as in trade, and, instead of turbulent and factious
subjects, to become our most faithful, affectionate, and generous allies;
and the same sort of parental affection on the one side, and filial respect
on the other, might revive between Great Britain and her colonies,
which used to subsist between those of ancient Greece and the mother
city from which they descended.
In order to render any province advantageous to the empire to which
it belongs, it ought to afford, in time of peace, a revenue to the public
sufficient, not only for defraying the whole expense of its own peace
establishment, but for contributing its proportion to the support of the
general government of the empire. Every province necessarily con-
tributes, more or less, to increase the expense of that general govern-
ment. If any particular province, therefore, does not contribute its
share towards defraying this expense, an unequal burden must be
thrown upon some other part of the empire. The extraordinary re-
venue too which every province affords to the public in time of war,
ought, from parity of reason, to bear the same proportion to the extra-
ordinary revenue of the whole empire which its ordinary revenue does
in time of peace. That neither the ordinary nor extraordinary revenue
which Great Britain derives from her colonies bears this proportion to
the whole revenue of the British empire, will readily be allowed. The
monopoly, it has been supposed, indeed , by increasing the private rev-
enue of the people of Great Britain, and thereby enabling them to pay
greater taxes, compensates the deficiency of the public revenue of the
colonies. But this monopoly, I have endeavoured to show, though a
very grievous tax upon the colonies, and though it may increase the
revenue of a particular order of men in Great Britain, diminishes in-
stead ofincreasing that ofthe great body ofthe people ; and consequently
diminishes instead of increasing the ability of the great body of the
people to pay taxes. The men too whose revenue the monopoly
increases, constitute a particular order, which it is both absolutely im-
possible to tax beyond the proportion of other orders, and extremely
impolitic even to attempt to tax beyond that proportion, as I shall en-
deavour to show in the following book. No particular resource, there-
fore can be drawn from this particular order.
The colonies may be taxed either by their own assemblies, or by the
parliament of Great Britain.
That the colony assemblies can ever be so managed as to levy upon
their constituents a public revenue sufficient, not only to maintain at all
times their own civil and military establishment, but to pay their proper
proportion of the expense of the general government of the British
empire, seems not very probable. It was a long time before even the
parliament of England, though placed immediately under the eye ofthe
sovereign, could be brought under such a system of management, or
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 489

could be rendered sufficiently liberal in their grants for supporting the

civil and military establishments even of their own country. It was
only by distributing among the particular members of parliament, a
great part either of the offices, or of the disposal of the offices arising
from this civil and military establishment, that such a system of
management could be established even with regard to the parliament of
England. But the distance of the colony assemblies from the eye of
the sovereign, their number, their dispersed situation, and their various
constitutions, would render it very difficult to manage them in the same
manner, even though the sovereign had the same means of doing it ;
and those means are wanting. It would be absolutely impossible to
distribute among all the leading members of all the colony assemblies
such a share, either of the offices or of the disposal of the offices arising
from the general government of the British empire, as to dispose them
to give up their popularity at home, and to tax their constituents for the
support of that general government, of which almost the whole emolu-
ments were to be divided among people who were strangers to them.
The unavoidable ignorance of administration, besides, concerning the
relative importance of the different members of those different assem-
blies, the offences which must frequently be given, the blunders which
must constantly be committed in attempting to manage them in this
manner, seems to render such a system of management altogether im-
practicable with regard to them.
The colonial assemblies, besides, cannot be supposed the proper
judges of what is necessary for the defence and support of the whole
empire. The care of that defence and support is not entrusted to
them. It is not their business, and they have no regular means of
information concerning it. The assembly of a province, like the vestry
of a parish, may judge very properly concerning the affairs of its own
particular district ; but can have no proper means ofjudging concern-
ing those of the whole empire. It cannot even judge properly con-
cerning the proportion which its own province bears to the whole
empire ; or concerning the relative degree of its wealth and importance,
compared with the other provinces ; because those other provinces are
not under the inspection and superintendency of the assembly of a
particular province. What is necessary for the defence and support of
the whole empire, and in what proportion each part ought to contri- 慶
bute, can be judged of only by that assembly which inspects and
superintends the affairs of the whole empire.
It has been proposed, accordingly, that the colonies should be taxed
by requisition, the parliament of Great Britain determining the sum
which each colony ought to pay, and the provincial assembly assess-
ing and levying it in the way that suited best the circumstances of the
province. What concerned the whole empire would in this way be
determined by the assembly which inspects and uperintends the
490 EXTENT TO WHICH THE COLONIES HAVE BEEN TAXED.

affairs of the whole empire ; and the provincial affairs of each colony
might still be regulated by its own assembly. Though the colonies
should in this case have no representatives in the British parliament,
yet, if we may judge by experience, there is no probability that the
parliamentary requisition would be unreasonable. The parliament of
England has not upon any occasion shown the smallest disposition to
overburden those parts of the empire which are not represented in par-
liament. The islands of Guernsey and Jersey, without any means of
resisting the authority of parliament, are more lightly taxed than any
part of Great Britain. Parliament in attempting to exercise its sup-
posed right, whether well or ill grounded, of taxing the colonies, has
never hitherto demanded of them anything which even approached to
a just proportion to what was paid by their fellow- subjects at home.
If the contribution of the colonies, besides, was to rise or fall in pro-
portion to the rise or fall of the land tax, parliament could not tax them
without taxing at the same time its own constituents, and the colonies
might in this case be considered as represented in parliament.
Examples are not wanting of empires in which all the different pro-
vinces are not taxed, if I may be allowed the expression, in one mass,
but in which the sovereign . regulates the sum which each province
ought to pay ; and in some provinces assesses and levies it as he thinks
proper, while in others he leaves it to be assessed and levied as the
respective states of each province shall determine. In some provinces
of France, the king not only imposes what taxes he thinks proper, but
assesses and levies them in the way he thinks proper. From others he
demands a certain sum, but leaves to the state of each province to
assess and levy that sum as they think proper. According to the
scheme of taxing by requisition, the parliament of Great Britain would
stand nearly in the same situation towards the colony assemblies, as
the king of France does towards the states of those provinces which
still enjoy the privilege of having states of their own, the provinces of
France which are supposed to be the best governed.
But though, according to this scheme, the colonies could have no
just reason to fear that their share of the public burdens should ever
exceed the proper proportions to that of their fellow-citizens at home ;
Great Britain might have just reason to fear that it never would
amount to that proper proportion. The parliament of Great Britain
has not for some time past had the same established authority in the
colonies, which the French king has in those provinces of France
which still enjoy the privilege of having states of their own. The
colony assemblies, if they were not very favourably disposed (and
unless more skilfully managed than they ever have been hitherto, ther
are not very likely to be so), might still find many pretences for evading
or rejecting the most reasonable requisitions of parliament . A French
war breaks out, we shall suppose ; ten millions must immediately be
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 491

raised, in order to defend the seat of the empire. This sum must be
borrowed upon the credit of some parliamentary fund mortgaged for
paying the interest. Part ofthis fund parliament proposes to raise by
a tax to be levied in Great Britain, and part of it by a requisition to all
the different colony assemblies of America and the West Indies.
Would people readily advance their money upon the credit of a fund
which partly depended upon the good humour of all those assemblies,
far distant from the seat of the war, and sometimes, perhaps, thinking
themselves not much concerned in the event of it ? Upon such a fund
no more money would probably be advanced than what the tax to be
levied in Great Britain might be supposed to answer for. The whole
burden of the debt contracted on account of the war would in this
manner fall, as it always has done hitherto, upon Great Britain ; upon
a part of the empire, and not upon the whole empire. Great Britain
is, perhaps, since the world began, the only state which, as it has
extended its empire, has only increased its expense without once aug-
menting its resources. Other states have generally disburdened them-
selves upon their subject and subordinate provinces of the most con-
siderable part of the expense of defending the empire. Great Britain
has hitherto suffered her subject and subordinate provinces to disbur-
den themselves upon her of almost this whole expense. In order to
put Great Britain upon a footing of equality with her own colonies,
which the law has hitherto supposed to be subject and subordinate, it
seems necessary, upon the scheme of taxing them by parliamentary
requisition, that parliament should have some means of rendering its
requisitions immediately effectual, in case the colony assemblies should
attempt to evade or reject them ; and what those means are it is not
very easy to conceive, and it has not yet been explained.
Should the parliament of Great Britain, at the same time, be ever
fully established in the right of taxing the colonies, even independent
of the consent of their own assemblies, the importance of those assem-
blies would from that moment be at an end, and with it that of all the
leading men of British America. Men desire to have some share in
the management of public affairs chiefly on account of the importance
which it gives them. Upon the power which the greater part of the
leading men, the natural aristocracy of every country, have of preserving
or defending their respective importance, depends the stability and
duration of every system of free government. In the attacks which
those leading men are continually making upon the importance of one
another, and in the defence of their own, consists the whole play of
domestic faction and ambition. The leading men of America, like
those of all other countries, desire to preserve their own importance.
They feel, or imagine, that if their assemblies, which they are fond of
calling parliaments and of considering as equal in authority to the par-
liament of Great Britain, should be so far degraded as to become the
492 OUR COLONIES WILL NOT BE EASILY CONQUERED BY FORCE.

humble ministers and executive officers of that parliament, the greater

part of their own importance would be at an end. They have rejected,
therefore, the proposal of being taxed by parliamentary requisition, and
like other ambitious and high-spirited men, have rather chosen to draw
the sword in defence of their own importance.
Towards the declension of the Roman republic, the allies of Rome,
who had borne the principal burden of defending the state and extend-
ing the empire, demanded to be admitted to all the privileges of Roman
citizens. Upon being refused, the social war broke out. During the
course of that war Rome granted those privileges to the greater part
of them, one by one, and in proportion as they detached themselves
from the general confederacy. The parliament of Great Britain insists
upon taxing the colonies ; and they refuse to be taxed by a parlia-
ment in which they are not represented. Ifto each colony which should
detach itself from the general confederacy, Great Britain should allow
such a number of representatives as suited the proportion of what it
contributed to the public revenue of the empire, in consequence of its
being subjected to the same taxes, and in compensation admitted to the
same freedom of trade with its fellow-subjects at home ; the number of
its representatives to be augmented as the proportion of its contribu-
tion might afterwards augment ; a new method of acquiring importance,
a new and more dazzling object of ambition would be presented to the
leading men of each colony. Instead of piddling for the little prizes
which are to be found in what may be called the paltry raffle of colony
faction ; they might then hope, from the presumption which men na-
turally have in their own ability and good fortune, to draw some ofthe
great prizes which sometimes come from the wheel of the great state
lottery of British politics. Unless this or some other method is fallen
upon, and there seems to be none more obvious than this, of preserving
the importance and of gratifying the ambition of the leading men of
America, it is not very probable that they will ever voluntarily submit
to us ; and we ought to consider that the blood which must be shed in
forcing them to do so is, every drop of it, the blood either of those who
are, or of those whom we wish to have, for our fellow-citizens. They
are very weak who flatter themselves that, in the state to which things
have come, our colonies will be easily conquered by force alone. The
persons who now govern the resolutions of what they call their conti-
nental congress, feel in themselves at this moment a degree of import-
ance which, perhaps, the greatest subjects in Europe scarce feel. From
shopkeepers, tradesmen, and attorneys, they are become statesmen and
legislators, and are employed in contriving a new form of government
for an extensive empire, which, they flatter themselves, will become,
and which, indeed, seems very likely to become, one of the greatest and
most formidable that ever was in the world. Five hundred different
people, perhaps, who in different ways act immediately under the con-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 493

tinental congress ; and five nundred thousand, perhaps, who act under
those five hundred, all feel in the same manner a proportionable rise in
their own importance. Almost every individual of the governing party
in America fills at present, in his own fancy, a station superior, not
only to what he had ever filled before, but to what he had ever expected
to fill ; and unless some new object of ambition is presented either to
him or to his leaders, if he has the ordinary spirit of a man, he will die
in defence of that station.
It is a remark of the President Henaut, that we now read with pleasure
the account of many little transactions of the League, which, when they
happened, were not perhaps considered as very important pieces of
news. But every man then, says he, fancied himself of some import-
ance ; and the innumerable memoirs which have come down to us
from those times were, the greater part of them, written by people who
took pleasure in recording and magnifying events in which, they
flattered themselves, they had been considerable actors. How ob-
stinately the city of Paris upon that occasion defended itself, what a
dreadful famine it supported rather than submit to the best and after-
wards to the most beloved of all the French kings, is well known. The
greater part of the citizens, or those who governed the greater part of
them, fought in defence of their own importance, which they foresaw
was to be at an end whenever the ancient government should be re-
established. Our colonies, unless they can be induced to consent to a
union, are very likely to defend themselves against the best of all
mother countries, as obstinately as the city of Paris did against one of
the best of kings.
The idea of representation was unknown in ancient times. When
the people of one state were admitted to the right of citizenship in
another, they had no other means of exercising that right but by coming
in a body to vote and deliberate with the people of that other state.
The admission of the greater part of the inhabitants of Italy to the
privileges of Roman citizens, completely ruined the Roman republic.
It was no longer possible to distinguish between who was and who was
not a Roman citizen. No tribe could know its own members. A rab-
ble of any kind could be introduced into the assemblies ofthe people,
could drive out the real citizens, and decide upon the affairs of the re-
public as if they themselves had been such. But though America were
to send fifty or sixty new representatives to parliament, the doorkeeper
of the House of Commons could not find any great difficulty in dis-
tinguishing between who was and who was not a member. Though
the Roman constitution, therefore, was necessarily ruined by the union
of Rome with the allied states of Italy, there is not the least probability
that the British constitution would be hurt by the union of Great
Britain with her colonies. That constitution, on the contrary, would
be completed by it, and seems to be imperfect without it. The assem
494 PROGRESS OF AMERICA IN WEALTH AND POPULATION.

bly which deliberates and decides concerning the affairs of every part
of the empire, in order to be properly informed, ought certainly to have
representatives from every part of it. That this union, however, could
be easily effectuated, or that difficulties and great difficulties might not
occur in the execution, I do not pretend. I have yet heard of none,
however, which appear insurmountable. The principal perhaps arise,
not from the nature of things, but from the prejudices and opinions of
the people both on this and on the other side of the Atlantic.
We, on this side the water, are afraid lest the multitude of American
representatives should overturn the balance of the constitution, and
increase too much either the influence of the crown on the one hand,
or the force of the democracy on the other. But if the number of
American representatives were to be in proportion to the produce of
American taxation, the number of people to be managed would increase
exactly in proportion to the means of managing them ; and the means
of managing, to the number of people to be managed. The monarch-
ical and democratical parts of the constitution would, after the union,
stand exactly in the same degree of relative force with regard to one
another as they had done before.
The people on the other side of the water are afraid lest their dis-
tance from the seat of government might expose them to many oppres-
sions. But their representatives in parliament, of which the number
ought from the first to be considerable, would easily be able to protect
them from all oppression. The distance could not much weaken the
dependency of the representative upon the constituent, and the former
would still feel that he owed his seat in parliament, and all the conse-
quence which he derived from it, to the good-will of the latter. It
would be the interest of the former, therefore, to cultivate that good-
will by complaining, with all the authority of a member of the legisla-
ture, of every outrage which any civil or military officer might be guilty
ofin those remote parts of the empire. The distance of America from
the seat of government, besides, the natives of that country might
flatter themselves, with.some appearance of reason too , would not be
of very long continuance. Such has hitherto been the rapid progress
of that country in wealth, population, and improvement, that in the
course of little more than a century, perhaps, the produce of American
might exceed that of British taxation. The seat of the empire would
then naturally remove itself to that part of the empire which contri-
buted most to the general defence and support of the whole.
The discovery of America, and that of a passage to the East Indies
by the Cape of Good Hope, are the two greatest and most important
events recorded in the history of mankind. Their consequences have
already been very great : but, in the short period of between two and
three centuries which has elapsed since these discoveries were made.
it is impossible that the whole extent of their consequences can havẹ
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 495

been seen. What benefits, or what misfortunes to mankind may here-

after result from those great events, no human wisdom can foresee. By
uniting, in some measure , the most distant parts of the world , by cn-
abling them to relieve one another's wants, to increase one another's
enjoyments, and to encourage one another's industry, their general
tendency would seem to be beneficial. To the natives , however, both
of the East and West Indies, all the commercial benefits which can
have resulted from those events have been sunk and lost in the dread-
ful misfortunes which they have occasioned. These misfortunes, how-
ever, seem to have arisen rather from accident than from anything in
the nature of those events themselves. At the particular time when
these discoveries were made, the superiority of force happened to be so
great on the side of the Europeans , that they were enabled to commit
with impunity every sort of injustice in those remote countries . Here-
after, perhaps , the natives of those countries may grow stronger, or
those of Europe may grow weaker, and the inhabitants of all the dif-
ferent quarters of the world may arrive at that equality of courage and
force which , by inspiring mutual fear, can alone overawe the injustice
of independent nations into some sort of respect for the rights of one
another. But nothing seems more likely to establish this equality of
force than that mutual communication of knowledge and of all sorts of
improvements which an extensive commerce from all countries to all
countries naturally, or rather necessarily, carries along with it.
In the meantime one of the principal effects of those discoveries has
been to raise the mercantile system to a degree of splendour and glory
which it could never otherwise have attained to. It is the object of
that system to enrich a great nation rather by trade and manufactures
than bythe improvement and cultivation of land, rather by the industry
of the towns than by that of the country. But, in consequence of those
discoveries, the commercial towns of Europe, instead of being the
manufacturers and carriers for but a very small part of the world (that
part of Europe which is washed by the Atlantic ocean, and the coun-
tries which lie round the Baltic and Mediterranean seas), have now
⚫ become the manufacturers for the numerous and thriving cultivators of
America, and the carriers, and in some respects the manufacturers too,
for almost all the different nations of Asia, Africa, and America. Two
new worlds have been opened to their industry, each of them much
greater and more extensive than the old one, and the market of one of
them growing still greater and greater every day.
The countries which possess the colonies of America, and which
trade directly to the East Indies, enjoy, indeed, the whole show and
splendour of this great commerce. Other countries, however, notwith-
standing all the invidious restraints by which it is meant to exclude
them, frequently enjoy a greater share of the real benefit of it. The
colonies of Spain and Portugal, for example, give more real encourage-
496 VALUE OF THE COLONIAL TRADE TO GREAT BRITAIN.

ment to the industry of other countries than to that of Spain and Por-
tugal. In the single article of linen alone the consumption of those
colonies amounts, it is said, but I do not pretend to warrant the quan-
tity, to more than three millions sterling a year. But this great con-
sumption is almost entirely supplied by France, Flanders, Holland,
and Germany. Spain and Portugal furnish but a small part of it. The
capital which supplies the colonies with this great quantity of linen is
annually distributed among, and furnishes a revenue to the inhabitants
of those other countries. The profits of it only are spent in Spain and
Portugal, where they help to support the sumptuous profusion of the
merchants of Cadiz and Lisbon.
Even the regulations by which each nation endeavours to secure to
itself the exclusive trade of its own colonies, are frequently more hurt-
ful to the countries in favour of which they are established than to
those against which they are established. The unjust oppression of
the industry of other countries falls back, if I may say so, upon the
heads of the oppressors, and crushes their industry more than it does
that of those other countries. By those regulations, for example, the
merchant of Hamburgh must send the linen which he destines for the
American market to London, and he must bring back from thence the
tobacco which he destines for the German market ; because he can
neither send the one directly to America, nor bring back the other
directly from thence. By this restraint he is probably obliged to sell
the one somewhat cheaper, and to buy the other somewhat dearer than
he otherwise might have done ; and his profits are probably somewhat
abridged by means of it. In this trade, however, between Hamburgh
and London, he certainly receives the returns of his capital much more
quickly than he could possibly have done in the direct trade to Ame-
rica, even though we should suppose, what is by no means the case,
that the payments of America were as punctual as those of London.
In the trade, therefore, to which those regulations confine the merchant
of Hamburgh, his capital can keep in constant employment a much
greater quantity of German industry than it possibly could have done
in the trade from which he is excluded. Though the one employment,
therefore, may to him perhaps be less profitable than the other, it can-
not be less advantageous to his country. It is quite otherwise with the
employment into which the monopoly naturally attracts, if I may say
so, the capital of the London merchant. That employment may, per- Ca
haps, be more profitable to him than the greater part of other employ- en
ments, but, on account of the slowness of the returns, it cannot be
more advantageous to his country.
After all the unjust attempts, therefore, of every country in Europe 278
to engross to itself the whole advantage of the trade of its own colo- 80
nies, no country has yet been able to engross to itself anything but the
pense of supporting in time of peace and of defending in time of war
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 497

the oppressive authority which it assumes over them. The inconve-

niencies resulting from the possession of its colonies, every country
has engrossed to itself completely. The advantages resulting from
their trade it has been obliged to share with other countries.
At first sight, no doubt, the monopoly of the great commerce of
America naturally seems to be an acquisition of the highest value. To
the undiscerning eye of giddy ambition, it naturally presents itself
amidst the confused scramble of politics and war, as a very dazzling
object to fight for. The dazzling splendour of the object, however, the
immense greatness of the commerce, is the very quality which renders
the monopoly of it hurtful, or which makes one employment, in its own
nature necessarily less advantageous to the country than the greater
part of other employments, absorb a much greater proportion of the
capital of the country than would otherwise have gone to it.
The mercantile stock of every country, it has been shown in the
second book, naturally seeks, if one may say so, the employment most
advantageous to that country. If it is employed in the carrying trade,
the country to which it belongs becomes the emporium of the goods of
all the countries whose trade that stock carries on. But the owner of
that stock necessarily wishes to dispose of as great a part of those
goods as he can at home. He thereby saves himself the trouble, risk,
and expense, of exportation, and he will upon that account be glad to
sell them at home, not only for a much smaller price, but with some-
what a smaller profit than he might expect to make by sending them
abroad. He naturally, therefore, endeavours as much as he can to
turn his carrying trade into a foreign trade of consumption. If his
stock again is employed in a foreign trade of consumption, he will, for
the same reason, be glad to dispose of at home as great a part as he
can of the home goods, which he collects in order to export to some
foreign market, and he will thus endeavour, as much as he can, to turn
his foreign trade of consumption into a home trade. The mercantile
stock of every country naturally courts in this manner the near, and
shuns the distant employment ; naturally courts the employment in
which the returns are frequent, and shuns that in which they are dis-
tant and slow ; naturally courts the employment in which it can main-
tain the greatest quantity of productive labour in the country to which
it belongs, or in which its owner resides, and shuns that in which it
can maintain there the smallest quantity. It naturally courts the
employment which in ordinary cases is most advantageous, and shuns
that which in ordinary cases is least advantageous to that country.
But if in any of those distant employments, which in ordinary cases
are less advantageous to the country, the profit should happen to rise
somewhat higher than what is sufficient to balance the natural prefer-
ence which is given to nearer employments, this superiority of profit
will draw stock from those nearer employments, till the profits of all
༢༧
498 THE DIFFERENT REGULATIONS OF THE MERCANTILE SYSTEM.

return to their proper level. This superiority of profit, however, is a

proof that, in the actual circumstances of the society, those distant
employments are somewhat understocked in proportion to other em-
ployments, and that the stock of the society is not distributed in the
properest manner among all the different employments carried on in
it. It is a proof that something is either bought cheaper or sold dearer
than it ought to be, and that some particular class of citizens is more
or less oppressed either by paying more or by getting less than what is
suitable to that equality, which ought to take place, and which natu-
rally does take place among all the different classes of them. Though
the same capital never will maintain the same quantity of productive
labour in a distant as in a near employment, yet a distant employment
may be as necessary for the welfare of the society as a near one ; the
goods which the distant employment deals in being necessary, perhaps,
for carrying on many of the nearer employments. But if the profits
of those who deal in such goods are above their proper level, those
goods will be sold dearer than they ought to be, or somewhat above
their natural price, and all those engaged in the nearer employments
will be more or less oppressed by this high price. Their interest,
therefore, in this case requires that some stock should be withdrawn
from those nearer employments, and turned towards that distant one,
in order to reduce its profits to their proper level, and the price of the
goods which it deals in to their natural price. In this extraordinary
case, the public interest requires that some stock should be withdrawn
from those employments which in ordinary cases are more advantage-
ous, and turned towards one which in ordinary cases is less advantage-
ous to the public : and in this extraordinary case, the natural interests
and inclinations of men coincide as exactly with the public interest as
in all other ordinary cases, and lead them to withdraw stock from the
near, and to turn it towards the distant employment.
It is thus that the private interests and passions of individuals
naturally dispose them to turn their stock towards the employments
which in ordinary cases are most advantageous to the society. But if
from this natural preference they should turn too much of it towards
those employments, the fall of profit in them and the rise of it in all
others immediately dispose them to alter this faulty distribution.
Without any intervention of law, therefore, the private interests and
passions of men naturally lead them to divide and distribute the stock
of every society, among all the different employments carried on in it,
as nearly as possible in the proportion which is most agreeable to the
interest of the whole society. 199
All the different regulations of the mercantile system, necessarily
derange more or less this natural and most advantageous distribution
of stock. But those which concern the trade to America and the East
Indies derange it perhaps more than any other ; because the trade to
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 499

those two great continents absorbs a greater quantity of stock than

any two other branches of trade. The regulations, however, by which
this derangement is effected in those two different branches of trade
are not altogether the same. Monopoly is the great engine of both :
but it is a different sort of monopoly. Monopoly of one kind or
another, seems to be the sole engine of the mercantile system.
In the trade to America every nation endeavours to engross as much
as possible the whole market of its own colonies, by fairly excluding
all other nations from any direct trade to them. During the greater
part of the sixteenth century, the Portuguese endeavoured to manage
the trade to the East Indies in the same manner, by claiming the sole
"
right of sailing in the Indian seas, on account of the merit of having
first found out the road to them. The Dutch still continue to exclude
all other European nations from any direct trade to their spice islands.
Monopolies of this kind are evidently established against all other
European nations, who are thereby not only excluded from a trade to
which it might be convenient for them to turn some part of their stock,
but are obliged to buy the goods which that trade deals in somewhat
dearer than if they could import them themselves directly from the
countries which produce them.
But since the fall of the power of Portugal, no European nation has
claimed the exclusive right of sailing in the Indian seas, of which the
principal ports are now open to the ships of all European nations.
Except in Portugal, however, and within these few years in France, the
trade to the East Indies has in every European country been subjected
to an exclusive company. Monopolies of this kind are properly
established against the very nation which erects them . The greater
part of that nation are thereby not only excluded from a trade to which
it might be convenient for them to turn some part of their stock, but
are obliged to buy the goods which that trade deals in somewhat
dearer that if it was open and free to all their countrymen. Since the
establishment of the English East India Company, for example, the
other inhabitants of England, over and above being excluded from the
trade, must have paid in the price of the East India goods which they
have consumed, not only for all the extraordinary profits which the
company may have made upon those goods in consequence of their
monopoly, but for all the extraordinary waste which the fraud and
abuse, inseparable from the management of the affairs of so great a
company, must necessarily have occasioned. The absurdity of this
second kind of monopoly, therefore, is much more manifest than that
of the first. (East India Company dissolved.)
Both these kinds of monopolies derange more or less the natural
distribution of the stock of the society ; but they do not always derange
it in the same way.
Monopolies of the first kind always attract to the particular trade in
32 →
3
500 ESTABLISHMENT OF COMPANIES ENCOURAGES ADVENTURERS.

which they are established, a greater proportion of the stock of the

society than what would go to that trade of its own accord.
Monopolies of the second kind may sometimes attract stock towards
the particular trade in which they are established , and sometimes repel
it from that trade according to different circumstances. In poor coun-
tries they naturally attract towards that trade more stock than would
otherwise go to it. In rich countries they naturally repel from it a
good deal of stock which would otherwise go to it.
Such poor countries as Sweden and Denmark, for example, would
probably have never sent a single ship to the East Indies, had not the
trade been subjected to an exclusive company. The establishment of
such a company necessarily encourages adventurers. Their monopoly
secures them against all competitors in the home market, and they
have the same chance for foreign markets with the traders of other
nations. Their monopoly shows them the certainty of a great profit
upon a considerable quantity of goods, and the chance of a consider-
able profit upon a great quantity. Without such extraordinary en-
couragement, the poor traders of such poor countries would probably
never have thought of hazarding their small capitals in so very distant
and uncertain an adventure as the trade to the East Indies must
naturally have appeared to them.
Such a rich country as Holland, on the contrary, would probably,
in the case of a free trade, send many more ships to the East Indies
than it actually does. The limited stock of the Dutch East India
Company probably repels from that trade many great mercantile
capitals which would otherwise go to it. The mercantile capital of
Holland is so great that it is, as it were, continually overflowing, some-
times into the public funds of foreign countries, sometimes into loans
to private traders and adventurers of foreign countries, sometimes into
the most round-about foreign trades of consumption, and sometimes
into the carrying trade. All near employments being completely filled
ap, all the capital which can be placed in them with any tolerable pro-
fit being already placed in them, the capital of Holland necessarily
flows towards the most distant employments. The trade to the East
Indies, if it were altogether free, would probably absorb the greater
part of this redundant capital. The East Indies offer a market both
for the manufactures of Europe and for the gold and silver as well as
for several other productions of America, greater and more extensive
than both Europe and America put together.
Every derangement of the natural distribution of stock is necessarily
hurtful to the society in which it takes place ; whether it be by re-
pelling from a particular trade the stock which would otherwise go to
it, or by attracting towards a particular trade that which would not
otherwise come to it. If without any exclusive company, the trade of
Holland to the East Indies would be greater than it actually is, that
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 501

country must suffer a considerable loss by part of its capital being ex-
cluded from the employment most convenient for that part. And in
the same manner, if, without any exclusive company, the trade of
Sweden and Denmark to the East Indies would be less than it actually
is, or what perhaps is more probable, would not exist at all, those two
countries must likewise suffer a considerable loss by part of their
capital being drawn into an employment which must be more or less
unsuitable to their present circumstances. Better for them, perhaps,
in their present circumstances, to buy East India goods of other
nations, even though they should pay somewhat dearer, than to turn so
great a part of their small capital to so very distant a trade, in which
the returns are so very slow, in which that capital can maintain so
small a quantity of productive labour at home, where productive labour
is so much wanted, where so little is done, and where so much
remains to be done.
Though without an exclusive company, therefore, a particular
country should not be able to carry on any direct trade to the East
Indies, it will not from thence follow that such a company ought to
be established there, but only that such a country ought not in these
circumstances to trade directly to the East Indies. That such com-
panies are not in general necessary for carrying on the East India
trade, is sufficiently demonstrated by the experience of the Portuguese,
who enjoyed almost the whole of it for more than a century together
without any exclusive company. 200
No private merchant, it has been said, could well have capital
sufficient to maintain factors and agents in the different ports of the
East Indies, in order to provide goods for the ships which he might
occasionally send thither ; and yet, unless he was able to do this,
the difficulty of finding a cargo might frequently make his ships lose
the season for returning, and the expense of so long a delay would not
only eat up the whole profit of the adventure but frequently occasion a
very considerable loss. This argument, however, if it proved any-
thing at all, would prove that no one great branch of trade could be
carried on without an exclusive company, which is contrary to the ex-
perience of all nations. There is no great branch of trade in which
the capital of any one private merchant is sufficient, for carrying on
all the subordinate branches which must be carried on, in order to
carry on the principal one. But when a nation is ripe for any great
branch of trade, some merchants naturally turn their capitals towards
the principal, and some towards the subordinate branches of it ; and
though all the different branches of it are in this manner carried or
yet it very seldom happens that they are all carried on by the capital
of one private merchant. If a nation therefore is ripe for the East
India trade, a certain portion of its capital will naturally divide itself
among all the different branches of that trade. Some of its merchants
502 INDIA BETTER UNDER IMPERIAL THAN COMPANY RULE.

will find it for their interest to reside in the East Indies, and to employ
their capitals there in providing goods for the ships which are to be
sent out by other merchants who reside in Europe. The settlements
which different European nations have obtained in the East Indies, if
they were taken from the exclusive companies to which they at present
belong, and put under the immediate protection of the sovereign,
would render this residence both safe and easy, at least to the mer-
chants of the particular nations to whom those settlements belong.
If at any particular time that part of the capital of any country which
of its own accord tended and inclined , if I may say so, towards the
East India trade, was not sufficient for carrying on those different 靠
branches of it, it would be a proof that, at that particular time, that
country was not ripe for that trade, and that it would do better to
buy for some time, even at a higher price, from other European nations,
the East India goods it had occasion for, than to import them itself
directly from the East Indies. What it might lose by the high price
of those goods could seldom be equal to the loss which it would
sustain by the distraction of a large portion of its capital from other
employments more necessary, or more useful, or more suitable to its
circumstances and situation, than a direct trade to the East Indies.
Though the Europeans possess many considerable settlements both
upon the coast of Africa and in the East Indies, they have not yet
established in either of those countries such numerous and thriving
colonies as those in the islands and continent of America. Africa,
however, as well as several of the countries comprehended under the
general name of the East Indies, are inhabited by barbarous nations.
But those nations were by no means so weak and defenceless as the
miserable and helpless Americans ; and in proportion to the natural
fertility of the countries which they inhabited, they were besides much
more populous. The most barbarous nations either of Africa or of the
East Indies were shepherds ; even the Hottentots were so. But the
natives of every part of America, except Mexico and Peru, were only
hunters ; and the difference is very great between the number of shep-
herds and that of hunters whom the same extent of equally fertile
territory can maintain. In Africa and the East Indies, therefore, it
was more difficult to displace the natives, and to extend the European
plantations over the greater part of the land of the original inhabitants.
The genius of exclusive companies, besides, is unfavourable, it has
already been observed, to the growth of new colonies, and has pro-
bably been the principal cause of the little progress which they have
made in the East Indies. The Portuguese carried on the trade both
to Africa and the East Indies without any exclusive companies, and
their settlements at Congo, Angola, and Benguela on the coast of
Africa, and at Goa in the East Indies, though much depressed by
superstition and every sort of bad government, yet bear some faint re-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 593

semblance to the colonies of America, and are partly inhabited by

Portuguese who have been established there for several generations
The Dutch settlements at the Cape of Good Hope and at Batavia are
at present the most considerable colonies which the Europeans have
established either in Africa or in the East Indies, and both these
settlements are peculiarly fortunate in their situations. The Cape of
Good Hope was inhabited by a race of people almost as barbarous
and quite as incapable of defending themselves as the natives of
America. It is besides the half-way house, if we may say so, between
Europe and the East Indies, at which almost every European ship
makes some stay both in going and returning. The supplying of those
ships with every sort of fresh provisions, with fruit, and sometimes
with wine, affords alone a very extensive market for the surplus pro-
duce of the colonists. What the Cape of Good Hope is between
Europe and every part of the East Indies, Batavia is between the
principal countries of the East Indies. It lies upon the most fre-
quented road from Hindostan to China and Japan, and is nearly about
midway upon that road. Almost all the ships too that sail between
Europe and China touch at Batavia ; and it is, over and above all this,
the centre and principal mart of what is called the country trade to the
East Indies ; not only of that part of it which is carried on by
Europeans, but of that which is carried on by the native Indians ; and
vessels navigated by the inhabitants of China and Japan, of Tonquin,
Malacca, Cochin-China, and the island of Celebes, are frequently to
be seen in its port. Such advantageous situations have enabled those
two colonies to surmount all the obstacles which the oppressive genius
of an exclusive company may have occasionally opposed to their
growth. They have enabled Batavia to surmount the addditional dis-
advantages of perhaps the most unwholesome climate in the world.
The English and Dutch companies, though they have established no
considerable colonies, except the two above mentioned, have both
made considerable conquests in the East Indies. But in the manner
in which they both govern their new subjects, the natural genius of an
exclusive company has shown itself most distinctly. In the spice
islands the Dutch are said to burn all the spiceries which a fertile
season produces beyond what they expect to dispose of in Europe with
such a profit as they think sufficient. In the islands where they have
no settlements they give a premium to those who collect the young
blossoms and green leaves of the clove and nutmeg trees which
naturally grow there, but which this savage policy has now, it is said.
almost completely extirpated. Even in the islands where they have
settlements they have very much reduced, it is said, the number oi
those trees. If the produce even of their own islands was much
greater than what suited their market, the natives, they suspect, might
find means to convey some part of it to other nations ; and the best
See ante, p. 501.
504 WHAT IS THE TRUE POLICY OF RULERS OF THE COUNTRY.

way, they imagine, to secure their own monopoly, is to take care tha
no more shall grow than what they themselves carry to market. B
different acts of oppression they have reduced the population of several
of the Moluccas nearly to the number which is sufficient to supply
with fresh provisions and other necessaries of life their own insignifi-
cant garrisons, and such of their ships as occasionally come there for a
cargo of spices. Under the government even of the Portuguese, how-
ever, those islands are said to have been tolerably well inhabited. The
English company have not yet had time to establish in Bengal so
perfectly destructive a system. The plan of their government, how-
ever, has had exactly the same tendency. It has not been uncommon,
I am well assured, for the chief, that is, the chief clerk of a factory, to
order a peasant to plough up a rich field of poppies, and to sow it with
rice or some other grain. The pretence was, to prevent a scarcity of
provisions ; but the real reason, to give the chief an opportunity of sell-
ing at a better price a large quantity of opium which he happened
then to have upon hand. Upon other occasions the order has been
reversed, and a rich field of rice or other grain has been ploughed
up, in order to make room for a plantation of poppies, when the chief
foresaw that extraordinary profit was likely to be made by opium. The
servants of the company have upon several occasions attempted to
establish in their own favour a monopoly of some of the most impor-
tant branches, not only of the foreign, but of the inland trade of the
country. Had they been allowed to go on, it is impossible that they
should not at some time or another have attempted to restrain the pro-
duction of the particular articles of which they have thus usurped the
monopoly, not only to the quantity which they themselves could pur-
chase, but to that which they could expect to sell with such a profit as
they might think sufficient. In the course of a century or two, the
policy of the English company would in this manner have probably
proved as completely destructive as that of the Dutch.
Nothing, however, can be more directly contrary to the real interest
of those companies, considered as the sovereigns of the countries
which they have conquered, than this destructive plan. In almost all
countries the revenue of the sovereign is drawn from that of the people.
The greater the revenue of the people, therefore, the greater the
annual produce of their land and labour, the more they can afford to the
sovereign. It is his interest, therefore, to increase as much as possible
that annual produce. But if this is the interest of every sovereign, it
is peculiarly so of one whose revenue, like that of the sovereign of
Bengal, arises chiefly from a land-rent. That rent must necessarily be
in proportion to the quantity and value of the produce, and both the one
and the other must depend upon the extent of the market. The quantity
will always be suited with more or less exactness to the consumption
of those who can afford to pay for it, and the price which they will
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 505

pay will always be in proportion to the eagerness of their competition.

It is the interest of such a sovereign, therefore, to open the most
extensive market for the produce of his country, to allow the most
perfect freedom of commerce, in order to increase as much as possible
the number and the competition of buyers ; ard upon this account to
abolish, not only all monopolies, but all restraints upon the transport-
ation of the home produce from one part of the country to another,
upon its exportation to foreign countries, or upon the importation of
goods of any kind for which it can be exchanged. He is in this manner
most likely to increase both the quantity and value of that produce,
and consequently of his own share of it, or of his own revenue.
But a company of merchants are, it seems, incapable of considering
themselves as sovereigns, even after they have become such. Trade,
or buying in order to sell again, they still consider as their principal
business, and by a strange absurdity, regard the character of the sove-
reign as but an appendix to that of the merchant, as something which
ought to be made subservient to it, or by means of which they may be
enabled to buy cheaper in India, and thereby to sell with a better profit
in Europe. They endeavoured for this purpose to keep out as much as
possible all competitors from the market of the countries which are
subject to their government, and consequently to reduce, at least, some
some part of the surplus produce of those countries to what is barely
sufficient for supplying their own demand, or to what they can expect
to sell in Europe with such a profit as they may think reasonable.
Their mercantile habits draw them in this manner, almost necessarily,
though perhaps insensibly, to prefer upon all ordinary occasions the little
and transitory profit of the monopolist to the great and permanent
revenue of the sovereign, and would gradually lead them to treat the
countries subject to their government nearly as the Dutch treat the
Moluccas. It is the interest of the East India Company, considered as
sovereigns, that the European goods which are carried to the Indian
dominions, should be sold there as cheap as possible ; and that the
Indian goods which are brought from thence, should bring there as
good a price, or should be sold there as dear as possible. But the
reverse of this is their interest as merchants. As sovereigns, their
interest is exactly the same with that of the country which they govern.
As merchants, their interest is directly opposite to that interest.
But if the genius of such a government, even as to what concerns
its direction in Europe, is in this manner essentially and perhaps incu-
rably faulty, that of its administration in India is still more so. 1 hat
administration is necessarily composed of a council of merchants, a
profession no doubt extremely respectable, but which in no country
in the world carries along with it that sort of authority which
naturally overawes the people, and without force commands their willing
obedience. Such a council can command obedience only by the mili-
506 PRIVATE TRADE OF SERVANTS OF EAST INDIA COMPANY.

tary force with which they are accompanied, and their government is
therefore necessarily military and despotical. Their proper business,
however, is that of merchants. It is to sell, upon their masters'
account, the European goods consigned to them, and to buy in return
Indian goods for the European market. It is to sell the one as dear
and to buy the other as cheap as possible, and consequently to exclude
as much as possible all rivals from the particular market where they
keep their shop. The genius of the administration, therefore, so far as
concerns the trade of the company, is the same as that of the direction.
It tends to make government subservient to the interest of monopoly,
and consequently to stunt the natural growth of some parts at least
of the surplus produce of the country to what is barely sufficient for
answering the demand of the company.
All the members of the administration, besides, trade more or less
upon their own account, and it is in vain to prohibit them from doing
so. Nothing can be more completely foolish than to expect that the
clerks of a great counting-house at ten thousand miles distance, and
consequently almost quite out of sight, should, upon a simple order
from their masters, give up at once doing any sort of business upon
their own account, abandon for ever all hopes of making a fortune, of
which they have the means in their hands, and content themselves
with the moderate salaries which those masters allow them , and which,
moderate as they are, can seldom be augmented, being commonly as
large as the real profits of the company trade can afford. In such cir-
cumstances, to prohibit the servants of the company from trading upon
their own account, can have scarce any other effect than to enable the
superior servants, under pretence of executing their master's order, to
oppress such of the inferior ones as have had the misfortune to fall
under their displeasure. The servants naturally endeavour to establish
the same monopoly in favour of their own private trade as of the public
trade of the company. If they are suffered to act as they could wish,
they will establish this monopoly openly and directly, by fairly prohi-
biting all other people from trading in the articles in which they choose
to deal ; and this, perhaps, is the best and least oppressive way of
establishing it. But if by an order from Europe they are prohibited
from doing this, they will, notwithstanding, endeavour to establish a
monopoly of the same kind, secretly and indirectly, in a way which is
much more destructive to the country. They will employ the whole
authority of government, and pervert the administration of justice, in
order to harass and ruin those who interfere with them in any branch
of commerce which, by means of agents, either concealed, or at least
not publicly avowed, they may choose to carry on. But the private
trade of the servants will naturally extend to a much greater variety of
articles than the public trade of the company. The public trade of the
company extends no further than the trade with Europe, and compre
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS, 507

hends a part only of the foreign trade of the country. But the private
trade ofthe servants may extend to all the different branches both of
its inland and foreign trade. The monopoly of the company can
tend only to stunt the natural growth of that part of the surplus
produce which, in the case of a free trade, would be exported to
Europe. That of the servants tends to stunt the natural growth
of every part of the produce in which they choose to deal, of what
is destined for home consumption, as well as of what is destined
for exportation ; and consequently to degrade the cultivation of the
whole country, and to reduce the number of its inhabitants. It tends
to reduce the quantity of every sort of produce, even that of the neces-
saries of life, whenever the servants of the company choose to deal in
them, to what those servants can both afford to buy and expect to sell
with such a profit as may please them.
From the nature of their situation, too, the servants must be more
disposed to support with rigorous severity their own interest against
that of the country which they govern, than their masters can be to
support theirs. The country belongs to their masters, who cannot
avoid having some regard for the interest of what belongs to them.
But it does not belong to the servants. The real interest of their mas-
ters, if they were capable of understanding it, is the same with that of
the country, and it is from ignorance chiefly, and the meanness of
mercantile prejudice, that they ever oppress it. But the real interest
ofthe servants is by no means the same with that of the country, and
the most perfect information would not necessarily put an end to their
oppressions. The regulations, accordingly, which have been sent out
from Europe, though they have been frequently weak, have upon most
occasions been well-meaning. More intelligence, and perhaps less
good meaning, has sometimes appeared by those established by the
servants in India. It is a very singular government, in which every
member of the administration wishes to get out of the country, and
consequently to have done with the government as soon as he can,
and to whose interest, the day after he has left it, and carried his whole
fortune with him, it is perfectly indifferent though the whole country
was swallowed up by an earthquake.
I mean not, however, by anything which I have here said, to throw
any odious imputation upon the general character of the servants of
the East India Company, and much less upon that of any particular
persons. It is the system of government, the situation in which they
are placed, that I mean to censure ; not the character of those who
have acted in it. They acted as their situation naturally directed, and
they who have clamoured the loudest against them would, probably.
* The interest of every proprietor of India Stock, however, is by no means the same with
that of the country in the government of which his vote gives him some influence. See
Book V., Chap. i ., Part 3rd.
508 EXCLUSIVE COMPANIES ARE NUISANCES IN EVERY RESPECT.

not have acted better themselves. In war and negotiation, the coun-
cils of Madras and Calcutta have upon several occasions conducted
themselves with a resolution and decisive wisdom which would have
done honour to the senate of Rome in the best days of that republic.
The members of those councils, however, had been bred to professions
very different from war and politics. But their situation alone, without
education, experience, or even example, seems to have formed in them
all at once the great qualities which it required, and to have inspired
chem both with abilities and virtues which they themselves could not
well know that they possessed. If upon some occasions, therefore, it
has animated them to actions of magnanimity which could not well
have been expected from them, we should not wonder if upon others it
has prompted them to exploits of somewhat a different nature.
Such exclusive companies, therefore, are nuisances in every respect ;
always more or less inconvenient to the countries in which they are
established, and destructive to those which have the misfortune to fall
under their government. 201

CHAP. VIII. Conclusion ofthe Mercantile System.

THOUGH the encouragement of exportation, and the discouragement
of importation, are the two great engines by which the mercantile sys-
tem proposes to enrich every country, yet with regard to some par-
ticular commodities, it seems to follow an opposite plan : to discourage
exportation, and to encourage importation. Its ultimate object, how-
ever, it pretends, is always the same, to enrich the country by an
advantageous balance of trade. It discourages the exportation of the
materials of manufacture and of the instruments of trade, in order to
give our own workmen an advantage, and to enable them to undersell
those of other nations in all foreign markets, and by restraining, in
this manner, the exportation of a few commodities, of no great price, it
proposes to occasion a much greater and more valuable exportation of
others. It encourages the importation of the materials of manufacture,
in order that our own people may be enabled to work them up more
cheaply, and thereby prevent a greater and more valuable importatio
of the manufactured commodities. I do not observe, at least in our
statute book, any encouragement given to the importation of the
instruments of trade. When manufactures have advanced to a certain
pitch of greatness, the fabrication of the instruments of trade becomes
itself the object of a great number of very important manufactures.
To give any particular encouragement to the importation of such
instruments would interfere too much with the interest of those manu.
factures. Such importation, therefore, instead of being encouraged
has frequently been prohibited. Thus the importation of wool cards
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 509

except from Ireland, or when brought in as wreck or prize goods, was

prohibited by the 3rd of Edward IV.; which prohibition was renewed
by the 39th of Queen Elizabeth, and has been continued and rendered
perpetual by subsequent laws. 90
The importation of the materials of manufacture has sometimes been
encouraged by an exemption from the duties to which other goods are
subject, and sometimes by bounties given.
The importation of sheep's wool from several different countries, of
cotton wool from all countries, of undressed flax, of the greater part of
dying drugs, of the greater part of undressed hides from Ireland or the
British colonies, of seal skins from the British Greenland fishery, of
pig and bar iron from the British colonies, as well as of several other
materials of manufacture, has been encouraged by an exemption from
all duties, if properly entered at the custom-house. The private inte-
rests of our merchants and manufacturers may, perhaps, have extorted
from the legislature these exemptions, as well as the greater part of
our other commercial regulations. They are, however, perfectly just
and reasonable, and if, consistently with the necessities of the state,
they could be extended to all the other materials of manufacture, the
public would certainly be a gainer.
The avidity of our great manufacturers, however, has in some cases
extended these exemptions a good deal beyond what can justly be con-
sidered as the rude materials of their work. By the 24 Geo. II. chap.
46, a small duty of only one penny the pound was imposed upon the
importation offoreign brown linen yarn, instead of much higher duties
to which it had been subjected before, viz., of sixpence the pound upon
sail yarn, of one shilling the pound upon all French and Dutch yarn,
and of two pounds thirteen shillings and fourpence upon the hundred-
weight of all spruce or Muscovia yarn. But our manufacturers were
not long satisfied with this reduction. By the 29th of the same king,
chap. 15, the same law which gave a bounty upon the exportation of
British and Irish linen of which the price did not exceed eighteen-pence
the yard, even this small duty upon the importation of brown linen
yarn was taken away. In the different operations, however, which are
necessary for the preparation of linen yarn, a good deal more industry
is employed, than in the subsequent operation of preparing linen cloth
from linen yarn. To say nothing of the industry of the flax-growers
and flax-dressers, three or four spinners, at least, are necessary, in order
to keep one weaver in constant employment ; and more than four-fifths
of the whole quantity of labour necessary for the preparation of linen
cloth, is employed in that of linen yarn ; but our spinners are poor
people, women commonly scattered about in all different parts of the
country, without support or protection. It is not by the sale of their
work, but by that of the complete work of the weavers, that our great
master manufcturers make their profits. As it is their interest to sell
510 INDUSTRY OF RÍCH MORE PROTECTED THAN THAT OF POOR.

the complete manufacture as dear, so is it to buy the materials as cheap

as possible. By extorting from the legislature bounties upon the export-
ation of their own linen, high duties upon the importation of all foreign
linen, and a total prohibition of the home consumption of some sorts of
French linen, they endeavour to sell their own goods as dear as possible.
By encouraging the importation of foreign linen yarn, and thereby
bringing it into competition with that which is made by our own people,
they endeavour to buy the work of the poor spinners as cheap as
possible. They are as intent to keep down the wages of their own
weavers as the earnings of the poor spinners, and it is by no means for
the benefit of the workman that they endeavour either to raise the
price of the complete work, or to lower that of the rude materials. It
is the industry which is carried on for the benefit of the rich and the
powerful that is principally encouraged by our mercantile system .
That which is carried on for the benefit of the poor and the indigent,
is too often either neglected or oppressed.
Both the bounty upon the exportation of linen, and the exemption
from duty upon the importation of foreign yarn, which were granted
only for fifteen years, but continued by two different prolongations,
expire with the end of the session of parliament which shall immedi-
ately follow the 24th of June 1786, 203
The encouragement given to the importation of the materials of
manufacture by bounties, has been principally confined to such as were
imported from our American plantations.
The first bounties of this kind were those granted about the begin .
ning of the present century, upon the importation of naval stores from
America. Under this denomination were comprehended timber fit for
masts, yards, and bowsprits ; hemp, tar, pitch, and turpentine. The
bounty, however, of one pound the ton upon masting-timber, and that
of six pounds the ton upon hemp, were extended to such as should be
imported into England from Scotland. Both these bounties continued
without any variation, at the same rate, till they were severally allowed
to expire ; that upon hemp, on the 1st of January, 1741 , and that upon
masting-timber at the end of the session of parliament immediately
following the 24th June, 1781.
The bounties upon the importation of tar, pitch, and turpentine
underwent, during their continuance, several alterations. Originally
that upon tar was four pounds the ton ; that upon pitch the same ; and
that upon turpentine, three pounds the ton. The bounty of four pounds
the ton upon tar was afterwards confined to such as had been prepared
in a particular manner ; that upon other good, clean, and merchantable
tar, was reduced to two pounds four shillings the ton. The bounty
upon pitch was likewise reduced to one pound ; and that upon turpen-
tine to one pound ten shillings the ton.
The second bounty upon the importation of any of the materials of
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 511

manufacture, according to the order of time, was that granted by the

21 Geo. II. chap. 30, upon the importation of indigo from the British
plantations. When the plantation indigo was worth three-fourths of
the price of the best French indigo, it was by this act entitled to a
bounty of sixpence the pound. This bounty, which, like most others,
was granted only for a limited time, was continued for several pro-
longations, but was reduced to fourpence the pound. It was allowed
to expire with the end of the session of parliament which followed the
25th March, 1781.
The third bounty of this kind was that granted (much about the
time that we were beginning sometimes to court and sometimes to
quarrel with our American colonies) by the 4 Geo. III. chap. 26, upon
the importation of hemp or undressed flax from the British plantations.
This bounty was granted for twenty-one years, from the 24th June,
1764, to the 24th June, 1785. For the first seven years it was to be at
the rate of eight pounds the ton, for the second at six pounds, and for
the third at four pounds. It was not extended to Scotland, of which
the climate (although hemp is sometimes raised there in small
quantities and of an inferior quality), is not very fit for that produce.
Such a bounty upon the importation of Scotch flax into England would
have been too great a discouragement to the native produce of the
southern part of the United Kingdom.
The fourth bounty of this kind, was that granted by the 5 Geo. III.
chap. 45, upon the importation of wood from America. It was granted
for nine years, from the 1st January, 1766, to the 1st January, 1775.
During the first three years, it was to be for every hundred and twenty
good deals, at the rate of one pound ; and for every load containing
fifty cubic feet of other squared timber at the rate of twelve shillings.
For the second three years, it was for deals to be at the rate of fifteen
shillings, and for other squared timber at the rate of eight shillings ;
and for the third three years, it was for deals at the rate of ten shillings,
and for other squared timber at the rate of five shillings.
The fifth bounty of this kind, was that granted by the 9 Geo. III.
chap. 38, upon the importation of raw silk from the British plantations.
It was granted for twenty-one years, from the 1st January, 1770, to the
1st January, 1791. For the first seven years it was to be at the rate of
twenty-five pounds for every hundred pounds value ; for the second, at
twenty pounds ; and for the third, at fifteen pounds. The management
of the silkworm, and the preparation of silk, requires so much hand
labour, and labour is so very dear in North America, that even this
great bounty, I have been informed, was not likely to produce any
very considerable effect.
The sixth bounty of this kind , was that granted by 11 Geo. III. chap
50, for the importation of pipe, hogshead, and barrel staves and heading,
from the British plantations. It was granted for nine years, from 1st
512 FOLLY OF OUR DEALINGS WITH OUR AMERICAN COLONIES.

January, 1772, to the 1st January, 1781. For the first three years, it
was for a certain quantity of each, to be at the rate of six pounds ; for
the second three years, at four pounds ; and for the third three years,
at two pounds.
The seventh and last bounty of this kind, was that granted by the
19 Geo. III. chap. 37, upon the importation of hemp from Ireland. It
was granted in the same manner as that for the importation of hemp
and undressed flax from America, for twenty-one years, from the 24th
June, 1779, to the 24th June, 1800. This term is divided, likewise, into
three periods of seven years each ; and in each of those periods, the
rate of the Irish bounty is the same with that of the American. It
does not, however, like the American bounty, extend to the importation
of undressed flax. It would have been too great a discouragement to
the cultivation of that plant in Great Britain. When this last bounty
was granted, the British and Irish legislatures were not in much better
humour with one another, than the British and American had been
before. But this boon to Ireland, it is to be hoped, has been granted
under more fortunate auspices than all those to America.
The same commodities upon which we thus gave bounties, when
imported from America, were subjected to considerable duties when
imported from any other country. The interest of our American
colonies was regarded as the same with that of the mother country.
Their wealth was considered as our wealth. Whatever money wàs
sent out to them, it was said, came all back to us by the balance of
trade, and we could never become a farthing the poorer by any expense
which we could lay out upon them. They were our own in every
respect, and it is an expense laid out upon the improvement of our
own property, and for the profitable employment of our own people.
It is unnecessary, I apprehend, at present to say anything further in
order to expose the folly of a system which fatal experience has now
sufficiently exposed. Had our American colonies really been a part of
Great Britain, those bounties might have been considered as bounties
upon production, and would still have been liable to all the objections
to which such bounties are liable, but to no other.
The exportation of the materials of manufacture is sometimes dis-
couraged by absolute prohibition, and sometimes by high duties.
Our woollen manufacturers have been more successful than any other
class of workmen in persuading the legislature that the prosperity of
the nation depended upon the success and extension of their particular
business. They have not only obtained a monopoly against the con-
sumers by an absolute prohibition of importing woollen cloths from
any foreign country, but they have likewise obtained another mono-
poly against the sheep farmers and the growers of wool by a similar
prohibition of the exportation of live sheep and wool. The severity of
many of the laws which have been enacted for the security of the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 513

revenue is very justly complained of, as imposing heavy penalties upon

actions which, antecedent to the statutes that declared them to be
crimes, had always been understood to be innocent. But the cruellest
of our revenue laws, I will venture to affirm, are mild and gentle in
comparison to some of those which the clamour of our merchants and
manufacturers has extorted from the legislature, for the support of their
own absurd and oppressive monopolies. Like the laws of Draco, these
laws may be said to be all written in blood.
By the 8th of Elizabeth, chap. 3, the exporter of sheep, lambs, 01
rams, was for the first offence to forfeit all his goods for ever, to suffer a
year's imprisonment, and then to have his left hand cut off in a market
town upon a market day, to be there nailed up ; and for the second
offence to be adjudged a felon, and to suffer death accordingly. To
prevent the breed of our sheep from being propagated in foreign
countries seems to have been the object of this law. By the 13th and
14th of Charles II. chap. 18, the exportation of wool was made felony,
and the exporter subjected to the same penalties and forfeitures as a felon.
For the honour of the national humanity, it is to be hoped that
neither of these statutes was ever executed. The first of them, how-
ever, so far as I know, has never been directly repealed, and Serjeant
Hawkins seems to consider it as still in force. It may however, perhaps,
be considered as virtually repeated by the 12th of Charles II. chap. 32,
sect. 3, which, without expressly taking away the penalties imposed by
former statutes, imposes a new penalty, viz., that of twenty shillings for
every sheep exported, or attempted to be exported, together with the
forfeiture of the sheep and of the owner's share of the ship. The
second of them was expressly repealed by the 7th and 8th of William
III. chap. 28, sec. 4. By which it is declared that, ' Whereas the
statute of the 13th and 14th of King Charles II . made against the
' exportation of wool, among other things in the said act mentioned,
' doth enact the same to be deemed felony ; by the severity of which
' penalty the prosecution of offenders hath not been so effectually put in
'execution. Be it therefore enacted by the authority foresaid, that so
' much of the said act, which relates to the making the said offence
'felony, be repealed and made void.'
The penalties, however, which are either imposd by this milder
statute, or which, though imposed by former statutes, are not repealed
by this one, are still sufficiently severe. Besides the forfeiture of the
goods, the exporter incurs the penalty of three shillings for every pound
weight of wool either exported or attempted to be exported ; that is,
about four or five times the value. Any merchant or other person con-
victed of this offence, is disabled from requiring any debt or account
belonging to him from any factor or other person. Let his fortune be
what it will, whether he is or is not able to pay those heavy penalties,
the law means to ruin him completely. But as the morals of the great
33
514 RESTRICTIONS LAID ON THE INLAND TRADE IN WOOL.

body of the people are not yet so corrupt.as those of the contrivers
of this statute, I have not heard that any advantage has ever been
taken of this clause. If the person convicted of this offence is not
able to pay the penalties within three months after judgment, he is to
be transported for seven years, and if he returns before the expiration
of that term, he is liable to the pains of felony, without benefit of clergy.
The owner of the ship, knowing this offence, forfeits all his interest in
the ship and furniture. The master and mariners, knowing this offence,
forfeit all their goods and chattels, and suffer three months imprisonment.
By a subsequent statute the master suffers six months imprisonment.
In order to prevent exportation, the whole inland commerce of wool
is laid under very burdensome and oppressive restrictions. It cannot
be packed in any box, barrel, cask, case, chest, or any other package,
but only in packs of leather or pack-cloth, on which must be marked
on the outside the words wool or yarn, in large letters not less than
three inches long, on pain of forfeiting the same and the package, and
three shillings for every pound weight, to be paid by the owner or
packer. It cannot be loaden on any horse or cart, or carried by land
within five miles of the coast, but between sun-rising and sun-setting,
on pain of forfeiting the same, the horses and carriages. The hundred
next adjoining to the sea coast, out of or through which the wool is
carried or exported, forfeits twenty pounds, if the wool is under the
value of ten pounds ; and if of greater value, then treble that value,
together with treble costs, to be sued for within the year. The execu-
tion to be against any two of the inhabitants, whom the sessions must
reimburse by an assessment on the other inhabitants, as in the case of
robbery. And if any person compounds with the hundred for less than
this penalty, he is to be imprisoned for five years ; and any other
person may prosecute. These regulations take place through the
whole kingdom.
But in the particular counties of Kent and Sussex the restrictions
are still more troublesome. Every owner of wool within ten miles of
the sea coast must give an account in writing three days after shearing
to the next officer of the customs, of the number of his fleeces and of
the places where they are lodged. And before he removes any part
of them he must give the like notice of the number and weight of the
fleeces, and of the name and abode of the person to whom they are
sold, and of the place to which it is intended they should be carried.
No person within fifteen miles of the sea, in the said counties, can buy
any wool before he enters into bond to the king that no part of the
wool which he shall so buy shall be sold by him to any other person
within fifteen miles of the sea. If any wool is found carrying towards
the sea-side in the said counties, unless it has been entered and secu
rity given as aforesaid, it is forfeited, and the offender also forfeits three
shillings for every pound weight. If any person lays any wool, not
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 515

entered as aforesaid, within fifteen miles of the sea, it must be seized

and forfeited ; and if, after such seisure, any person shall claim the
same, he must give security to the exchequer, that if he is cast upon
trial he shall pay treble costs, besides all other penalties.
When such restrictions are imposed upon the inland trade, the coast-
ing trade, we may believe, cannot be left very free. Every owner of
wool who carrieth or causeth to be carried any wool to any port or place
on the sea coast, in order to be from thence transported by sea to any
other place or port on the coast, must first cause an entry thereof to be
made at the port from whence it is intended to be conveyed, containing
the weight, marks, and number of the packages, before he brings the same
within five miles of that port, on pain of forfeiting the same, and also the
horses, carts, and other carriages ; and also of suffering and forfeiting,
as by the other laws in force against the exportation of wool. This
law, however (1 William III. chap. 32), is so very indulgent as to
declare, that ' this shall not hinder any person from carrying his wool
' home from the place of shearing, though it be within five miles of the
sea, provided that in ten days after shearing, and before he remove the
' wool, he do under his hand certify to the next officer of the customs,
'the true number of fleeces, and where it is housed ; and do not remove
'the same, without certifying to such officer under his hand, his inten-
' tion so to do, three days before.' Bond must be given that the wool
to be carried coast-ways is to be landed at the particular port for which
it is entered outwards ; and if any part of it is landed without the
presence of an officer, not only the forfeiture of the wool is incurred as
in other goods, but the usual additional penalty of three shillings for
every pound weight is likewise incurred. 204
Our woollen manufacturers, in order to justify their demand of such
extraordinary restrictions and regulations, confidently asserted, that .
English wool was of a peculiar quality, superior to that of any other
country ; that the wool of other countries could not, without some mix-
ture of it, be wrought up into any tolerable manufacture ; that fine
cloth could not be made without it ; that England, therefore, if the ex-
portation of it could be totally prevented, could monopolize to herself
almost the whole woollen trade of the world ; and thus, having no
rivals, could sell at what price she pleased, and in a short time acquire
the most incredible degree of wealth by the most advantageous balance
oftrade. This doctrine, like most other doctrines which are confidently
asserted by any considerable number of people, was, and still continues
to be, most implicitly believed by a much greater number : by almost
all those who are either unacquainted with the woollen trade, or who
have not made particular inquiries. It is, however, so perfectly false
that English wool is in any respect necessary for the making of fine
cloth, that it is altogether unfit for it. Fine cloth is made altogether of
Spanish wool. English wool cannot be even so mixed with Spanish
33 *
516 RELATIVE VALUE OF THE CARCASE AND FLEECE OF SHEEP.

wool as to enter into the composition without spoiling and degrading,

in some degree, the fabric of the cloth.
It has been shown in the foregoing part of this work, that the effect
of these regulations has been to depress the price of English wool,
not only below what it naturally would be in the present times, but very
much below what it actually was in the time of Edward III. The price
of Scots wool, when in consequence of the union it became subject to
the same regulations, is said to have fallen about one half. It is ob..
served by the very accurate and intelligent author of the Memoirs of
Wool, the Reverend Mr. John Smith, that the price of the best English
wool in England is generally below what wool of a very inferior quality
commonly sells for in the market of Amsterdam. To depress the price
of this commodity below what may be called its natural and proper
price, was the avowed purpose of those fiscal regulations ; and there
seems to be no doubt of their having produced the effect that was
expected from them.
This reduction of price, it may perhaps be thought, by discouraging
the growing of wool, must have reduced very much the annual produce
of that commodity, though not below what it formerly was, yet below
what, in the present state of things, it probably would have been, had
it, in consequence of an open and free market, been allowed to rise to
the natural and proper price. I am, however, disposed to believe, that
the quantity of the annual produce cannot have been much, though it
may perhaps have been a little affected by these regulations. The
growing of wool is not the chief purpose for which the sheep farmer
employs his industry and stock. He expects his profit, not so much
from the price of the fleece, as from that of the carcase ; and the
average or ordinary price of the latter, must even, in many cases, make
up to him whatever deficiency there may be in the average or ordinary
price of the former. It has been observed in the foregoing part of this
work, that ' Whatever regulations tend to sink the price, either of wool
or of raw hides, below what it naturally would be, must, in an im-
' proved and cultivated country, have some tendency to raise the price
of butcher's-meat. The price both of the great and small cattle which
' are fed on improved and cultivated land, must be sufficient to pay the
' rent which the landlord, and the profit which the farmer has reason to
expect from improved and cultivated land. If it is not, they will soon
6
cease to feed them. Whatever part of this price, therefore, is not
'paid by the wool and the hide, must be paid by the carcase. The
less there is paid for the one, the more must be paid for the other. In
what manner this price is to be divided upon the different parts ofthe
'beast, is indifferent to the landlords and farmers, provided it is all paid
'to them. In an improved and cultivated country, therefore, their
interest as landlords and farmers cannot be much affected by such
'regulations, though their interest as consumers may, by the rise in the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 517

' price of provisions.' According to this reasoning, therefore, this de-

gradation in the price of wool is not likely, in an improved and culti-
vated country, to occasion any diminution in the annual produce of
that commodity ; except so far as, by raising the price of mutton, it
may somewhat diminish the demand for, and consequently the produc-
tion of, that particular species of butcher's-meat. Its effect, however,
even in this way, it is probable, is not very considerable.
But though its effect upon the quantity of the annual produce may
not have been very considerable, its effect upon the quality, it may per-
haps be thought, must necessarily have been very great. The degra-
dlation in the quality of English wool, if not below what it was in for-
mer times, yet below what it naturally would have been in the present
state of improvement and cultivation, must have been, it may perhaps
be supposed, very nearly in proportion to the degradation of price.
As the quality depends upon the breed, upon the pasture, and upon the
management and cleanliness of the sheep, during the whole progress
of the growth of the fleece, the attention to these circumstances, it may
naturally enough be imagined, can never be greater than in proportion
to the recompense which the price of the fleece is likely to make for
the labour and expense which that attention requires. It happens,
however, that the goodness of the fleece depends, in a great measure,
upon the health, growth, and bulk of the animal ; the same attention
which is necessary for the improvement of the carcase is, in some res-
pects, sufficient for that of the fleece. Notwithstanding the degrada-
tion of price, English wool is said to have been improved considerably
during the course even of the present century. The improvement
might perhaps have been greater if the price had been better ; but the
lowness of price, though it may have obstructed, yet certainly it has not
altogether prevented that improvement.
The violence of these regulations, therefore, seems to have affected
neither the quantity nor the quality of the annual produce of wool so
much as it might have been expected to do (though I think it probable
that it may have affected the latter a good deal more than the former) ;
and the interest of the growers of wool, though it must have been hurt
In some degree, seems, upon the whole, to have been much less hurt
than could well have been imagined.*
These considerations, however, will not justify the absolute prohibi-
tion of the exportation of wool. But they will fully justify the imposi
tion of a considerable tax upon that exportation.
To hurt in any degree the interest of any one order of citizens , for
no other purpose but to promote that of some other, is evidently con-
trary to that justice and equality of treatment which the sovereign owes
to all the different orders of his subjects. But the prohibition certainly
hurts, in some degree, the interest of the growers of wool. for no other
purpose but to promote that of the manufacturers
* See note 89.
518 HARD TO DEVISE A TAX TO YIELD REVENUE AND NOT ANNOY.
A
Every different order of citizens is bound to contribute to the support
of the sovereign or commonwealth. A tax of five, or even of ten
shillings, upon the exportation of every ton of wool, would produce a
very considerable revenue to the sovereign. It would hurt the interest
of the growers somewhat less than the prohibition, because it would not
probably lower the price of wool quite so much. It would afford a
sufficient advantage to the manufacturer, because, though he might not
buy his wool altogether so cheap as under the prohibition, he would
still buy it at least five or ten shillings cheaper than any foreign manu-
facturer could buy it, besides saving the freight and insurance, which
the other would be obliged to pay. It is scarce possible to devise a tax
which could produce any considerable revenue to the sovereign, and at
the same time occasion so little inconveniency to anybody.ot
The prohibition, notwithstanding all the penalties which guard it,
does not prevent the exportation of wool. It is exported, it is well
known, in great quantities. The great difference between the price in
the home and that in the foreign market, presents such a temptation to
smuggling, that all the rigour of the law cannot prevent it. This ille-
gal exportation is advantageous to nobody but the smuggler. A legal
exportation subject to a tax, by affording a revenue to the sovereign,
and thereby saving the imposition of some other perhaps more burden-
some and inconvenient taxes, might prove advantageous to all the dif-
ferent subjects of the state.
The exportation of fuller's earth, or fuller's clay, supposed to be
necessary for preparing and cleansing the woollen manufactures, has
been subjected to nearly the same penalties as the exportation of wool.
Even tobacco-pipe clay, though acknowledged to be different from
fuller's clay, yet, on account of their resemblance, and because fuller's
clay might sometimes be exported as tobacco-pipe clay, has been laid
under the same prohibitions and penalties. 205
By the 13th and 14th of Charles II. chap. 7, the exportation not only
of raw hides, but of tanned leather, except in the shape of boots, shoes,
or slippers, was prohibited ; and the law gave a monopoly to our boot-
makers and shoemakers, not only against our graziers, but against our
tanners. By subsequent statutes, our tanners have got themselves ex-
empted from this monopoly, upon paying a small tax of only one shil-
ling on the hundredweight of tanned leather, weighing one hundred
and twelve pounds. They have obtained likewise the drawback of two-
thirds of the excise duties imposed upon their commodity, even when
exported without further manufacture. All manufactures of leather
may be exported duty free ; and the exporter is besides entitled to the
drawback of the whole duties of excise.20 Our graziers still continue
subject to the old monopoly. Graziers separated from one another, and
dispersed through all the different corners of the country, cannot with-
out great difficulty, combine together for the purpose either of imposing
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 519

monopolies upon their fellow-citizens, or of exempting themselves from

such as may have been imposed upon them by other people.
Manufacturers of all kinds, collected together in numerous bodies in
all great cities, easily can. Even the horns of cattle are prohibited to
be exported207and the two insignificant trades of the horner and comb-
maker enjoy, in this respect, a monopoly against the graziers.
Restraints, either by prohibitions or by taxes, upon the exportation
of goods which are partially, but not completely manufactured, are
not peculiar to the manufacture of leather. As long as anything
remains to be done in order to fit any commodity for immediate use
and consumption, our manufacturers think that they themselves ought
to have the doing of it. Woollen yarn and worsted are prohibited to
be exported under the same penalties as wool.208 Even white cloths are
subject to a duty upon exportation, and our dyers have so far obtained
a monopoly against our clothiers. Our clothiers would probably have
been able to defend themselves against it, but it happens that the
greater part of our principal clothiers are themselves likewise dyers.
Watchcases, clockcases, and dial plates for clocks and watches, have
been prohibited to be exported. Our clockmakers and watchmakers
are, it seems, unwilling that the price of this sort of workmanship
should be raised upon them by the competition of foreigners. 20
By some old statutes of Edward III., Henry VIII. , and Edward VI. ,
the exportation of all metals was prohibited. Lead and tin were alone
excepted ; probably on account of the great abundance of those metals,
in the exportation of which, a considerable part of the trade of the
kingdom in those days consisted. For the encouragement of the mining
trade, the 5th of William and Mary, chap. 17, exempted from this pro-
hibition, iron, copper, and mundic metal made from British ore. The
exportation of all sorts of copper bars, foreign as well as British, was
afterwards permitted by the 9th and 10th of William III . chap. 26.
The exportation of unmanufactured brass, of what is called gun-metal,
bell-metal, and shroff-metal, still continues to be prohibited. " Brass
manufactures of all sorts may be exported duty free.
beThe exportation of the materials of manufacture, where it is not
altogether prohibited, is in many cases subjected to very consider-
able duties.
By the 8th George I. chap 15 , the exportation of all goods, the pro-
duce or manufacture of Great Britain, upon which any duties had been
imposed by former statutes, was rendered duty free. The following
goods, however, were excepted : alum, lead, lead ore, tin, tanned
leather, copperas, coals, wool cards, white woollen cloths, lapis calami-
naris, skins of all sorts, glue, coney hair or wool, hares' wool, hair of all
sorts, horses, and litharge of lead. If you except horses, all these are
either materials of manufacture or incomplete manufactures (which
may be considered as materials for still further manufacture), or instru-
520 IMPORTATION SHOULD NOT EXCEED THE HOME DEMAND.

ments of trade. This statute leaves them subject to all the old duties
which had ever been imposed upon them, from the old subsidy and
one per cent. outwards. 211
By the same statute a great number of foreign drugs for dyers' use,
are exempted from all duties upon importation. Each of them, how-
ever, is afterwards subjected to a certain duty, not indeed a very heavy
one, upon exportation. Our dyers, it seems, while they thought it for
their interest to encourage the importation of those drugs, by an ex-
emption from all duties, thought it likewise for their interest to throw
some small discouragement upon their exportation. The avidity, how-
ever, which suggested this notable piece of mercantile ingenuity most
probably disappointed itself of its object. It necessarily taught the im-
porters tobe more careful than they might otherwise have been, that their
importation should not exceed what was necessary for the supply of
the home market. The home market was at all times likely to be more
scantily supplied ; the commodities were at all times likely to be some-
what dearer there than they would have been had the exportation been
rendered as free as the importation.
By the above-mentioned statute, gum senega, or gum arabic, being
among the enumerated dying drugs, might be imported duty free.
They were subjected, indeed, to a small poundage duty, amounting
only to threepence in the hundredweight upon their re-exportation.
France enjoyed, at that time, an exclusive trade to the country most
productive of those drugs, that which lies in the neighbourhood of the
Senegal ; and the British market could not be easily supplied by the
immediate importation of them from the place of growth. By the
25th Geo. II. , therefore, gum senega was allowed to be imported (con-
trary to the general dispositions of the act of navigation) from any
part of Europe. As the law, however, did not mean to encourage this
species of trade, so contrary to the general principles of the mercantile
policy of England, it imposed a duty of ten shillings the hundred-
weight upon such importation, and no part of this duty was to be
afterwards drawn back upon its exportation. The successful war which
began in 1755 gave Great Britain the same exclusive trade to those
countries which France had enjoyed before. Our manufacturers, as
soon as the peace was made, endeavoured to avail themselves of this
advantage, and to establish a monopoly in their own favour, both
against the growers and against the importers of this commodity. By
the 5th Geo. III. , therefore, chap. 37, the exportation of gum senega
from His Majesty's dominions in Africa was confined to Great Britain,
and was subjected to all the same restrictions, regulations, forfeitures,
and penalties, as that of the enumerated commodities of the British
colonies in America and the West Indies. Its importation, indeed,
was subjected to a small duty of sixpence the hundredweight, but its
re-exportation was subjected to the enormous duty of one pound ten
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 521

shillings the hundredweight." It was the intention ofour manufacturers

that the whole produce of those countries should be imported into
Great Britain, and in order that they themselves might be enabled to
buy it at their own price, that no part of it should be exported again,
but at such an expense as would sufficiently discourage that exporta-
tion. Their avidity, however, upon this, as well as upon many other
occasions, disappointed itself of its object. This enormous duty pre-
sented such a temptation to smuggling, that great quantities of this
commodity were clandestinely exported, probably to all the manufac-
turing countries of Europe, but particularly to Holland, not only from
Great Britain but from Africa. Upon this account, by the 14 George
III. chap. 10, this duty upon exportation was reduced to five shillings
the ten hundredweight.
In the book of rates, according to which the old subsidy was levied,
beaver skins were estimated at six shillings and eightpence a piece,
and the different subsidies and imposts, which before the year 1722
had been laid upon their importation, amounted to one-fifth part of the
rate, or to sixteen-pence upon each skin ; all of which, except half the
old subsidy, amounting only to twopence, was drawn back upon ex-
portation. This duty upon the importation of so important a material
of manufacture had been thought too high, and, in the year 1722, the
rate was reduced to two shillings and sixpence, which reduced the
duty upon importation to sixpence, and of this only one half was to
be drawn back upon exportation. The same successful war put the
country most productive of beaver under the dominion of Great Britain,
and beaver skins being among the enumerated commodities, their ex-
portation from America was consequently confined to the market of
Great Britain. Our manufacturers soon bethought themselves of the
advantage which they might make of this circumstance, and in the
year 1764, the duty upon the importation of beaver-skin was reduced
to one penny, but the duty upon exportation was raised to sevenpence
each skin, without any drawback of the duty upon importation. By
the same law, a duty of eighteen-pence the pound was imposed upon
the exportation of beaver-wool or wombs, without making any altera-
tion in the duty upon the importation of that commodity, which, when
imported by British and in British shipping, amounted at that time to
between fourpence and fivepence the piece. ³
Coals may be considered both as a material of manufacture and as
an instrument of trade. Heavy duties, accordingly, have been imposed
upon their exportation, amounting at present ( 1783) to more than five
shillings the ton, or to more than fifteen shillings the chaldron, New-
castle measure ; which is in most cases more than the original value
of the commodity at the coal pit, or even at the shipping port for
exportation.24
The exportation, however, of the instruments of trade, properly so
522 PENALTIES ON EXPORTATION OF INSTRUMENTS OF TRADE,

called, is commonly restrained, not by high duties, but by absolute

prohibitions. Thus by the 7th and 8th of William III. chap. 20, sect.
8, the exportation of frames or engines for knitting gloves or stockings
is prohibited under the penalty, not only of the forfeiture of such
frames or engines so exported, or attempted to be exported, but of
forty pounds, one half to the king, the other to the person who shall
inform or sue for the same. In the same manner by the 14th Geo. III.
chap. 71 , the exportation to foreign parts, of any utensils made use of
in the cotton, linen, woollen and silk manufactures, is prohibited under
the penalty, not only of the forfeiture of such utensils, but of two
hundred pounds, to be paid by the person who shall offend in this
manner, and likewise of two hundred pounds to be paid by the master
of the ship who shall knowingly suffer such utensils to be loaded on
board his ship. 215
When such heavy penalties were imposed upon the exportation of
the dead instruments of trade, it could not well be expected that the
living instrument, the artificer, should be allowed to go free. Accord-
ingly, by the 5 Geo. I. chap. 27, the person who shall be convicted of
enticing any artificer of or in any of the manufactures of Great Britain,
to go into any foreign parts, in order to practise or teach his trade, is
liable for the first offence to be fined in any sum not exceeding one
hundred pounds, and to three months imprisonment, and until the fine
shall be paid ; and for the second offence, to be fined in any sum at
the discretion of the court, and to imprisonment for twelve months, and
until the fine shall be paid. By the 23 Geo. II. chap. 13, this penalty
is increased for the first offence to five hundred pounds for every
artificer so enticed, and to twelve months imprisonment, and until the
fine shall be paid ; and for the second offence, to one thousand pounds,
and to two years imprisonment, and until the fine shall be paid.
By the former of those two statutes, upon proof that any person has
been enticing any artificer, or that any artificer has promised or con-
tracted to go into foreign parts for the purposes aforesaid, such artificer
may be obliged to give security at the discretion of the court, that he
shall not go beyond the seas, and may be committed to prison until he
give such security.
If any artificer has gone beyond the seas, and is exercising or teach-
ing his trade in any foreign country, upon warning being given to him
by any of His Majesty's ministers or consuls abroad, or by one of His
Majesty's secretaries of state for the time being, if he does not, within
six months after such warning, return into this realm, and from thence-
forth abide and inhabit continually within the same, he is from thence-
forth declared incapable of taking any legacy devised to him within
this kingdom, or of being executor or administrator to any person, or
of taking any lands within this kingdom by descent, devise, or pur-
chase. He likewise forfeits to the king all his lands, goods and
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 523

chattels, is declared an alien in every respect, and is put out of the

king's protection.
It is unnecessary, I imagine, to observe how contrary such regula-
tions are to the boasted liberty of the subject, of which we affect to be
so very jealous ; but which, in this case, is so plainly sacrificed to the
futile interests of our merchants and manufacturers. 216
The laudable motive of all these regulations, is to extend our own
manufactures, not by their own improvement, but by the depression of
those of all our neighbours, and by putting an end, as much as possible,
to the troublesome competition of such odious and disagreeable rivals.
Our master manufacturers think it reasonable, that they themselves
should have the monopoly of the ingenuity of all their countrymen.
Though by restraining, in some trades, the number of apprentices
which can be employed at one time, and by imposing the necessity of
a long apprenticeship in all trades, they endeavour, all of them, to con-
fine the knowledge of their respective employments to as small a
number as possible : they are unwilling, however, that any part of this
small number should go abroad to instruct foreigners.
Consumption is the sole end and purpose of all production ; and the
interest of the producer ought to be attended to, only so far as it may
be necessary for promoting that of the consumer. The maxim is so
perfectly self-evident, that it would be absurd to attempt to prove it.
But in the mercantile system, the interest of the consumer is almost
constantly sacrificed to that of the producer ; and it seems to consider
production, and not consumption, as the ultimate end and object of all
industry and commerce.
In the restraints upon the importation of all foreign commodities
which can come into competition with those of our own growth or
manufacture, the interest of the home-consumer is evidently sacrificed
to that of the producer. It is altogether for the benefit of the latter,
that the former is obliged to pay that enhancement of price which this
monopoly almost always occasions.
It is altogether for the benefit of the producer that bounties are
granted upon the exportation of some of his productions. The home-
consumer is obliged to pay, first, the tax which is necessary for paying
the bounty, and secondly, he must pay the still greater tax which neces-
sarily arises from the enhancement of the price of the commodity
in the home market.
By the famous treaty of commerce with Portugal, the consumer is
prevented by high duties from purchasing of a neighbouring country a
commodity which our own climate does not produce, but is obliged to
purchase it of a distant country, though it is acknowledged that the
commodity of the distant country is of a worse quality than that of the
near one. The home-consumer is obliged to submit to this inconve-
niency, in order that the producer may import into the distant country
524 CONSUMERS' INTEREST SACRIFICED TO MANUFACTURERS'.

some of his productions upon more advantageous terms than he would

otherwise have been allowed to do. The consumer, too, is obliged to
pay whatever enhancement in the price of those very productions this
forced exportation may occasion in the home market.
But in the system of laws which has been established for the
management of our American and West Indian colonies, the interest
of the home-consumer has been sacrificed to that of the producer with
a more extravagant profusion than in all our other commercial regula-
tions. A great empire has been established for the sole purpose of
raising up a nation of customers, who should be obliged to buy from
the shops of our different producers all the goods with which these
could supply them. For the sake of that little enhancement of price
which this monopoly might afford our producers, the home-consumers
have been burdened with the whole expense of maintaining and
defending that empire. For this purpose, and for this purpose only,
in the two last wars more than two hundred millions have been spent,
and a new debt of more than a hundred and seventy millions has been
contracted over and above all that had been expended for the same
purpose in former wars. The interest of this debt alone is not only
greater than the whole extraordinary profit which, it ever could be
pretended, was made by the monopoly of the colony trade, but than
the whole value of that trade, or than the value of the goods, which
at an average have been annually exported to the colonies.
It cannot be very difficult to determine who have been the contrivers
of this whole mercantile system ; not the consumers, we may believe,
whose interest has been entirely neglected, but the producers, whose
interest has been so carefully attended to ; and among this latter class
our merchants and manufacturers have been by far the principal archi-
tects. In the mercantile regulations, which have been taken notice of
in this chapter, the interest of our manufacturers has been most pecu-
liarly attended to ; and the interest, not so much of the consumers as
that of some other sets of producers, has been sacrificed to it.

CHAP. IX. Of the Agricultural Systems, or of those Systems of

Political Economy which represent the Produce of Land as either
the sole orthe principal Source of the Revenue and Wealth ofevery
Country.
THE agricultural systems of political economy will not require so long
an explanation as that which I have thought it necessary to bestow
upon the mercantile or commercial system.
That system which represents the produce of land as the sole source
of the revenue and wealth of every country has, so far as I know, never
been adopted by any nation, and it at present exists only in the specu-
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 525

lations of a few men of great learning and ingenuity in France. It

would not, surely, be worth while to examine at great length the errors
of a system which never has done, and probably never will do, any
harm in any part of the world. I shall endeavour to explain, however,
as distinctly as I can, the outlines of this very ingenious system.
Mr. Colbert, the famous minister of Louis XIV. , was a man of
probity, of great industry and knowledge of detail ; of great experience
and acuteness in the examination of public accounts, and of abilities,
in short, every way fitted for introducing method and good order into
the collection and expenditure of the public revenue. That minister
had unfortunately embraced all the prejudices of the mercantile sys-
tem, in its nature and essence a system of restraint and regulation, and
such as could scarce fail to be agreeable to a laborious and plodding
man of business, who had been accustomed to regulate the different
departments of public offices, and to establish the necessary checks
and controls for confining each to its proper sphere. The industry and
commerce of a great country he endeavoured to regulate upon the same
model as the departments of a public office ; and instead of allowing
every man to pursue his own interest his own way, upon the liberal
plan of equality, liberty, and justice, he bestowed upon certain branches
of industry extraordinary privileges, while he laid others under as
extraordinary restraints. He was not only disposed , like other Euro-
pean ministers, to encourage more the industry of the towns than that
of the country ; but, in order to support the industry of the towns, he
was willing even to depress and keep down that of the country. In
order to render provisions cheap to the inhabitants of the towns, and
thereby to encourage manufactures and foreign commerce, he prohi-
bited altogether the exportation of corn, and thus excluded the inhabit-
ants of the country from every foreign market for by far the most
important part of the produce of their industry. This prohibition,
joined to the restraints imposed by the ancient provincial laws of
France upon the transportation of corn from one province to another,
and to the arbitrary and degrading taxes which are levied upon the
cultivators in almost all the provinces, discouraged and kept down the
agriculture of that country very much below the state to which it would
naturally have risen in so very fertile a soil and so very happy a
climate. This state of discouragement and depression was felt more
or less in every different part of the country, and many different
inquiries were set on foot concerning the causes of it. One of those
causes appeared to be the preference given , by the institutions of
Mr. Colbert, to the industry of the towns above that of the country.
If the rod be bent too much one way, says the proverb, in order to
make it straight you must bend it as much the other. The French
philosophers, who have proposed the system which represents agricul
ture as the sole source of the revenue and wealth of every country,
526 SCHEMES OF M. COLBERT, MINISTER OF LOUIS XIV.

seem to have adopted this proverbial maxim ; and as in the plan of

Mr. Colbert the industry of the towns was certainly over-valued in
comparison with that of the country, so in their system it seems to be
as certainly under-valued.
The different orders of people who have ever been supposed to contri-
bute in any respect towards the annual produce of the land and labour
of the country, they divide into three classes. The first is the class of
the proprietors of land. The second is the class of the cultivators, of
farmers and country labourers, whom they honour with the peculiar
appellation of the productive class. The third is the class of artificers,
manufacturers, and merchants, whom they endeavour to degrade by the
humiliating appellation of the barren or unproductive clsss.
The class of proprietors contributes to the annual produce by the
expense which they may occasionally lay out upon the improvement of
the land, upon the buildings, drains, enclosures, and other amelior-
ations, which they may either make or maintain upon it, and by means
of which the cultivators are enabled, with the same capital, to raise
a greater produce, and consequently to pay a greater rent. This
advanced rent may be considered as the interest or profit due to the
proprietor upon the expense or capital which he thus employs in the
improvement of his land. Such expenses are in this system called
ground expenses (depenses foncieres).
The cultivators or farmers contribute to the annual produce by what
are in this system called the original and annual expenses (depenses
primitives et depenses annuelles) which they lay out upon the cultiva-
tion of the land. The original expenses consist in the instruments of
husbandry, in the stock of cattle, in the seed, and in the maintenance
of the farmer's family, servants, and cattle, during at least a great part
of the first year of his occupancy, or till he can receive some return
from the land. The annual expenses consist in the seed, in the wear
and tear of the instruments of husbandry, and in the annual mainten-
ance of the farmer's servants and cattle, and of his family too, so far
as any part of them can be considered as servants employed in culti-
vation. That part of the produce of the land which remains to him
after paying the rent, ought to be sufficient, first to replace to him
within a reasonable time, at least during the term of his occupancy,
the whole of his original expenses, together with the ordinary profits of
stock ; and, secondly, to replace to him annually the whole of his annual
expenses, together likewise with the ordinary profits of stock. Those
two sorts of expenses are two capitals which the farmer employs in
cultivation ; and unless they are regularly restored to him, together
with a reasonable profit, he cannot carry on his employment upon a
level with other employments ; but, from a regard to his own interest,
must desert it as soon as possible, and seek some other. That part of
the produce of the land which is thus necessary for e abling the farmer
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 527

to continue his business, ought to be considered as a fund sacred to

cultivation, which if the landlord violates, he necessarily reduces the
produce of his own land, and in a few years not only disables the farmer
from paying this racked rent, but from paying the reasonable rent
which he might otherwise have got for his land. The rent which
properly belongs to the landlord, is no more than the nett produce
which remains after paying in the completest manner all the necessary
expenses which must be previously laid out in order to raise the gross,
or the whole produce. It is because the labour of the cultivators, over
and above paying completely all those necessary expenses, affords a nett
produce of this kind, that this class of people are in this system pecu-
liarly distinguished by the honourable appellation of the productive
class. Their original and annual expenses are for the same reason called,
in this system, productive expenses, because, over and above replacing
their own value, they will occasion the annual reproduction of this
nett produce.
The ground expenses, as they are called, or what the landlord lays
out upon the improvement of his land, are in this system too honoured
with the appellation of productive expenses. Till the whole of those ex-
penses, together with the ordinary profits of stock, have been completely
repaid to him by the advanced rent which he gets from his land, that
advanced rent ought to be regarded as sacred and inviolable, both by
the church and by the king, ought to be subject neither to tithe nor
to taxation. If it is otherwise, by discouraging the improvement of
land, the church discourages the future increase of her own tithes, and
the king the future increase of his own taxes. As in a well-ordered
state of things, therefore, those ground expenses, over and above re-
producing in the completest manner their own value, occasion likewise
after a certain time a reproduction of a nett produce, they are in this
system considered as productive expenses.
The ground expenses of the landlord, however, together with the
original and the annual expenses of the farmer, are the only three sorts
of expenses which in this system are considered as productive. All
other expenses and all other orders of people, even those who in the
common apprehensions of men are regarded as the most productive .
are in this account of things represented as altogether barren and
unproductive.
Artificers and manufacturers, in particular, whose industry, in the
common apprehensions of men, increases so much the value of the
rude produce of land, are in this system represented as a class of
people altogether barren and unproductive. Their labour, it is said,
replaces only the stock which employs them, together with its ordinary
profits. That stock consists in the materials, tools, and wages, advanced
to them by their employer, and is the fund destined for their employ-
ment and maintenance. Its profits are the fund destined for the
528 PROFITS OF THE MANUFACTURER AND OF THE FARMER.

maintenance of their employer. Their employer, as he advances to

them the stock of materials, tools, and wages, necessary for their em-
ployment, so he advances to himself what is necessary for his own
maintenance, and this maintenance he generally proportions to the
profit which he expects to make by the price of their work. Unless its
price repays to him the maintenance which he advances to himself, as
well as the materials, tools, and wages which he advances to his work-
men, it evidently does not repay to him the whole expense which he
lays out upon it. The profits of manufacturing stock, therefore, are
not, like the rent of land, a nett produce which remains after completely
repaying the whole expense which must be laid out in order to obtain
them. The stock of the farmer yields him a profit as well as that of
the master manufacturer ; and it yields a rent likewise to another
person, which that of the master manufacturer does not. The expense,
therefore, laid out in employing and maintaining artificers and manu-
facturers, does no more than continue, if one may say so, the existence
of its own value, and does not produce any new value. It is therefore
altogether a barren and unproductive expense. The expense, on the
contrary, laid out in employing farmers and country labourers, over
and above continuing the existence of its own value, produces a new
value, the rent of the landlord. It is therefore a productive expense.
Mercantile stock is equally barren and unproductive with manufac-
turing stock. It only continues the existence of its own value, without
producing any new value. Its profits are only the repayment of the
maintenance which its employer advances to himself during the time
that he employs it, or till he receives the returns of it ; and they are
only the repayment of a part of the expense which must be laid out
in employing it.
The labour of artificers and manufacturers never adds anything to
the value of the whole annual amount of the rude produce of the land.
It adds indeed greatly to the value of some particular parts of it. But
the consumption which in the meantime it occasions of other parts, is
precisely equal to the value which it adds to those parts ; so that the
value of the whole amount is not, at any one moment of time, in the
least augmented by it. The person who works the lace of a pair of
fine ruffles, for example, will sometimes raise the value of perhaps a
pennyworth of flax to thirty pounds sterling. But though at first sight
he appears thereby to multiply the value of a part of the rude produce
about seven thousand and two hundred times, he in reality adds nothing
to the value of the whole annual amount of the rude produce. The
working of that lace costs him perhaps two years labour. The thirty
pounds which he gets for it when it is finished, is no more than the
repayment of the subsistence which he advances to himself during the
two years that he is employed about it. The value which, by every
day's, month's. or year's labour, he adds to the flax, does no more tha
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 529

replace the value of his own consumption during that day, month, or
year. At no moment of time, therefore, does he add anything to the
value of the whole annual amount of the rude produce of the land :
the portion of that produce which he is continually consuming, being
always equal to the value which he is continually producing. The
extreme poverty of the greater part of the persons employed in this
expensive, though trifling manufacture, may satisfy us that the price of
their work does not in ordinary cases exceed the value of their subsist.
ence. It is otherwise with the work of farmers and country labourers.
The rent of the landlord is a value which, in ordinary cases, it is con-
tinually producing, over and above replacing, in the most complete
manner, the whole consumption, the whole expense laid out upon the
employment and the maintenance both of the workmen and of
their employer.
Artificers, manufacturers, and merchants, can augment the revenue
and wealth of their society, by parsimony only ; or, as it is expressed
in this system, by privation, that is, by depriving themselves of a part
of the funds destined for their own subsistence. They annually repro-
duce nothing but those funds. Unless, therefore, they annually save
some part of them, unless they annually deprive themselves of the
enjoyment of some part of them, the revenue and wealth of their
society can never be in the smallest degree augmented by means of
their industry. Farmers and country labourers, on the contrary, may
enjoy completely the whole funds destined for their own subsistence,
and yet augment at the same time the revenue and wealth of their
society. Over and above what is destined for their own subsistence,
their industry annually affords a nett produce, of which the augmenta-
tion necessarily augments the revenue and wealth of their society.
Nations, therefore, which, like France or England, consist in a great
measure of proprietors and cultivators, can be enriched by industry
and enjoyment. Nations, on the contrary, which, like Holland and
Hamburg, are composed chiefly of merchants, artificers, and manu.
facturers, can grow rich only through parsimony and privation. As
the interest of nations so differently circumstanced is very different,
so is likewise the common character of the people. In those of the
former kind, liberality, frankness, and good fellowship, naturally make
a part of that common character. In the latter, narrowness, meanness,
and a selfish disposition, averse to all social pleasure and enjoyment.
The unproductive class, that of merchants, artificers, and manufac-
turers, is maintained and employed altogether at the expense of the
two other classes, of that of proprietors, and of that of cultivators.
They furnish it both with the materials of its work and with the fund
of its subsistence, with the corn and cattle which it consumes while it
is employed about that work. The proprietors and cultivators finally
pay both the wages of all the workmen of the unproductive class, and
34
 530 THE UNPRODUCTIVE CLASS ARE NOT USELESS.

the profits of all their employers. Those workmen and their employers
are properly the servants of the proprietors and cultivators. They are
only servants who work without doors, as menial servants work within.
Both the one and the other, however, are equally maintained at the
expense of the same masters. The labour of both is equally unpro-
ductive. It adds nothing to the value of the sum total of the rude
produce of the land. Instead of increasing the value of that sum
total, it is a charge and expense which must be paid out of it.
The unproductive class, however, is not only useful, but greatly use-
ful to the other two classes. By means of the industry of merchants,
artificers and manufacturers, the proprietors and cultivators can pur-
chase both the foreign goods and the manufactured produce of their
own country which they have occasion for, with the produce of a much
smaller quantity of their own labour than what they would be obliged
to employ if they were to attempt, in an awkward and unskilful
manner, either to import the one or to make the other for their own
use. By means of the unproductive class, the cultivators are delivered
from many cares which would otherwise distract their attention from
the cultivation of land. The superiority of produce which, in conse-
quence of this undivided attention, they are enabled to raise, is fully
sufficient to pay the whole expense which the maintenance and em-
ployment of the unproductive class costs either the proprietors or
themselves. The industry of merchants, artificers, and manufacturers,
though in its own nature altogether unproductive, yet contributes in
this manner indirectly to increase the produce of the land. It increases
the productive powers of productive labour, by leaving it at liberty to
confine itself to its proper employment, the cultivation of land ; and
the plough goes frequently the easier and the better by means of the
labour of the man whose business is most remote from the plough.
It can never be the interest of the proprietors and cultivators to
restrain or to discourage in any respect the industry of merchants,
artificers, and manufacturers. The greater the liberty which this
unproductive class enjoys, the greater will be the competition of all
the different trades which compose it, and the cheaper will the other
two classes be supplied, both with foreign goods and with the manu-
factured produce of their own country.
It can never be the interest of the unproductive class to oppress the
other two classes. It is the surplus produce of the land, or what
remains after deducting the maintenance, first, of the cultivators, and
afterwards, of the proprietors, that maintains and employs the unpro-
ductive class. The greater this surplus, the greater must likewise be
the maintenance and employment of that class. The establishment
of perfect justice, of perfect liberty, and of perfect equality, is the very
simple secret which most effectually secures the highest degree of
prosperity to all the three classes.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 531

The merchants, artificers, and manufacturers of those mercantile

states which, like Holland and Hamburg, consist chiefly of this
unproductive class, are in the same manner maintained and employed
altogether at the expense of the proprietors and cultivators of land.
The only difference is, that those proprietors and cultivators are, the
greater part of them, placed at a most inconvenient distance from
the merchants, artificers, and manufacturers whom they supply with
the materials of their work and the fund of their subsistence, are the
inhabitants of other countries, and the subjects of other governments.
Such mercantile states, however, are not only useful, but greatly
useful to the inhabitants of those other countries. They fill up, in
some measure, a very important void, and supply the place of the
merchants, artificers, and manufacturers, whom the inhabitants of those
countries ought to find at home, but whom, from some defect in their
policy, they do not find at home.
It can never be the interest of those landed nations, if I may call
them so, to discourage or distress the industry of such mercantile
states, by imposing high duties upon their trade, or upon the commodi-
ties which they furnish. Such duties, by rendering those commodities
dearer, could serve only to sink the real value of the surplus produce
of their own land, with which or, what comes to the same thing, with
the price of which, those commodities are purchased. Such duties
could serve only to discourage the increase of that surplus produce,
and consequently the improvement and cultivation of their own land.
The most effectual expedient, on the contrary, for raising the value
of that surplus produce, for encouraging its increase, and consequently
the improvement and cultivation of their own land, would be to allow
the most perfect freedom to the trade of all such mercantile nations.
This perfect freedom of trade would even be the most effectual
expedient for supplying them, in due time, with all the artificers, manu-
facturers and merchants, whom they wanted at home, and for filling up
in the properest and most advantageous manner that very important
void which they felt there.
The continual increase of the surplus produce of their land would,
in due time, create a greater capital than what could be employed with
the ordinary rate of profit in the improvement and cultivation of land ;
and the surplus part of it would naturally turn itself to the employment
of artificers and manufacturers at home. But those artificers and
manufacturers, finding at home both the materials of their work and
the fund of their subsistence, might immediately, even with much less
art and skill, be able to work as cheap as the like artificers and manu-
facturers of such mercantile states, who had both to bring from a
greater distance. Even though, from want of art and skill, they might
not for some time be able to work as cheap, yet, finding a market at
home, they might be able to sell their work there as cheap as that of
34 *
532 FREE TRADE IS THE MOST GENEROUS OF SYSTEMS.

the artificers and manufacturers of such mercantile states, which could

not be brought to that market but from so great a distance ; and as
their art and skill improved, they would soon be able to sell it cheaper.
The artificers and manufacturers of such mercantile states, therefore,
would immediately be rivalled in the market of those landed nations,
and soon after undersold and justled out of it altogether. The cheap-
ness of the manufactures of those landed nations, in consequence of
the gradual improvements of art and skill, would, in due time, extend
their sale beyond the home market, and carry them to many foreign
markets, from which they would in the same manner gradually justle
out many of the manufactures of such mercantile nations.
This continual increase both of the rude and manufactured produce
of those landed nations would in due time create a greater capital than
could, with the ordinary rate of profit, be employed either in agricul-
ture or in manufactures. The surplus of this capital would naturally
turn itself to foreign trade, and be employed in exporting to foreign
countries such parts of the rude and manufactured produce of its own
country as exceeded the demand of the home market. In the exporta-
tion of the produce of their own country, the merchants of a landed
nation would have an advantage of the same kind over those of mer-
cantile nations, which its artificers and manufacturers had over the
artificers and manufacturers of such nations ; the advantage of finding
at home that cargo and those stores and provisions, which the others
were obliged to seek for at a distance. With inferior art and skill in
navigation, therefore, they would be able to sell that cargo as cheap in
foreign markets as the merchants of such mercantile nations ; and with
equal art and skill they would be able to sell it cheaper. They would
soon, therefore, rival those mercantile nations in this branch of foreign
trade, and in due time would justle them out of it altogether.
According to this liberal and generous system, therefore, the most
advantageous method in which a landed nation can raise up artificers,
manufacturers, and merchants of its own, is to grant the most perfect
freedom of trade to the artificers, manufacturers, and merchants of all
other nations. It thereby raises the value of the surplus produce of its
own land, of which the continual increase gradually establishes a fund,
which in due time necessarily raises up all the artificers, manufacturers,
.and merchants whom it has occasion for.
When a landed nation, on the contrary, oppresses either by high
duties or by prohibitions the trade of foreign nations, it necessarily
hurts its own interest in two different ways. First, by raising the price
of all foreign goods and of all sorts of manufactures, it necessarily sinks
the real value of the surplus produce of its own land, with which, or,
what comes to the same thing, with the price of which, it purchases
those foreign goods and manufactures . Secondly, by giving a sort of
monopoly of the home market to its own merchants . artificers, and
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 533

manufacturers, it raises the rate of mercantile and manufacturing profit

in proportion to that of agricultural profit, and consequently either
draws from agriculture a part of the capital which had before been em-
ployed in it, or hinders from going to it a part of what would otherwise
have gone to it. This policy, therefore, discourages agriculture in two
different ways ; first, by sinking the real value of its produce, and
thereby lowering the rate of its profit ; and, secondly, by raising the
rate of profit in all other employments. Agriculture is rendered less
advantageous, and trade and manufactures more advantageous, than
they otherwise would be ; and every man is tempted by his own in-
terest to turn, as much as he can, both his capital and his industry
from the former to the latter employments.
Though, by this oppressive policy, a landed nation should be able to
raise up artificers, manufacturers, and merchants of its own, somewhat
sooner than it could do by the freedom of trade (a matter, however,
which is not a little doubtful), yet it would raise them up, if one may
say so, prematurely, and before it was perfectly ripe for them. By
raising up too hastily one species of industry, it would depress another
more valuable species of industry. By raising up too hastily a species
of industry which only replaces the stock which employs it, together
with the ordinary profit, it would depress a species of industry which,
over and above replacing that stock with its profit, affords likewise a
nett produce, a free rent to the landlord. It would depress productive
labour, by encouraging too hastily that labour which is altogether
barren and unproductive.
In what manner, according to this system, the sum total of the an-
nual produce of the land is distributed among the three classes above
mentioned, and in what manner the labour of the unproductive class
does no more than replace the value of its own consumption, without
increasing in any respect the value of that sum total, is represented by
Mr. Quesnai, the very ingenious and profound author of this system, in
some arithmetical formularies." 7 The first of these formularies, which
by way of eminence he peculiarly distinguishes by the name of the
Economical Table, represents the manner in which he supposes this
distribution takes place, in a state of the most perfect liberty, and
therefore of the highest prosperity ; in a state where the annual pro-
duce is such as to afford the greatest possible nett produce, and where
each class enjoys its proper share of the whole annual produce. Some
subsequent formularies represent the manner in which, he supposes,
this distribution is made in different states of restraint and regulation ;
in which, either the class of proprietors, or the barren and unproductive
class is more favoured than the class of cultivators, and in which, either
the one or the other encroaches more or less upon the share which
ought properly to belong to this productive class. Every such en-
croachment, every violation of that natural distribution, which the
534 ERRORS OF M. DE QUESNAI'S SYSTEM.

most perfect liberty would establish, must, according to this system,

necessarily degrade more or less, from one year to another, the value
and sum total of the annual produce, and must necessarily occasion a
gradual declension in the real wealth and revenue of the society ; a
declension of which the progress must be quicker or slower, according
to the degree of this encroachment, according as that natural distribu-
tion, which the most perfect liberty would establish, is more or less
violated. Those subsequent formularies represent the different degrees
of declension, which, according to this system, correspond to the
degrees in which this natural distribution of things is violated.
Some speculative physicians seem to have imagined that the health
of the human body could be preserved only by a certain precise regi-
men of diet and exercise, of which every, the smallest, violation neces-
sarily occasioned some degree of disease or disorder proportioned to
the degree of the violation. Experience, however, would seem to show,
that the human body frequently preserves, to all appearance at least,
the most perfect state of health under a vast variety of different regi-
mens ; even under some which are generally believed to be very far
from being perfectly wholesome. But the healthful state of the human
body, it would seem, contains in itself some unknown principle of
preservation, capable either of preventing or of correcting, in many
respects, the bad effects even of a very faulty regimen. Mr. Quesnai,
who was himself a physician, and a very speculative physician, seems
to have entertained a notion of the same kind concerning the political
body, and to have imagined that it would thrive and prosper only
under a certain precise regimen, the exact regimen of perfect liberty
and perfect justice. He seems not to have considered that in the poli-
tical body, the natural effort which every man is continually making to
better his own condition, is a principle of preservation capable of pre-
venting and correcting, in many respects, the bad effects of a political
economy in some degree both partial and oppressive. Such a political
economy, though it no doubt retards more or less, is not always capable
of stopping altogether the natural progress of a nation towards wealth
and prosperity, and still less of making it go backwards. If a nation
could not prosper without the enjoyment of perfect liberty and perfect
justice, there is not in the world a nation which could ever have pros-
pered. In a political body, however, the wisdom of nature has made
ample provision for remedying many of the bad effects of the folly and
injustice of man ; in the same manner as it has done in the natural
intemperance.
238 and
body, for remedying those of his sloth
The capital error of this system, however, seems to lie in its repre-
senting the class of artificers, manufacturers , and merchants, as alto-
gether barren and unproductive. The following observations may serve
to show the impropriety of this representation .
First, this class, it is acknowledged , reproduces annually the value
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 535

of its own annual consumption, and continues, at least, the existence

of the stock or capital which maintains and employs it. But upon this
account alone the denomination of barren or unproductive should seem
to be very improperly applied to it. We should not call a marriage
barren or unproductive, though it produced only a son and a daughter,
to replace the father and mother, and though it did not increase the
number of the human species, but only continued it as it was before.
Farmers and country labourers, indeed, over and above the stock which
maintains and employs them, reproduce annually a nett produce, a
free rent to the landlord. As a marriage which affords three children
is certainly more productive than one which affords only two ; so the
labour of farmers and country labourers is certainly more productive
than that of merchants, artificers, and manufacturers.29 The superior
produce of the one class, however, does not render the other class
barren or unproductive.
Secondly, it seems, upon this account, altogether improper to con-
sider artificers, manufacturers, and merchants, in the same light as
menial servants. The labour of menial servants does not continue the
existence of the fund which maintains and employs them. Their
maintenance and employment is altogether at the expense of their
masters, and the work which they perform is not of a nature to repay
that expense. The work consists in services which perish generally in
the very instant of their performance, and does not fix or realize itself
in any vendible commodity which can replace the value of their wages
and maintenance. The labour, on the contrary, of artificers, manu-
facturers, and merchants, naturally does fix and realize itself in some
such vendible commodity. It is upon this account that, in the chapter
in which I treat of productive and unproductive labour, I have
classed artificers, manufacturers, and merchants among the productive
labourers, and menial servants among the barren or unproductive. 220
Thirdly, it seems, upon every supposition, improper to say that the
labour of artificers, manufacturers, and merchants, does not increase
the real revenue of the society. Though we should suppose, for ex-
ample, as it seems to be supposed in this system, that the value of the
daily, monthly, and yearly consumption of this class was exactly equal
to that of its daily, monthly, and yearly production ; yet it would not
from thence follow that its labour added nothing to the real revenue,
to the real value of the annual produce of the land and labour of the
society. An artificer, for example, who, in the first six months after
harvest, executes ten pounds' worth of work, though he should in the
same time consume ten pounds' worth of corn and other necessaries,
yet really adds the value of ten pounds to the annual produce of the
land and labour of the society. While he has been consuming a half
yearly revenue of ten pounds' worth of corn and other necessaries, he
has produced an equal value of work capable of purchasing, either to
 536 ON WHAT IMPROVEMENT OF USEFUL LABOUR DEPENDS.
himself or to some other person, an equal half yearly revenue. The
value, therefore, of what has been consumed and produced during these
six months is equal, not to ten, but to twenty pounds. It is possible,
indeed, that no more than ten pounds' worth of this value, may ever
have existed at any one moment of time. But if the ten pounds' worth
of corn and other necessaries, which were consumed by the artificer,
had been consumed by a soldier or by a menial servant, the value of
that part of the annual produce which existed at the end of the six
months, would have been ten pounds less than it actually is in conse-
quence of the labour of the artificer. Though the value of what the
artificer produces, therefore, should not at any moment of time be sup-
posed greater than the value he consumes, yet at every moment of time
the actually existing value of goods in the market is, in consequence of
what he produces, greater than it otherwise would be.
When the patrons of this system assert, that the consumption of
Artificers, manufacturers, and merchants, is equal to the value of what
they produce, they probably mean no more than that their revenue, or
the fund destined for their consumption, is equal to it. But if they had
expressed themselves more accurately, and only asserted, that the re-
venue of this class was equal to the value of what they produced, it
might readily have occurred to the reader, that what would naturally
be saved out of this revenue must necessarily increase more or less
the real wealth of the society. In order, therefore, to make out some-
thing like an argument, it was necessary that they should express
themselves as they have done ; and this argument, even supposing
things actually were as it seems to presume them to be, turns out to be
a very inconclusive one.
Fourthly, farmers and country labourers can no more augment,
without parsimony, the real revenue, the annual produce of the land
and labour of their society, than artificers, manufacturers, and mer-
chants. The annual produce of the land and labour of any society
can be augmented only in two ways ; either, first, by some improve-
ment in the productive powers of the useful labour actually maintained
within it ; or, secondly, by some increase in the quantity of that
labour employed.
The improvement in the productive powers of useful labour depends,
first, upon the improvement in the ability of the workman ; and,
secondly, upon that of the machinery with which he works. But the
labour of artificers and manufacturers, as it is capable of being more
subdivided, and the labour of each workman reduced to a greater
simplicity of operation, than that of farmers and country labourers, so
it is likewise capable of both these sorts of improvement in a much
higher degree. In this respect, therefore, the class of cultivators can
have no advantage over that of artificers and manufacturers.
The increase in the quantity of useful labour actually employed
• See Book i. cap. i,

427
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 537

within any society, must depend altogether upon the increase of the
capital which employs it ; and the increase of that capital again must
be exactly equal to the amount of the savings from the revenue, either
of the particular persons who manage and direct the employment of
that capital, or of some other persons who lend it to them. If mer-
chants, artificers and manufacturers are, as this system seems to
suppose, naturally more inclined to parsimony and saving than pro-
prietors and cultivators, they are, so far, more likely to augment the
quantity of useful labour employed within their society, and con-
sequently to thereby increase its real revenue, the annual produce of
its land and labour.
Fifthly and lastly, though the revenue of the inhabitants of every
country was supposed to consist altogether, as this system seems to
suppose, in the quantity of subsistence which their industry could pro-
cure to them ; yet, even upon this supposition , the revenue of a trading
and manufacturing country must, other things being equal, always be
much greater than that of one without trade or manufactures. By means
of trade and manufactures, a greater quantity of subsistence can be an-
nually imported into a particular country than what its own lands, in
the actual state of their cultivation could afford. The inhabitants of a
town, though they frequently possess no lands of their own, yet draw
to themselves by their industry such a quantity of the rude produce of
the lands of other people as supplies them, not only with the materials
of their work, but with the fund of their subsistence. What a town
always is with regard to the country in its neighbourhood, one inde-
pendent state or country may frequently be with regard to other in-
dependent states or countries. It is thus that Holland draws a great
part of its subsistence from other countries ; live cattle from Holstein
and Jutland, and corn from almost all the different countries in Europe.
A small quantity of manufactured produce purchases a great quantity of
rude produce. A trading and manufacturing country, therefore,
naturally purchases with a small part of its manufactured produce a
great part of the rude produce of other countries ; while, on the con-
trary, a country without trade and manufactures is generally obliged to
purchase, at the expense of a great part of its rude produce, a very
small part of the manufactured produce of other countries. The one
exports what can subsist and accommodate but a very few, and im-
ports the subsistence and accommodation of a great number. The
other exports the accommodation and subsistence of a great number,
and imports that of a very few only. The inhabitants of the one
country must always enjoy a much greater quantity of subsistence
than what their own lands, in the actual state of their cultivation
could afford. The inhabitants of the other country must always
enjoy a much smaller quantity.
This system, however, with all its imperfections is, perhaps, the
538 WEALTH LIES IN PRODUCTION OF CONSUMABLE GOODS.

nearest approximation to the truth that has yet been published upon the
subject or political economy, and is upon that account well worth the
consideration of every man who wishes to examine with attention the
principles of that very important science. Though in representing the
labour which is employed upon land as the only productive labour,
the notions which it incalculates are perhaps too narrow and confined ;
yet in representing the wealth of nations as consisting, not in the un-
consumable riches of money, but in the consumable goods annually re-
produced by the labour ofthe society ; and in representing perfect liberty
as the only effectual expedient for rendering this annual reproduction
the greatest possible, its doctrine seems to be in every respect as just
as it is generous and liberal. Its followers are very numerous ; and as
men are fond of paradoxes, and of appearing to understand what
surpasses the comprehension of ordinary people, the paradox which it
maintains, concerning the unproductive nature of manufacturing
labour, has not perhaps contributed a little to increase the number of
its admirers. They have for some years past made a pretty considerable
sect, distinguished in the French republic of letters by the name of,
The Economists. Their works have certainly been of some service
to their country ; not only by bringing into general discussion many
subjects which had never been well examined before, but by influencing
in some measure the public administration in favour of agriculture. It
has been in consequence of their representations accordingly, that the
agriculture of France has been delivered from several of the oppres-
sions which it before laboured under. The term during which such a
lease can be granted, as will be valid against every future purchaser or
proprietor of the land, has been prolonged from nine to twenty-seven
years. The ancient provincial restraints upon the transportation of
corn from one province of the kingdom to another, have been entirely
taken away, and the liberty of exporting it to all foreign countries, has
been established as the common law of the kingdom in all ordinary
cases. This sect, in their works, which are very numerous, and which
treat, not only of what is properly called political economy, or of the
nature and causes of the wealth of nations, but of every other branch
of the system of civil government, all follow implicity, and without any
sensible variation, the doctrine of Mr. Quesnai. There is upon this
account little variety in the greater part of their works. The most
distinct and best connected account of this doctrine is to be found in a
little book written by Mr. Mercier de la Riviere, some time Intendant of
Martinico, intitled, ' The natural and essential Order of Political
Societies.' The admiration of this whole sect for their master, who
was himself a man of the greatest modesty and simplicity, is not in-
ferior to that of any of the ancient philosophers for the founders of
their respective systems. There have been, since the world began,'
says a very diligent and respectable author the Marquis de Mirabeau,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 539

' three great inventions which have principally given stability to

"political societies, independent of many other inventions which have
' enriched and adorned them. The first, is the invention of writing,
' which alone gives human nature the power of transmitting, without
'alteration, its laws, its contracts, its annals, and its discoveries. The
' second, is the invention of money, which binds together all the rela-
'tions between civilized societies. The third, is the Economical
' Table, the result of the other two, which completes them both by
'perfecting their object ; the great discovery of our age, but of which
our posterity will reap the benefit.'
As the political economy of the nations of modern Europe has
been more favourable to manufacturers and foreign trade—the industry
of the towns, than to agriculture-the industry of the country ; so that
of other nations has followed a different plan, and has been more
favourable to agriculture than to manufactures and foreign trade.
The policy of China favours agriculture more than all other employ-
ments. In China, the condition of a labourer is said to be as much
superior to that of an artificer, as in most parts of Europe that of
an artificer is to that of a labourer. In China, the great ambition of
every man is to get possession ofsome little bit of land, either in property
or in lease ; and leases are there said to be granted upon very
moderate terms, and to be sufficiently secured to the lessees. The
Chinese have little respect for foreign trade. Your beggarly com-
merce ! was the language in which the mandarins of Pekin used to
talk to Mr. De Lange, the Russian envoy, concerning it.* Except
with Japan, the Chinese carry on themselves, and in their own bot-
toms, little or no foreign trade ; and it is only into one or two ports of
their kingdom that they even admit the ships of foreign nations.
Foreign trade therefore is in China every way confined within a much
narrower circle than that to which it would naturally extend itself, if
more freedom was allowed to it, either in their own ships or in those
of foreign nations.
Manufactures, as in a small bulk they frequently contain a great value,
and can upon that account be transported at less expense from one
country to another than most parts of rude produce, are, in almost all
countries, the principal support of foreign trade. In countries, besides,
less extensive and less favourably circumstanced for interior commerce
than China, they generally require the support of foreign trade. With-
out an extensive foreign market they could not well flourish, either in
countries so moderately extensive as to afford but a narrow home mar-
ket, or in countries where the communication between one province
and another was so difficult as to render it impossible for the goods of
any particular place to enjoy the whole of that home market which the
country could afford. The perfection of manufacturing industry, it
Seethe Journal of Mr. De Lange in Bell's Travels, vol. ii. pp. 258, 276, 293.
540 THE POLICY OF CHINA, HINDOSTAN, AND ANCIENT EGYPT.

must be remembered, depends altogether upon the division of labour ;

and the degree to which the division of labour can be introduced into
any manufacture, is necessarily regulated, it has already been shown,
by the extent of the market. But the great extent of the empire of
China, the vast multitudes of its inhabitants, the variety of climate,
and consequently of productions in its different provinces, and the easy
communication by means of water carriage between the greater part
of them , render the home market of that country of so great extent,
as to be alone sufficient to support very great manufactures, and to
admit of very considerable subdivisions of labour. The home market
of China is, perhaps, in extent, not much inferior to the market of all
the different countries of Europe put together. A more extensive
foreign trade, however, which to this great home market added the
foreign market of all the rest of the world (especially if any consider-
able part of this trade was carried on in Chinese ships) could scarce
fail to increase very much the manufactures of China, and to improve
very much the productive powers of its manufacturing industry. By a
more extensive navigation, the Chinese would naturally learn the art
of using and constructing themselves all the different machines made
use of in other countries, as well as the other improvements of art and
industry which are practised in all the different parts of the world.
Upon their present plan they have little opportunity of improving
themselves by the example of any other nation ; except that of their
neighbours the Japanese.
The policy of ancient Egypt too, and that of the Gentoo government
of Hindostan, seem always to have favoured agriculture more than all
other employments.
Both in ancient Egypt and Hindostan, the whole body of the people
was divided into different castes or tribes, each of which was confined,
from father to son, to a particular employment or class of employments.
The son of a priest was necessarily a priest ; the son of a soldier, a
soldier ; the son of a labourer, a labourer ; the son of a weaver, a
weaver ; the son of a tailor, a tailor, etc. In both countries, the castes
of the priests held the highest rank, and that of the soldiers the next ;
and in both countries, the caste ofthe farmers and labourers was supe-
rior to the castes of merchants and manufacturers.
The government of both countries was particularly attentive to the
interest of agriculture. The works constructed by the ancient sove-
reigns of Egypt for the proper distribution of the waters of the Nile
were famous in antiquity, and the ruined remains of some of them are
still the admiration of travellers. Those of the same kind which were
constructed by the ancient sovereigns of Hindostan, for the proper dis
tribution of the waters of the Ganges as well as of many other rivers,
though they have been less celebrated, seem to have been equally great,
Both countries, accordingly, though subject occasionally to dearths,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 541

have been famous for their great fertility. Though both were extremely
populous, yet, in years of moderate plenty, they were both able to ex-
port great quantities of grain to their neighbours.
The ancient Egyptians had a superstitious aversion to the sea" and
as the Gentoo religion does not permit its followers to light a fire nor,
consequently, to dress any victuals upon the water, it in effect prohibits
them from all distant sea voyages. Both the Egyptians and Indians
must have depended almost altogether upon the navigation of other
nations for the exportation of their surplus produce ; and this depend-
ency, as it must have confined the market, so it must have discouraged
the increase of this surplus produce. It must have discouraged too the
increase of the manufactured produce more than that of the rude pro-
duce. Manufactures require a much more extensive market than the
most important parts of the rude produce of the land. A single shoe-
maker will make more than three hundred pairs of shoes in the year ;
and his own family will not perhaps wear out six pairs. Unless there-
fore he has the custom of at least fifty such families as his own, he
cannot dispose of the whole produce of his own labour. The most
numerous class of artificers will seldom, in a large country, make more
than one in fifty or one in a hundred of the whole number of families
contained in it. But in such large countries as France and England,
the number of people employed in agriculture has by some authors
been computed at a half, by others at a third, and by no author that I
223
know of, at less than a fifth of the whole inhabitants of the country.*
But as the produce of the agriculture of both France and England is,
the far greater part of it, consumed at home, each person employed in
it must, according to these computations, require little more than the
custom of one, two, or at most, of four such families as his own, in
order to dispose of the whole produce of his own labour. Agriculture,
therefore, can support itself under the discouragement of a confined
market much better than manufactures. In both ancient Egypt and
Hindostan, indeed, the confinement of the foreign market was in some
measure compensated by the conveniency of many inland navigations,
which opened in the most advantageous manner, the whole extent of
the home market to every part of the produce of every different dis-
trict of those countries. The great extent of Hindostan, too, rendered
the home market of that country very great, and sufficient to support a
great variety of manufactures. But the small extent of ancient Egypt,
which was never equal to England, must at all times have rendered the
home market of that country too narrow for supporting any great
variety of manufactures. Bengal, accordingly, the province of Hindo-
stan which commonly exports the greatest quantity of rice, has always
been more remarkable for the exportation of a great variety of manu-
factures, than for that of its grain. Ancient Egypt, on the contrary,
though it exported some manufactures, fine linen in particular, as well
542 POLICY OF ANCIENT REPUBLICS OF GREECE AND ROME.

as some other goods, was always most distinguished for its great ex-
portation of grain. It was long the granary of the Roman empire.
The sovereigns of China, of ancient Egypt, and of the different king-
doms into which Hindostan has at different times been divided, have
always derived the whole, or by far the most considerable part, of their
revenue from some sort of land-tax or land-rent. This land-tax or land-
rent like the tithe in Europe, consisted in a certain proportion, a fifth,
it is id, of the produce of the land, which was either delivered in
kind, or paid in money, according to a certain valuation, and which
therefore varied from year to year according to all the variations of the
produce. It was natural, therefore, that the sovereigns of those coun--
tries should be particularly attentive to the interests of agriculture, upon
the prosperity or declension of which immediately depended the yearly
increase or diminution of their own revenue.
The policy of the ancient republics of Greece and that of Rome,
though it honoured agriculture more than manufactures or foreign
trade, yet seems rather to have discouraged the latter employments,
than to have given any direct or intentional encouragement to the
former. In several of the ancient states of Greece, foreign trade was
prohibited altogether ; and in several others the employments of arti-
ficers and manufacturers were considered as hurtful to the strength
and agility of the human body, as rendering it incapable of those
habits which their military and gymnastic exercises endeavoured to
form in it, and as thereby disqualifying it more or less for undergoing
the fatigues and encountering the dangers of war. Such occupations
were considered as fit only for slaves, and the free citizens of the state
were prohibited from exercising them. Even in those states where no
such prohibition took place, as in Rome and Athens, the great body of
the people were in effect excluded from all the trades which are now
commonly exercised by the lower sort of the inhabitants of towns
Such trades were, at Athens and Rome, all occupied by the slaves of
the rich, who exercised them for the benefit of their masters, whose
wealth, power, and protection, made it almost impossible for a poor
freeman to find a market for his work, when it came into competition
with that of the slaves of the rich. Slaves, however, are very seldom
inventive ; and all the most important improvements, either in
machinery or in the arrangement and distribution of work, which
facilitate and abridge labour, have been the discoveries of freemen.
Should a slave propose any improvement of this kind, his master
would be very apt to consider the proposal as the suggestion of lazi-
ness, and of a desire to save his own labour at the master's expense.
The poor slave, instead of reward, would probably meet with inuch
abuse, perhaps with some punishment. In the manufactures carrie
on by slaves, therefore, more labour must generally have been em.
ployed to execute the same quantity of work, than in those carried
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 543

on by freemen. The work of the former must, upon that account,

generally have been dearer than that of the latter. The Hungarian
mines, it is remarked by Mr. Montesquieu, though not richer, have
always been wrought with less expense, and therefore with more profit,
than the Turkish mines in their neighbourhood. The Turkish mines
are wrought by slaves ; and the arms of those slaves are the only
machines which the Turks have ever thought of employing. The
Hungarian mines are wrought by freemen, who employ a great deal of
machinery, by which they facilitate and abridge their own labour.
From the very little that is known about the price of manufactures in
the times of the Greeks and Romans, it would appear that those ofthe
finer sort were excessively dear. Silk sold for its weight in gold. It
was not, indeed, in those times a European manufacture ; and as it
was all brought from the East Indies, the distance of the carriage may
in some measure account for the greatness of the price. The price,
however, which a lady, it is said, would sometimes pay for a piece of
very fine linen, seems to have been equally extravagant ; and as linen
was always either an European or, at farthest, an Egyptian manufac-
ture, this high price can be accounted for only by the great expense of
the labour which must have been employed about it, and the expense
of this labour again could arise from nothing but the awkwardness of
the machinery which it made use of. The price of fine woollens, too,
though not quite so extravagant, seems, however, to have been much
above that of the present times. Such cloths, we are told by Pliny,
dyed in a particular manner, cost a hundred denarii, or three pounds
six shillings and eightpence the pound weight.* Others dyed in
another manner cost a thousand denarii the pound weight, or thirty-
three pounds six shillings and eightpence. The Roman pound, it
must be remembered, contained only twelve of our avoirdupois ounces.
This high price, indeed, seems to have been principally owing to the
dye. But had not the cloths themselves been much dearer than any
which are made in the present times, so very expensive a dye would
not probably have been bestowed upon them. The disproportion
would have been too great between the value of the accessory and that
of the principal. The price mentioned by the same author† of some
triclinaria, a sort of woollen pillows or cushions made use of to lean
upon as they reclined upon their couches at table, passes all credibility,
some of them being said to have cost more than thirty thousand, others
more than three hundred thousand pounds. This high price, too, is
not said to have arisen from the dye. In the dress of the people of
fashion of both sexes, there seems to have been much less variety, it is
observed by Doctor Arbuthnot, in ancient than in modern times ; and
the very little variety which we find in that of the ancient statues con-
firms his observation. He infers from this, that their dress must upon
* Plin. l. ix. c. 39. + Plin. l. viii. c. 4º
544 HOME TRADE THE MOST IMPORTANT TO ANY COUNTRY.

the whole have been cheaper than ours ; but the conclusion does not
seem to follow. When the expense of fashionable dress is very great,
the variety must be very small. But when, by the improvement in the
productive powers of manufacturing art and industry, the expense of
any one dress comes to be very moderate, the variety will naturally be
very great. The rich not being able to distinguish themselves by the
expense of any one dress, will naturally endeavour to do so by the mul-
titude and variety of their dresses. ***
The greatest and most important branch of the commerce of every
nation, it has already been observed, is that which is carried on
between the inhabitants of the town and those of the country. The
inhabitants of the town draw from the country the rude produce which
constitutes both the materials of their work and the fund of their sub-
sistence ; and they pay for this rude produce by sending back to the
country a certain portion of it manufactured and prepared for imme-
diate use. The trade which is carried on between these two different
sets of people consists ultimately in a certain quantity of rude produce
exchanged for a certain quantity of manufactured produce. The
dearer the latter, therefore, the cheaper the former ; and whatever
tends in any country to raise the price of manufactured produce, tends
to lower that of the rude produce of the land, and thereby to discou-
rage agriculture. The smaller the quantity of manufactured produce
which any given quantity of rude produce, or, what comes to the same
thing, which the price of any given quantity of rude produce, is capable
of purchasing, the smaller the exchangeable value of that given quan-
tity of rude produce ; the smaller the encouragement which either the
landlord has to increase its quantity by improving or the farmer by
cultivating the land. Whatever, besides, tends to diminish in any
country the number of artificers and manufacturers, tends to diminish.
the home market, the most important of all markets for the rude pro-
duce ofthe land, and thereby still further to discourage agriculture.
Those systems, therefore, which, preferring agriculture to all other
employments, in order to promote it, impose restraints upon manufac-
tures and foreign trade, act contrarily to the very end which they pro-
pose, and indirectly discourage that very species of industry which
they mean to promote. They are so far, perhaps, more inconsistent
than even the mercantile system. That system, by encouraging manu-
factures and foreign trade more than agriculture, turns a certain por-
tion of the capital of the society from supporting a more advantageous,
to support a less advantageous species of industry. But still it really
and in the end encourages that species of industry which it means to
promote. Those agricultural systems, on the contrary, really and in the
end discourage their own favourite species of industry.
It is thus that every system which endeavours, either, by extraordi-
nary encouragements, to draw towards a particular species of industry
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 545

a greater share of the capital of the society than what would naturally
go to it ; or, by extraordinary restraints, to force from a particular
species of industry some share of the capital which would otherwise
be employed in it ; is in reality subversive of the great purpose
which it means to promote. It retards, instead of accelerating, the
progress of the society towards real wealth and greatness ; and
diminishes, instead of increasing, the real value of the annual produce
of its land and labour.
All systems either of preference or of restraint, therefore, being thus
completely taken away, the obvious and simple system of natural
liberty establishes itself of its own accord. Every man, as long as he
does not violate the laws of justice, is left perfectly free to pursue his
own interest his own way, and to bring both his industry and capital
into competition with those of any other man, or order of men. The
sovereign is completely discharged from a duty, in the attempting to
perform which, he must always be exposed to innumerable delusions,
and for the proper performance of which no human wisdom or know-
ledge could ever be sufficient : the duty of superintending the industry
of private people, and of directing it towards the employments most
suitable to the interest of the society. According to the system of
natural liberty, the sovereign has only three duties to attend to ; three
duties of great importance, indeed, but plain and intelligible to com-
mon understandings : first, the duty of protecting the society from the
violence and invasion of other independent societies ; secondly, the
duty of protecting, as far as possible, every member of the society
from the injustice or oppression of every other member of it, or the
duty of establishing an exact administration of justice ; and thirdly,
the duty of erecting and maintaining certain public works and certain
public institutions, which it can never be for the interest of any indivi-
dual, or small number of individuals, to erect and maintain, because
the profit could never repay the expense to any individual or small
number of individuals, though it may frequently do much more than
repay it to a great society.
The proper performance of those several duties of the sovereign
necessarily supposes a certain expense ; and this expense again neces-
sarily requires a certain revenue to support it. In the following book,
therefore, I shall endeavour to explain ; first, what are the necessary
expenses of the sovereign or commonwealth, and which of those
expenses ought to be defrayed by the general contribution of the whole
society, and which of them by that of some particular part only, or
of some particular members of the society : secondly, what are the
different methods in which the whole society may be made to contri-
bute towards defraying the expenses incumbent on the whole society,
and what are the principal advantages and inconveniences of each of
those methods : and, thirdly, what are the reasons and causes which
35
546 IN RUDE NATIONS EVERY MAN IS A WARRIOR AND A HUNTER.

have induced almost all modern governments to mortgage some part of

this revenue, or to contract debts, and what have been the effects of
those debts upon the real wealth, the annual produce of the land and
labour of the society. The following book, therefore, will naturally be
divided into three chapters.

Book V.- OF THE REVENUE OF THE SOVEREIGN OR COMMON-

WEALTH.

CHAP. I. Ofthe Expenses of the Sovereign or Commonwealth.

PART I. Of the Expense of Defence.

THE first duty of the sovereign, that of protecting the society from
the violence and invasion of other independent societies, can be per-
formed only by means of a military force. But the expense both of
preparing this military force in time of peace, and of employing it in
time of war, is very different in the different states of society, in the
different periods of improvement.
Among nations of hunters, the lowest and rudest state of society,
such as we find it among the native tribes of North America, every
man is a warrior as well as a hunter. When he goes to war, either to
defend his society, or to revenge the injuries which have been done to
it by other societies, he maintains himself by his own labour, in the
same manner as when he lives at home. His society, for in this state
of things there is properly neither sovereign nor commonwealth, is at
no sort of expense, either to prepare him for the field or to maintain
him while he is in it.
Among nations of shepherds, a more advanced state of society, such
as we find it among the Tartars and the Arabs, every man is, in the
same manner, a warrior. Such nations have commonly no fixed habi-
tation, but live either in tents, or in a sort of covered wagons which
are easily transported from place to place. The whole tribe or nation
changes its situation according to the different seasons of the year, as
well as according to other accidents. When its herds and flock have
consumed the forage of one part of the country, it removes to another,
and from that to a third. In the dry season, it comes down to the banks
of the rivers ; in the wet season it retires to the upper country. When
such a nation goes to war, the warriors will not trust their herds and
Aocks to the feeble defence of their old men, their women, and children ,
and their old men, their women, and children, will not be left behind
without defence and without subsistence. The whole nation, besides,
being accustomed to a wandering life, even in time of peace, easily
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 547

takes the field in time of war. Whether it marches as an army, or

moves about as a company of herdsmen, the way of life is nearly the
same, though the object proposed by it be very different. They all go
to war together, therefore, and every one does as well as he can. Among
the Tartars, even the women have been frequently known to engage in
battle. If they conquer, whatever belongs to the hostile tribe is the
recompense ofthe victory. But if they are vanquished, all is lost, and
not only their herds and flock, but their women and children, become
the booty of the conqueror. Even the greater part of those who sur-
vive the action are obliged to submit to him for the sake of immediate
subsistence. The rest of the tribe are commonly dissipated and dis-
persed in the desert.
The ordinary life, the ordinary exercises, of a Tartar or Arab pre-
pare him sufficiently for war. Running, wrestling, cudgel-playing,
throwing the javelin, drawing the bow, etc. , are the common pastimes
of those who live in the open air, and are all of them the images of
war. When a Tartar or Arab actually goes to war, he is maintained
by his own herds and flocks which he carries with him, in the same
manner as in peace. His chief or sovereign, for those nations have all
chiefs or sovereigns, is at no sort of expense in preparing him for the
field ; and when he is in it, the chance of plunder is the only pay which
he either expects or requires.
An army of hunters can seldom exceed two or three hundred men.
The precarious subsistence which the chase affords could seldom allow
a greater number to keep together for any considerable time. An
army of shepherds, on the contrary, may sometimes amount to two or
three hundred thousand. As long as nothing stops their progress, as
long as they can go on from one district, of which they have consumed
the forage, to another which is yet entire, there seems to be scarce any
limit to the number who can march on together. A nation of hunters
zan never be formidable to the civilized nations in their neighbourhood.
A nation of shepherds may. Nothing can be more contemptible than
an Indian war in North America. Nothing, on the contrary, can be
more dreadful than a Tartar invasion has frequently been in Asia. The
judgment of Thucydides, that both Europe and Asia could not resist
the Scythians united, has been verified by the experience of all ages.
The inhabitants of the extensive but defenceless plains of Scythia or
Tartary have been frequently united under the dominion of the chief
of some conquering horde or clan ; and the havoc and devastation of
Asia have always signalized their union. The inhabitants of the inhos-
pitable deserts of Arabia, the other great nation of shepherds, have
never been united but once : under Mahomet and his immediate suc-
cessors. Their union, which was more the effect of religious enthu-
siasm than of conquest, was signalized in the same manner. If the
hunting nations of America should ever become shepherds, their neigh-
35 *
548 AGRICULTURE, IN ITS RUDEST STATE, SUPPOSES A SETTLEMENT.

bourhood would be much more dangerous to the European colonies

than it is at present.
In a yet more advanced state of society, among those nations of
husbandmen who have little foreign commerce, and no other manu-
factures but those coarse and household ones which almost every
private family prepares for its own use, every man, in the same
manner, either is a warrior or easily becomes such. They who live
by agriculture generally pass the whole day in the open air, exposed to
all the inclemencies of the seasons. The hardiness of their ordinary
life prepares them for the fatigues of war, to some of which their
necessary occupations bear a great analogy. The necessary occupation
of a ditcher prepares him to work in the trenches, and to fortify a camp
as well as to enclose a field. The ordinary pastimes of such husband-
men are the same as those of shepherds, and are in the same manner
the images of war. But as husbandmen have less leisure than shep-
herds, they are not so frequently employed in those pastimes. They
are soldiers, but soldiers not quite so much masters of their exercise.
Such as they are, however, it seldom costs the sovereign or common-
wealth any expense to prepare them for the field.
Agriculture, even in its rudest and lowest state, supposes a settle-
ment ; some sort of fixed habitation which cannot be abandoned
without great loss. When a nation of mere husbandmen, therefore,
goes to war, the whole people cannot take the field together. The old
men, the women, and children, at least, must remain at home to take
care of the habitations. All the men of the military age, however, may
take the field, and, in small nations of this kind, have frequently done
So. In every nation the men of the military age are supposed to
amount to about a fourth or a fifth part of the whole body of the
people. If the campaign too should begin after seed-time, and end
before harvest, both the husbandman and his principal labourers can
be spared from the farm without much loss. He trusts that the work
which must be done in the meantime can be well enough executed by
the old men, the women, and the children. He is not unwilling, there-
fore, to serve without pay during a short campaign, and it frequently
costs the sovereign or commonwealth as little to maintain him in the
field as to prepare him for it. The citizens of all the different states
of ancient Greece seem to have served in this manner till after the
second Persian war ; and the people of Peloponnesus till after the
Peloponnesian war. The Peloponnesians, Thucydides observes, gene-
rally left the field in the summer, and returned home to reap the
harvest. The Roman people under their kings, and during the first
ages of the republic, served in the same manner. It was not till the
siege of Veii, that they who stayed at home began to contribute some
thing towards maintaining those who went to war. In the European
monarchies which were founded upon the ruins of the Roman empire,
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 549

both before and for some time after the establishment of what is
properly called the feudal law, the great lords, with all their immediate
dependents, used to serve the crown at their own expense. In the
field, in the same manner as at home, they maintained themselves by
their own revenue, and not by any stipend or pay which they received
from the king upon that particular occasion.
In a more advanced state of society, two different causes contribute
to render it altogether impossible that they who take the field should
maintain themselves at their own expense. Those two causes are the
progress of manufactures and the improvement in the art of war.
Though a husbandman should be employed in an expedition, pro-
vided it begins after seed-time and ends before harvest, the interruption
of his business will not always occasion any considerable diminution of
his revenue. Without the intervention of his labour, nature does her-
self the greater part of the work which remains to be done. But the
moment that an artificer, a smith, a carpenter, or a weaver, for example,
quits his workhouse, the sole source of his revenue is completely dried
up. Nature does nothing for him, he does all for himself. When he
takes the field, therefore, in defence of the public, as he has no revenue
to maintain himself, he must necessarily be maintained by the public.
But in a country of which a great part of the inhabitants are artificers
and manufacturers, a great part of the people who go to war must be
drawn from those classes, and must therefore be maintained by the
public as long as they are employed in its service.
When the art of war too has gradually grown up to be a very intri-
cate and complicated science, when the event of war ceases to be
determined, as in the first ages of society, by a single irregular skirmish
or battle, but when the contest is generally spun out through several
different campaigns, each of which lasts during the greater part of the
year ; it becomes universally necessary that the public should maintain
those who serve the public in war, at least while they are employed in
that service. Whatever in time of peace might be the ordinary occupa-
tion of those who go to war, so very tedious and expensive a service
would otherwise be by far too heavy a burden upon them. After the
second Persian war, accordingly, the armies of Athens seem to have
been generally composed of mercenary troops ; consisting, indeed,
partly of citizens, but partly too of foreigners, and all of them equally
hired and paid at the expense of the state. From the time of the siege
of Veii, the armies of Rome received pay for their service during the
time which they remained in the field. Under the feudal governments
the military service both of the great lords and of their immediate
dependents was, after a certain period, universally exchanged for à
payment in money, which was employed to maintain those who served
in their stead.
The number of those who can go to war, in proportion to the whole
550 IN THE ANCIENT REPUBLICS EVERY MALE WAS A SOLDIER.

number of the people, is necessarily much smaller in a civilized than

in a rude state of society. In a civilized society, as the soldiers are
maintained altogether by the labour of those who are not soldiers, the
number of the former can never exceed what the latter can maintain,
over and above maintaining, in a manner suitable to their respective
stations, both themselves and the other officers of government and
law whom they are obliged to maintain. In the little agrarian states
of ancient Greece, a fourth or a fifth part of the whole body of the
people considered themselves as soldiers, and would sometimes, it is
said, take the field. Among the civilized nations of modern Europe,
it is commonly computed, that not more than one hundredth part of
the inhabitants of any country can be employed as soldiers, without
ruin to the country which pays the expense of their service.
The expense of preparing the army for the field seems not to have
become considerable in any nation, till long after that of maintaining
it in the field had devolved entirely upon the sovereign or common-
wealth. In all the different republics of ancient Greece, to learn his
military exercises was a necessary part of education imposed by the
state upon every free citizen. In every city there seems to have been
a public field, in which, under the protection of the public magistrate,
the young people were taught their different exercises by different
masters. In this very simple institution, consisted the whole expense
which any Grecian state seems ever to have been at in preparing its
citizens for war. In ancient Rome the exercises of the Campus Martius
answered the same purpose with those of the Gymnasium in ancient
Greece. Under the feudal governments, the many public ordinances
that the citizens of every district should practise archery as well as
several other military exercises, were intended for promoting the same
purpose, but do not seem to have promoted it so well. Either from
want of interest in the officers entrusted with the execution of those
ordinances, or from some other cause, they appear to have been uni-
versally neglected ; and in the progress of all those governments,
military exercises seem to have gone gradually into disuse among the
great body of the people.
In the republics of ancient Greece and Rome, during the whole
period of their existence, and under the feudal governments for a con-
siderable time after their first establishment, the trade of a soldier was
not a separate, distinct trade, which constituted the sole or principal
occupation of a particular class of citizens. Every subject of the
state, whatever might be the ordinary trade or occupation by which he
gained his livelihood, considered himself, upon all ordinary occasions,
as fit likewise to exercise the trade of a soldier, and upon many extra-
ordinary occasions as bound to exercise it.
The art of war, however, as it is certainly the noblest of all arts, so
in the progress of improvement it necessarily becomes one of the most
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 551

complicated among them. The state of the mechanical, as well as of

some other arts, with which it is necessarily connected, determines the
degree of perfection to which it is capable of being carried at any par-
ticular time. But in order to carry it to this degree of perfection, it is
necessary that it should become the sole or principal occupation of a
particular class of citizens, and the division of labour is as necessary
for the improvement of this as of every other art. Into other arts the
division of labour is naturally introduced by the prudence of indivi
duals, who find that they promote their private interest better by
confining themselves to a particular trade, than by exercising a great
number. But it is the wisdom of the state only which can render
the trade of a soldier a particular trade, separate and distinct from
all others. A private citizen who, in time of profound peace, and
without any particular encouragement from the public, should spend
the greater part of his time in military exercises might, no doubt, both
improve himself very much in them, and amuse himself very well ;
but he certainly would not promote his own interest. It is the wisdom
of the state only which can render it for his interest to give up the
greater part of his time to this peculiar occupation : and states have
not always had this wisdom, even when their circumstances had be-
come such, that the preservation of their existence required that they
should have it.
A shepherd has a great deal of leisure ; a husbandman, in the rude
state of husbandry, has some ; an artificer or manufacturer has none
at all. The first may, without any loss, employ a great deal of his time
in martial exercises ; the second may employ some part of it ; but the
last cannot employ a single hour in them without some loss, and his
attention to his own interest naturally leads him to neglect them alto-
gether. Those improvements in husbandry too, which the progress of
arts and manufactures necessarily introduces, leave the husbandman
as little leisure as the artificer. Military exercises come to be as much
neglected by the inhabitants of the country as by those of the town,
and the great body of the people becomes altogether unwarlike. That
wealth, at the same time, which always follows the improvements of
agriculture and manufactures, and which in reality is no more than the
accumulated produce of those improvements, provokes the invasion of
all their neighbours. An industrious, and upon that account a wealthy
nation, is of all nations the most likely to be attacked ; and unless the
state takes some new measures for the public defence, the natural
habits of the people render them altogether incapable of defending
themselves.
In these circumstances, there seem to be but two methods by which
the state can make any tolerable provision for the public defence
It may either, first, by means of a very rigorous police, and in spite
of the whole bent of the interest, genius, and inclinations of the
552 MILITIAS HAVE BEEN OF SEVERAL DIFFERENT KINDS.

people, enforce the practice of military exercises, and oblige either all
the citizens of the military age, or a certain number ofthem, to join in
some measure the trade of a soldier to whatever other trade or profes-
sion they may happen to carry on.
Or, secondly, by maintaining and employing a certain number of
citizens in the constant practice of the military exercises, it may render
the trade of a soldier a particular trade, separate and distinct from
all others.
If the state has recourse to the first of those two expedients, its mili-
tary force is said to consist in a militia ; if to the second, it is said to
consist in a standing army. The practice of military exercises is the
sole or principal occupation of the soldiers of a standing army, and the
maintenance or pay which the state affords them is the principal and
ordinary fund of their subsistence. The practice of military exercises
is only the occasional occupation of the soldiers of a militia, and they
derive the principal and ordinary fund of their subsistence from some
some other occupation. In a militia the character of the labourer,
artificer, or tradesman, predominates over that of the soldier ; in a
standing army, that of the soldier predominates over every other cha-
racter ; and in this distinction seems to consist the essential difference
between those two different species of military force.
Militias have been of several different kinds. In some countries the
citizens destined for defending the state seem to have been exercised
only, without being, if I may say so, regimented : that is, without
being divided into separate and distinct bodies of troops, each of which
performed its exercises under its own proper and permanent officers.
In the republics of ancient Greece and Rome, each citizen, as long as
he remained at home, seems to have practised his exercises either
separately and independently, or with such of his equals as he liked
best, and not to have been attached to any particular body of troops till
he was actually called upon to take the field. In other countries,
the militia has not only been exercised, but regimented. In England,
in Switzerland, and, I believe, in every other country of modern
Europe, where any imperfect military force of this kind has been estab-
lished, every militia-man is, even in time of peace, attached to a
particular body of troops, which performs its exercises under its own
proper and permanent officers.
Before the invention of firearms, that army was superior in which
the soldiers had, each individually, the greatest skill and dexterity in
the use of their arms. Strength and agility of body were of the high-
est consequence, and commonly determined the fate of battles. But
this skill and dexterity in the use of their arms, could be acquired only
in the same manner as fencing is at present, by practising, not in great
bodies, but each man separately in a particular school, under a par
ticular master, or with his own particular equals and companions.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 553

Since the invention of firearms, strength and agility of body, or even

extraordinary dexterity and skill in the use of arms, though they are
far from being of no consequence, are, however, of less consequence.
The nature of the weapon, though it by no means puts the awkward
upon a level with the skilful, puts him more nearly so than he ever was
before. All the dexterity and skill, it is supposed, which are neces-
sary for using weapons, can be well enough acquired by practising
in great bodies.
Regularity, order, and prompt obedience to command, are qualities
which, in modern armies, are of more importance towards determining
the fate of battles, than the dexterity and skill of the soldiers in the use
of their arms. But the noise of firearms, the smoke, and the invisible
death to which every man feels himself every moment exposed as soon
as he comes within cannon-shot, and frequently a long time before the
battle can be well said to be engaged, must render it very difficult to
maintain any considerable degree of this regularity, order, and prompt
obedience, even in the beginning of a modern battle. In an ancient
battle there was no noise but what arose from the human voice, there
was no smoke, there was no invisible cause of wounds or death. Every
man, till some mortal weapon actually did approach him, saw clearly
that no such weapon was near him. In these circumstances, and
among troops who had some confidence in their own skill and dexterity
in the use of their arms, it must have been a good deal less difficult to
preserve some degree of regularity and order, not only in the beginning
but through the whole progress of an ancient battle, and till one of the
two armies was fairly defeated. But the habits of regularity, order,
and prompt obedience to command, can be acquired only by troops
which are exercised in great bodies.
A militia, however, in whatever manner it may be either disciplined
or exercised, must always be much inferior to a well-disciplined and
well-exercised standing army.
The soldiers who are exercised only once a week, or once a month,
can never be so expert in the use of their arms as those who are exer-
cised every day or every other day ; and though this circumstance may
not be of so much consequence in modern, as it was in ancient times,
yet the acknowledged superiority of the Prussian troops, owing, it is
said, very much to their superior expertness in their exercise, may
satisfy us that it is, even at this day, of very considerable conse-
quence to the soldier.
The soldiers who are bound to obey their officer only once a week
or once a month, and who are at all other times at liberty to manage
their own affairs their own way, without being in any respect account-
able to him, can never be under the same awe in his presence, can
never have the same disposition to ready obedience with those whose
whole life and conduct are every day directed by him, and who every
554 AMERICAN MILITIA IN THEIR WAR OF INDEPENDENCE.

day even rise and go to bed, or at least retire to their quarters, accord-
ing to his orders. In what is called discipline, or in the habit of ready
obedience, a militia must always be still more inferior to a standing
army, than it may sometimes be in what is called the manual exercise,
or in the management and use of its arms. But in modern war the
habit of ready and instant obedience is of much greater consequence
than a considerable superiority in the management of arms.
Those militias which, like the Tartar or Arab militia, go to war under
the same chieftains whom they are accustomed to obey in peace, are by
far the best. In respect for their officers, in the habit of ready obedi-
ence, they approach nearest to standing armies. The Highland militia,
when it served under its own chieftains, had some advantage of the same
kind. As the Highlanders, however, were not wandering but station-
ary shepherds, as they had all a fixed habitation, and were not in peace-
able times accustomed to follow their chieftain from place to place ; so
in time of war they were less willing to follow him to any considerable
distance, or to continue for any long time in the field. When they had
acquired any booty they were eager to return home, and his authority
was seldom sufficient to detain them. In point of obedience they were
always much inferior to what is reported of the Tartars and Arabs. As
the Highlanders too, from their stationary life, spend less of their time
in the open air, they were always less accustomed to military exercises,
and were less expert in the use of their arms than the Tartars and
Arabs are said to be.
A militia of any kind, it must be observed, however, which has
served for several successive campaigns in the field, becomes in every
respect a standing army. The soldiers are every day exercised in the
use of their arms, and, being constantly under the command of their
officers, are habituated to the same prompt obedience which takes place
in standing armies. What they were before they took the field, is of
little importance. They necessarily become in every respect a stand-
ing army, after they have passed a few campaigns in it. Should the
war in America drag out through another campaign, the American
militia may become in every respect a match for that standing army, of
which the valour appeared, in the last war, at least not inferior to that
of the hardiest veterans of France and Spain.
This distinction being well understood, the history of all ages, it will
be found, bears testimony to the irresistible superiority which a well-
egulated standing army has over a militia.
One of the first standing armies of which we have any distinct
account, in any well authenticated history, is that of Philip of Macedon.
His frequent wars with the Thracians, Illyrians, Thessalians, and some
ofthe Greek cities in the neighbourhood of Macedon, gradually formed
his troops, which in the beginning were probably militia, to the exact
discipline of a standing army. When he was at peace, which he was
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 555

very seldom, and never for any long time together, he was careful not
to disband that army. It vanquished and subdued, after a long and
violent struggle indeed, the gallant and well exercised militias of the
principal republics of ancient Greece ; and afterwards, with very little
struggle, the effeminate and ill-exercised militia of the great Persian
empire. The fall of the Greek republics and of the Persian empire,
was the effect of the irresistible superiority which a standing army has
over every sort of militia. It is the first great revolution in the affairs
of mankind, of which history has preserved any distinct or circum-
stantial account.
The fall of Carthage, and the consequent elevation of Rome, is the
second. All the varieties in the fortune of those two famous republics
may very well be accounted for from the same cause.
From the end of the first to the beginning of the second Carthaginian
war, the armies of Carthage were continually in the field, and employed
under three great generals, who succeeded one another in the com-
mand (Hamilcar, his son-in-law Asdrubal, and his son Hannibal), first
In chastising their own rebellious slaves, afterwards in subduing the
revolted nations of Africa, and, lastly, in conquering the great kingdom
of Spain. The army which Hannibal led from Spain into Italy must
necessarily, in those different wars, have been gradually formed to the
exact discipline of a standing army. The Romans, in the meantime,
though they had not been altogether at peace, yet they had not, during
this period, been engaged in any war of very great consequence ; and
their military discipline, it is generally said, was a good deal relaxed .
The Romanarmies which Hannibal encountered at Trebia,Thrasymenus
and Cannæ, were militia opposed to a standing army. This circum-
stance, it is probable, contributed more than any other to determine
the fate of those battles.
The standing army which Hannibal left behind him in Spain, had the
like superiority over the militia which the Romans sent to oppose it,
and in a few years, under the command of his brother, the younger
Asdrubal, expelled them almost entirely from that country.
Hannibal was ill supplied from home. The Roman militia, being
continually in the field, became in the progress of the war a well
disciplined and well exercised standing army ; and the superiority of
Hannibal grew every day less and less. Asdrubal judged it necessary
to lead the whole, or almost the whole of the standing army which he
commanded in Spain, to the assistance of his brother in Italy. In
this march he is said to have been misled by his guides ; and in a
country which he did not know, was surprised and attacked by another
standing army, in every respect equal or superior to his own, and was
entirely defeated.
When Asdrubal had left Spain, the great Scipio found nothing to
oppose him but a militia inferior to his own. He conquered and sub-
556 THE STRUGGLE BETWEEN CARTHAGE AND ROME.

dued that militia, and, in the course of the war, his own militia neces-
sarily became a well-disciplined and well-exercised standing army.
That standing army was afterwards carried to Africa, where it found
nothing but a militia to oppose it. In order to defend Carthage it
became necessary to recall the standing army of Hannibal. The dis-
heartened and frequently defeated African militia joined it, and, at the
battle of Zama, composed the greater part of the troops of Hannibal.
The event of that day determined the fate of the two rival republics.
From the end of the second Carthaginian war till the fall of the
Roman republic, the armies of Rome were in every respect standing
armies. The standing army of Macedon made some resistance to
their arms . In the height of their grandeur, it cost them two great
wars, and three great battles, to subdue that little kingdom ; of which
the conquest would probably have been still more difficult, had it not
been for the cowardice of last king. The militias of all the civilized
nations of the ancient world, of Greece, of Syria, and of Egypt, made
but a feeble resistance to the standing armies of Rome. The militias
of some barbarous nations defended themselves much better. The
Scythian or Tartar militia, which Mithridates drew from the countries
north of the Euxine and Caspian seas, were the most formidable
enemies whom the Romans had to encounter after the second Car-
thaginian war. The Parthian and German militias too were always
respectable, and, upon several occasions, gained very considerable
advantages over the Roman armies. In general, however, and when
the Roman armies were well commanded, they appear to have been
very much superior ; and if the Romans did not pursue the final con-
quest either of Parthia or Germany, it was probably because they
judged, that it was not worth while to add those two barbarous countries
to an empire which was already too large. The ancient Parthians
appear to have been a nation of Scythian or Tartar extraction, and to
have always retained a good deal of the manners of their ancestors.
The ancient Germans were, like the Scythians or Tartars, a nation of
wandering shepherds, who went to war under the same chiefs whom
they were accustomed to follow in peace. Their militia was exactly of
the same kind with that of the Scythians or Tartars, from whom too
they were probably descended.
Many different causes contributed to relax the discipline of the
Roman armies. Its extreme severity was, perhaps, one of those causes.
In the days of their grandeur, when no enemy appeared capable of
opposing them, their heavy armour was laid aside as unnecessarily
burdensome, their laborious exercises were neglected as unnecessarily
toilsome. Under the Roman emperors besides, the standing armies of
Rome, those particularly which guarded the German and Pannonian
frontiers, became dangerous to their masters, against whom they used
frequently to set up their own generals. In order to render them less
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 557

formidable, according to some authors Dioclesian, according to others

Constantine, first withdrew them from the frontier, where they had
always encamped in great bodies, generally of two or three legions
each, and dispersed them in small bodies through the different pro-
vincial towns, from whence they were scarce ever removed but when
it became necessary to repel an invasion. Small bodies of soldiers
quartered in trading and manufacturing towns, and seldom removed
from those quarters, became themselves tradesmen, artificers, and
manufacturers. The civil came to predominate over the military
character ; and the standing armies of Rome gradually degenerated
into a corrupt, neglected, and undisciplined militia, incapable of resist-
ing the attack of the German and Scythian militias, which soon after-
wards invaded the western empire. It was only by hiring the militia
of some of those nations to oppose to that of others, that the emperors
were for some time able to defend themselves. The fall of the western
empire is the third great revolution in the affairs of mankind, of which
ancient history has preserved any distinct or circumstantial account.
It was brought about by the irresistible superiority which the militia of
a barbarous, has over that of a civilized nation ; which the militia of a
nation of shepherds, has over that of a nation of husbandmen, artificers,
and manufacturers. The victories which have been gained by militias
have generally been, not over standing armies, but over other militias
in exercise and discipline inferior to themselves. Such were the vic.
tories which the Greek militia gained over that of the Persian empire ;
and such too were those which in later times the Swiss militia gained
over that of the Austrians and Burgundians.
The military force of the German and Scythian nations who estab-
lished themselves upon the ruins of the western empire, continued for
some time to be of the same kind in their new settlements, as it had
been in their original country. It was a militia of shepherds and hus-
bandmen, which, in time of war, took the field under the command of
the same chieftains whom it was accustomed to obey in peace. It was,
therefore, tolerably well exercised, and tolerably well disciplined. As
arts and industry advanced, however, the authority of the chieftains
gradually decayed, and the great body of the people had less time to
spare for military exercises. Both the discipline and the exercise of
the feudal militia, therefore, went gradually to ruin, and standing
armies were gradually introduced to supply the place of it. When the
expedient of a standing army, besides, had once been adopted by one
civilized nation, it became necessary that all its neighbours should
follow the example. They soon found that their safety depended upon
their doing so, and that their own militia was altogether incapable of
resisting the attack of such an army.
The soldiers of a standing army, though they may never have seen
an enemy, yet have frequently appeared to possess all the courage of
558 A GOOD STANDING ARMY NEEDFUL FOR A CIVILIZED COUNTRY.

veteran troops, and the very moment that they took the field to have
been fit to face the hardiest and most experienced veterans. In 1756,
when the Russian army marched into Poland, the valour of the Russian
soldiers did not appear inferior to that of the Prussians, at that time
supposed to be the hardiest and most experienced veterans in Europe.
The Russian empire, however, had enjoyed a profound peace for near
twenty years before, and could at that time have very few soldiers who
had ever seen an enemy. When the Spanish war broke out in 1739,
England had enjoyed a profound peace for about eight-and-twenty
years. The valour of her soldiers, however, far from being corrupted
by that long peace, was never more distinguished than in the attempt
upon Carthagena, the first unfortunate exploit of that unfortunate war.
In a long peace the generals, perhaps, may sometimes forget their.
skill ; but, where a well-regulated standing army has been kept up, the
soldiers seem never to forget their valour. 3
When a civilized nation depends for its defence upon a militia, it is
at all times exposed to be conquered by any barbarous nation which
happens to be in its neighbourhood. The frequent conquests of all the
civilized countries in Asia by the Tartars, sufficiently demonstrates the
natural superiority which the militia of a barbarous has over that of a
civilized nation. A well-regulated standing army is superior to every
militia. Such an army, as it can best be maintained by an opulent
and civilized nation, so it can alone defend such a nation against the
invasion of a poor and barbarous neighbour. It is only by means of a
standing army, therefore, that the civilization of any country can be
perpetuated, or even preserved for any considerable time.
As it is only by means of a well-regulated standing army that a
civilized country can be defended ; so it is only by means of it, that a
barbarous country can be suddenly and tolerably civilized. A standing
army establishes, with an irresistible force, the law of the sovereign
through the remotest provinces of the empire, and maintains some de-
gree of regular government in countries which could not otherwise
admit of any. Whoever examines, with attention, the improvement
which Peter the Great introduced into the Russian empire, will find
that they almost all resolve themselves into the establishment of a well-
regulated standing army. It is the instrument which executes and
maintains all his other regulations. That degree of order and internal
peace, which that empire has ever since enjoyed, is altogether owing
to the influence of that army.
Men of republican principles have been jealous of a standing army
as dangerous to liberty. It certainly is so, wherever the interest of the
general and that of the principal officers are not necessarily connected
with the support of the constitution of the state. The standing army
of Cæsar destroyed the Roman republic. The standing army of
Cromwell turned the Long Parliament out of doors. But where the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 559

sovereign is himself the general, and the principal nobility and gentry
of the country the chief officers of the army ; where the military force
is placed under the command of those who have the greatest interest
in the support of the civil authority, because they have themselves the
greatest share of that authority,-a standing army can never be danger-
ous to liberty. On the contrary, it may in some cases be favourable to
liberty. The security which it gives to the sovereign renders unneces-
sary that troublesome jealousy which, in some modern republics,
seems to watch over the minutest actions, and to be at all times ready
to disturb the peace of every citizen. Where the security of the magis-
trate, though supported by the principal people of the country, is en-
dangered by every popular discontent ; where a small tumult is capable
of bringing about in a few hours a great revolution,—the whole authority
of government must be employed to suppress and punish every murmur
and complaint against it. To a sovereign, on the contrary, who feels
himself supported, not only by the natural aristocracy of the country,
but by a well-regulated standing army, the rudest, the most groundless,
and the most licentious remonstrances can give little disturbance. He
can safely pardon or neglect them, and his consciousness of his own
superiority naturally disposes him to do so. That degree of liberty
which approaches to licentiousness can be tolerated only in countries
where the sovereign is secured by a well-regulated standing army. It
is in such countries only that the public safety does not require that
the sovereign should be trusted with any discretionary power, for sup-
pressing the impertinent wantonness of this licentious liberty.
The first duty of the sovereign, therefore, that of defending the
society from the violence and injustice of other independent societies,
grows gradually more and more expensive, as the society advances in
civilization. The military force of the society, which originally cost
the sovereign no expense either in time of peace or in time of war,
must, in the progress of improvement, first be maintained by him in
time of war, and afterwards even in time of peace.
The great change introduced into the art of war by the invention of
firearms, has enhanced still further both the expense of exercising and
disciplining any particular number of soldiers in time of peace, and
that of employing them in time of war. Both their arms and their
ammunition are become more expensive. A musket is a more expen-
sive machine than a javelin or a bow and arrows ; a cannon or a mor-
tar, than a balista or a catapulta. The powder which is spent in a
modern review is lost irrecoverably, and occasions a very considerable
expense. The javelins and arrows which were thrown or shot in an
ancient one, could easily be picked up again, and were besides of very
little value. The cannon and the mortar are, not only much dearer,
but much heavier machines than the balista or catapulta, and require
a greater expense, not only to prepare them for the field, but to carry
560 INVENTION OF FIREARMS FAVOURABLE TO CIVILIZATION.

them to it. As the superiority of the modern artillery, too, over that
of the ancients is very great, it has become much more difficult, and
consequently much more expensive, to fortify a town so as to resist,
even for a few weeks, the attack of that superior artillery. In modern
times many different causes contribute to render the defence of the
society more expensive. The unavoidable effects of the natural pro-
gress of improvement have, in this respect, been a good deal enhanced
by a great revolution in the art of war, to which a mere accident, the
invention of gunpowder, seems to have given occasion.
In modern war the great expense of firearms gives an evident ad-
vantage to the nation which can best afford that expense ; and conse
quently, to an opulent and civilized, over a poor and barbarous nation.
In ancient times, the opulent and civilized found it difficult to defend
themselves against the poor and barbarous nations. In modern times
the poor and barbarous find it difficult to defend themselves against
the opulent and civilized. The invention of firearms, an invention
which at first sight appears to be so pernicious, is certainly favourable
both to the permanency and to the extension of civilization.

PART II.- Of the Expense ofJustice.

THE second duty of the sovereign, that of protecting, as far as possible,
every member of the society from the injustice or oppression of every
other member of it, or the duty of establishing an exact administration
of justice, requires, too, very different degrees of expense in the differ-
ent periods of society.
Among nations of hunters, as there is scarce any property, or at
least none that exceeds the value of two or three days labour ; so there
is seldom any established magistrate or any regular administration of
justice. Men who have no property can injure one another only in
their persons or reputations. But when one man kills, wounds, beats,
or defames another, though he to whom the injury is done suffers, he
who does it receives no benefit. It is otherwise with the injuries to
property. The benefit of the person who does the injury is often equal
to the loss of him who suffers it. Envy, malice, or resentment, are the
only passions which can prompt one man to injure another in his per-
son or reputation. But the greater part of men are not very frequently
under the influence of those passions, and the very worst men are so
only occasionally. As their gratification, too, how agreeable soever it
may be to certain characters, is not attended with any real or perma-
nent advantage, it is in the greater part of men commonly restrained
by prudential considerations. Men may live together in society with
some tolerable degree of security, though there is no civil magistrate
to protect them from the injustice of those passions. But avarice and
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 561

ambition in the rich, in the poor the hatred of labour and the love of
present ease and enjoyment, are the passions which prompt to invade
property; passions much more steady in their operation, and much
more universal in their influence. Wherever there is great property,
there is great inequality. For one very rich man, there must be at
least five hundred poor, and the affluence of the few supposes the indi-
gence of the many. The affluence of the rich excites the indignation
of the poor, who are often both driven by want and prompted by envy
to invade his possessions. It is only under the shelter of the civil
magistrate that the owner of that valuable property, which is acquired
by the labour of many years, or perhaps of many successive genera-
tions, can sleep a single night in security. He is at all times surrounded
by unknown enemies, whom, though he never provoked, he can never
appease, and from whose injustice he can be protected only by the
powerful arm of the civil magistrate continually held up to chastise it.
The acquisition of valuable and extensive property, therefore, neces-
sarily requires the establishment of civil government. Where there is
no property, or at least none that exceeds the value of two or three
days labour, civil government is not so necessary.
Civil government supposes a certain subordination. But asthe neces-
sity of civil government gradually grows up with the acquisition of
valuable property, so the principal causes which naturally introduce sub-
ordination gradually grow up with the growth of that valuable property.
The causes or circumstances which naturally introduce subordina-
tion, or which naturally, and antecedent to any civil institution, give
some men some superiority over the greater part of their brethren,
seem to be four in number.
The first of those causes or circumstances is the superiority of per-
sonal qualifications,-of strength, beauty, and agility of body ; of wis-
dom and virtue, of prudence, justice, fortitude, and moderation of
mind. The qualifications of the body, unless supported by those of
the mind, can give little authority in any period of society. He is a
very strong man who, by mere strength of body, can force two weak
ones to obey him. The qualifications of the mind can alone give very
great authority. They are, however, invisible qualities ; always dis-
putable, and generally disputed. No society, whether barbarous or
civilized, has ever found it convenient to settle the rules of precedency
of rank and subordination according to those invisible qualities, but
according to something that is more plain and palpable.
The second of those causes or circumstances is the superiority of
age. An old man, provided his age is not so far advanced as to give
suspicion of dotage, is everywhere more respected than a young man
of equal rank, fortune, and abilities. Among nations of hunters, such
as the native tribes of North America, age is the sole foundation of
and precedency Among them, father is the appellation of a
24

36
77
562 AUTHORITY OF RICHES GREATEST IN RUDEST AGES OF SOCIETY.

superior; brother, of an equal ; and son, of an inferior. In the most

opulent and civilized nations, age regulates rank among those who are
in every other repect equal, and among whom, therefore, there is nothing
else to regulate it. Among brothers and among sisters the eldest
always takes place ; and in the succession of the paternal estate, every-
thing which cannot be divided, but must go entire to one person, such
as a title of honour, is in most cases given to the eldest. Age is a
plain and palpable quality which admits of no dispute.
The third of those causes or circumstances is the superiority of
fortune. The authority of riches, however, though great in every age
of society, is perhaps greatest in the rudest age of society which
admits of any considerable inequality of fortune. A Tartar chief, the
increase of whose herds and flocks is sufficient to maintain a thousand
men, cannot well employ that increase in any other way than in main-
taining a thousand men. The rude state of his society does not
afford him any manufactured produce, any trinkets or baubles of any
kind, for which he can exchange that part of his rude produce which
is over and above his own consumption. The thousand men whom he
thus maintains, depending entirely upon him for their subsistence,
must both obey his orders in war and submit to his jurisdiction in
peace. He is necessarily both their general and their judge, and his
chieftainship is the necessary effect of the superiority of his fortune.
In an opulent and civilized society, a man may possess a much greater
fortune, and yet not be able to command a dozen of people. Though
the produce of his estate may be sufficient to maintain, and may per
haps actually maintain, more than a thousand people, yet as those
people pay for everything which they get from him, as he gives scarce
anything to anybody but in exchange for an equivalent, there is
scarce anybody who considers himself as entirely dependent upon
him, and his authority extends only over a few menial servants. The
authority of fortune, however, is very great even in an opulent and
civilized society. That it is much greater than that, either of age, or
of personal qualities, has been the constant complaint of every period
of society which admitted of any considerable inequality of fortune.
The first period of society, that of hunters, admits of no such in-
equality. Universal poverty establishes their universal equality, and
the superiority either of age or of personal qualities, are the feeble,
but the sole foundations of authority and subordination. There is
therefore little or no authority or subordination in this period of
society. The second period of society, that of shepherds, admits of
very great inequalities of fortune, and there is no period in which the
superiority of fortune gives so great authority to those who possess it.
There is no period accordingly in which authority and subordination
are more perfectly established. The authority of an Arabian scherif
is very great ; that of a Tartar khan altogether despotical.
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 563

The fourth of those causes or circumstances is the superiority of

birth. Superiority of birth supposes an ancient superiority of fortune
in the family of the person who claims it. All families are equally
ancient ; and the ancestors of the prince, though they may be better
known, cannot well be more numerous, than those of the beggar. An-
tiquity of family means everywhere the antiquity either of wealth, or
of that greatness which is commonly either founded upon wealth or
accompanied with it. Upstart greatness is everywhere less respected
than ancient greatness. The hatred of usurpers, the love of the
family of an ancient monarch, are, in a great measure, founded upon
the contempt which men naturally have for the former and upon their
veneration for the latter. As a military officer submits without re-
luctance to the authority of a superior by whom he has always been
commanded, but cannot bear that his inferior should be set over his
head, so men easily submit to a family to whom they and their an-
cestors have always submitted ; but are fired with indignation when
another family, in whom they had never acknowledged any such supe-
riority, assumes a dominion over them.
The distinction of birth, being subsequent to the inequality of
fortune, can have no place in nations of hunters, among whom all
men, being equal in fortune, must likewise be very nearly equal in
birth. The son of a wise and brave man may, indeed, even among
them, be somewhat more respected than a man of equal merit who
has the misfortune to be the son of a fool or a coward. The differ-
ence, however, will not be very great ; and there never was, I believe,
a great family in the world whose illustration was entirely derived
from the inheritance of wisdom and virtue.
The distinction of birth not only may, but always does, take place
among nations of shepherds. Such nations are always strangers to
every sort of luxury, and great wealth can scarce ever be dissipated
among them by improvident profusion. There are no nations accord-
ingly who abound more in families revered and honoured on account
of their descent from a long race of great and illustrious ancestors ;
because there are no nations among whom wealth is likely to continue
longer in the same families.
Birth and fortune are evidently the two circumstances which princi-
pally set one man above another. They are the two great sources of
personal distinction, and are therefore the principal causes which
naturally establish authority and subordination among men. Among
nations of shepherds both those causes operate with their full force.
The great shepherd or herdsman, respected on account of his great
wealth, and of the great number of those who depend upon him for
subsistence, and revered on account of the nobleness of his birth and
of the immemorial antiquity of his illustrious family, has a natural
authority over all the inferior shepherds or herdsmen of his horde or
36 *
564 THE AGE OF SHEPHERDS THE SECOND PERIOD OF SOCIETY.

clan. He can command the united force of a greater number of

people than any of them. His military power is greater than that of any
of them . In time of war they are all of them naturally disposed to
muster themselves under his banner, rather than under that of any
other person, and his birth and fortune thus naturally procure to him
some sort of executive power. By commanding too the united force
of a greater number of people than any of them, he is best able to
compel any one of them who may have injured another to compensate
the wrong. He is the person, therefore, to whom all those who are too
weak to defend themselves naturally look up for protection. It is to
him that they naturally complain of the injuries which they imagine
have been done to them, and his interposition in such cases is more
easily submitted to, even by the person complained of, than that of
any other person would be. His birth and fortune thus naturally pro-
cure him some sort of judicial authority.
It is in the age of shepherds, in the second period of society, that
the inequality of fortune first begins to take place, and introduces
among men a degree of authority and subordination which could not
possibly exist before. It thereby introduces some degree of that civil
government which is indispensably necessary for its own preservation :
and it seems to do this naturally, and even independent of the con-
sideration of that necessity. The consideration of that necessity
comes no doubt afterwards to contribute very much to maintain and
secure that authority and subordination. The rich , in particular, are
necessarily interested to support that order of things, which can alone
secure them in the possession of their own advantages. Men of
inferior wealth combine to defend those of superior wealth in the
possession of their property, in order that men of superior wealth may
combine to defend them in the possession of theirs. All the inferior
shepherds and herdsmen feel that the security of their own herds and
flocks depends upon the security of those of the great shepherd or
herdsman ; that the maintenance of their lesser authority depends
upon that of his greater authority, and that upon their subordination
to him depends his power of keeping their inferiors in subordination
to them. They constitute a sort of little nobility, who feel themselves
interested to defend the property and to support the authority of their
own little sovereign, in order that he may be able to defend their
property and to support their authority. Civil government, so far as it
is instituted for the security of property, is in reality instituted for the
defence of the rich against the poor, or of those who have some
property against those who have none at all.
The judicial authority of such a sovereign, however, far from being
a cause of expense, was for a long time a source of revenue to him.
The persons who applied to him for justice were always willing to pay
for it, and a present never failed to accompany a petition. After the
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 565

authority of the sovereign too was thoroughly established , the person

found guilty, over and above the satisfaction which he was obliged to
make to the party, was likewise forced to pay an amercement to the
sovereign. He had given trouble, he had disturbed, he had broken
the peace of his lord the king, and for those offences an amercement
was thought due. In the Tartar governments of Asia, in the govern-
ments of Europe which were founded by the German and Scythian
nations who overturned the Roman empire, the administration of justice
was a considerable source of revenue, both to the sovereign, and to all
the lesser chiefs or lords who exercised under him any particular juris-
diction, either over some particular tribe or clan, or over some particu-
lar territory or district. Originally both the sovereign and the inferior
chiefs used to exercise this jurisdiction in their own persons. After-
wards they universally found it convenient to delegate it to some sub-
stitute, bailiff, or judge. This substitute, however, was still obliged to
account to his principal or constituent for the profits of the jurisdiction.
Whoever reads the instructions which were given to the judges of the
circuit in the time of Henry II. will see clearly that those judges were
a sort of itinerant factors, sent round the country for the purpose of
levying certain branches of the king's revenue. In those days the
administration of justice, not only afforded a certain revenue to the
sovereign, but to procure this revenue seems to have been one of the
principal advantages which he proposed to obtain by the administra-
tion of justice.
This scheme of making the administration of justice subservient to
the purposes of revenue, could scarce fail to be productive of several
very gross abuses. The person who applied for justice with a large
present in his hand, was likely to get something more than justice ;
while he who applied for it with a small one, was likely to get some-
thing less. Justice too might frequently be delayed, in order that this
present might be repeated. The amercement, besides, of the person
complained of, might frequently suggest a very strong reason for find-
ing him in the wrong, even when he had not really been so. That such
abuses were far from being uncommon, the ancient history of every
country in Europe bears witness.
When the sovereign or chief exercised his judicial authority in his
own person, how much soever he might abuse it, it must have been
scarce possible to get any redress, because there could seldom be any-
body powerful enough to call him to account. When he exercised it
by a bailiff, indeed, redress might sometimes be had. If it was for his
own benefit only that the bailiff had been guilty of any act of injustice,
.he sovereign himself might not always be unwilling to punish him, or
to oblige him to repair the wrong. But if it was for the benefit of his
sovereign, if it was in order to make court to the person who appointed
They are to be found in Tyrrel's History ofEngland.
566 THE CORRUPTION OF JUSTICE IN THE RUDE AGES.

him and who might prefer him, that he had committed any act of
oppression , redress would upon most occasions be as impossible as if
the sovereign had committed it himself. In all barbarous governments,
accordingly, in all those ancient governments of Europe in particular,
which were founded upon the ruins of the Roman empire, the adminis-
tration of justice appears for a long time to have been extremely cor-
rupt ; far from being quite equal and impartial even under the best
monarchs , and altogether profligate under the worst.
Among nations of shepherds, where the sovereign or chief is only the
greatest shepherd or herdsman of the horde or clan, he is maintained
in the same manner as any of his vassals or subjects, by the increase
of his own herds or flocks. Among those nations of husbandmen who
are but just come out of the shepherd state, and who are not much
advanced beyond that state (such as the Greek tribes appear to have
been about the time of the Trojan war, and our German and Scythian
ancestors when they first settled upon the ruins of the western empire),
the sovereign or chief is, in the same manner, only the greatest landlord
of the country, and is maintained, in the same manner as any other
landlord, by a revenue derived from his own private estate, or from
what, in modern Europe, was called the demesne of the crown. His
subjects, upon ordinary occasions, contribute nothing to his support,
except when, in order to protect them from the oppression of some of
their fellow-subjects, they stand in need of his authority. The pre-
sents which they make him upon such occasions constitute the whole
ordinary revenue, the whole of the emoluments which, except perhaps
upon some very extraordinary emergencies, he derives from his domi-
nion over them. When Agamemnon, in Homer, offers to Achilles for
his friendship the sovereignty of seven Greek cities, the sole advantage
which he mentions as likely to be derived from it, was, that the people
would honour him with presents. As long as such presents, as long as
the emoluments of justice, or what may be called the fees of court,
constituted in this manner the whole ordinary revenue which the
sovereign derived from his sovereignty, it could not well be expected,
it could not even decently be proposed, that he should give them up
altogether. It might, and it frequently was proposed, that he should
regulate and ascertain them. But after they had been so regulated and
ascertained, how to hinder a person who was all-powerful from extend-
ing them beyond those regulations, was still very difficult, not to say im-
possible. During the continuance ofthis state of things, therefore, the
corruption of justice, naturally resulting from the arbitrary and uncer-
tain nature of those presents, scarce admitted of any effectual remedy.
But when from different causes, chiefly from the continually increas
ing expense of defending the nation against the invasion of other nations,
the private estate of the sovereign had become altogether insufficient
for defraying the expense of the sovereignty ; and when it had become
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 567

necessary that the people should, for their own security, contribute
towards this expense by taxes of different kinds, it seems to have been
very commonly stipulated, that no present for the administration of
justice should, under any pretence, be accepted either by the sovereign
or by his bailiffs and substitutes, the judges. Those presents, it seems
to have been supposed, could more easily be abolished altogether, than
effectually regulated and ascertained. Fixed salaries were appointed
to the judges, which were supposed to compensate to them the loss
of whatever might have been their share of the ancient emoluments of
justice, as the taxes more than compensated to the sovereign the loss
of his. Justice was then said to be administered gratis.
Justice, however, never was in reality administered gratis in any
country. Lawyers and attorneys, at least, must always be paid by the
parties ; and, if they were not, they would perform their duty still worse
than they actually perform it. The fees annually paid to lawyers and
attorneys amount, in every court, to a much greater sum than the
salaries of the judges. The circumstances of those salaries being paid
by the crown, can nowhere much diminish the necessary expense of a
law-suit. But it was not so much to diminish the expense, as to pre-
vent the corruption of justice, that the judges were prohibited from
receiving any present or fee from the parties.
The office of judge is in itself so very honourable that men are
willing to accept of it, though accompanied with very small emolu-
ments. The inferior office of justice of peace, though attended with a
good deal of trouble, and in most cases with no emoluments at all, is
an object of ambition to the greater part of our country gentlemen.
The salaries of all the different judges, high and low, together with the
whole expense of the administration and execution of justice, even
where it is not managed with very good economy, makes, in any civi-
lized country, but a very inconsiderable part of the whole expense of
government.
The whole expense of justice too might easily be defrayed by the
fees of court ; and, without exposing the administration of justice to
any real hazard of corruption, the public revenue might thus be
entirely discharged from a certain though, perhaps, but a small incum-
brance. It is difficult to regulate the fees of court effectually, where
a person so powerful as the sovereign is to share in them, and to
derive any considerable part of his revenue from them. It is very
easy, where the judge is the principal person who can reap any benefit
from them. The law can very easily oblige the judge to respect the
regulation, though it might not always be able to make the sovereign
respect it. Where the fees of court are precisely regulated and ascer-
tained, where they are paid all at once, at a certain period of every
process, into the hands of a cashier or receiver, to be by him distri-
buted in certain known proportions among the different judges after
568 THE FEES OF COURT IN THE OLD PARLIAMENTS OF FRANCE.

the process is decided, and not till it is decided, there seems to be no

more danger of corruption than where such fees are prohibited alto-
gether. Those fees, without occasioning any considerable increase in
the expense of a law-suit, might be rendered fully sufficient for defray-
ing the whole expense of justice. By not being paid to the judges till
the process was determined, they might be some incitement to the
diligence of the court in examining and deciding it. In courts which
consisted of a considerable number of judges, by proportioning the
share of each judge to the number of hours and days which he had
employed in examining the process, either in the court or in a com-
mittee by order of the court, those fees might give some encouragement
to the diligence of each particular judge. Public services are never
better performed than when their reward comes only in consequence
of their being performed, and is proportioned to the diligence employed
in performing them. In the different parliaments of France, the fees
of court (called épicès and vacations) constitute the far greater part
of the emoluments of the judges. After all deductions are made,
the nett salary paid by the crown to a counsellor or judge in the par-
liament of Toulouse, in rank and dignity the second parliament of
the kingdom, amounts only to a hundred and fifty livres, about six
pounds eleven shillings sterling a year. About seven years ago that
sum was in the same place the ordinary yearly wages of a common
footman. The distribution of those épicès, too, is according to the
diligence of the judges. A diligent judge gains a comfortable, though
moderate, revenue by his office : an idle one gets little more than his
salary. Those parliaments are perhaps, in many respects, not very
convenient courts of justice ; but they have never been accused, they
seem never even to have been suspected, of corruption.
The fees of court seem originally to have been the principal support
of the different courts of justice in England. Each court endeavoured
to draw to itself as much business as it could, and was, upon that
account, willing to take cognisance of many suits which were not
originally intended to fall under its jurisdiction. The court of King's
Bench, instituted for the trial of criminal causes only, took cognisance of
civil suits ; the plaintiff pretending that the defendant, in not doing him
justice, had been guilty of some trespass or misdemeanour. The court
of Exchequer, instituted for the levying of the king's revenue, and for
enforcing the payment of such debts only as were due to the king, took
cognisance of all other contract debts ; the plaintiff alleging that he
could not pay the king, because the defendant would not pay him.
In consequence of such fictions it came, in many cases, to depend
altogether upon the parties before what court they would choose to
have their cause tried ; and each court endeavoured, by superior
dispatch and impartiality, to draw to itself as many causes as it could.
The present admirable constitution of the courts of justice in England
 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS. 569

was, perhaps, originally in a great measure, formed by this emulation,

which anciently took place between their respective judges ; each
judge endeavouring to give, in his own court, the speediest and most
effectual remedy which the law would admit, for every sort of injus-
tice. Originally the courts of law gave damages only for breach of
contract. The court of Chancery, as a court of conscience, first took
upon it to enforce the specific performance of agreements. When the
breach of contract consisted in the nonpayment of money, the damage
sustained could be compensated in no other way than by ordering
payment, which was equivalent to a specific performance of the agree-
ment. In such cases, therefore, the remedy of the courts of law was
sufficient. It was not so in others. When the tenant sued his lord
for having unjustly outed him of his lease, the damages which he
recovered were by no means equivalent to the possession of the land .
Such causes, therefore, for some time, went all to the court of Chancery,
to the no small loss of the courts of law. It was to draw back such
causes to themselves that the courts of law are said to have invented
the artificial and fictitious writ of ejectment, the most effectual remedy
for an unjust outer or dispossession of land.
A stamp-duty upon the law proceedings of each particular court, to
be levied by that court, and applied towards the maintenance of the
judges and other officers belonging to it, might, in the same manner,
afford a revenue sufficient for defraying the expense of the administra-
tion of justice, without bringing any burden upon the general revenue
of the society. The judges indeed might, in this case, be under the
temptation of multiplying unnecessarily the proceedings upon every
cause, in order to increase, as much as possible, the produce of such
a stamp-duty. It has been the custom in modern Europe to regulate,
upon most occasions, the payment of the attorneys and clerks of court,
according to the number of pages which they had occasion to write ;
the court, however, requiring that each page should contain so many
lines, and each line so many words. In order to increase their pay-
ment, the attorneys and clerks have contrived to multiply words beyond
all necessity, to the corruption of the law language of, I believe, every
court of justice in Europe. A like temptation might perhaps occasion
a like corruption in the form of law proceedings.
But whether the administration of justice be so contrived as to
defray its own expense, or whether the judges be maintained by fixed
salaries paid to them from some other fund, it does not seem necessary
that the person or persons entrusted with the executive power should
be charged with the management of that fund, or with the payment of
those salaries. That fund might arise from the rent of landed estates,
the management of each estate being entrusted to the particular court
which was to be maintained by it. That fund might arise even from
the interest of a sum of money, the lending out of which might, in the
570 SEPARATION OF THE JUDICIAL FROM THE EXECUTIVE POWER,

same manner, be entrusted to the court which was to be maintained by

it. A part, though indeed but a small part, of the salary of the judges
of the court of session in Scotland , arises from the interest of a sum
of money. The necessary instability of such a fund seems, however,
to render it an improper one for the maintenance of an institution
which ought to last for ever.
The separation of the judicial from the executive power seems
originally to have arisen from the increasing business of the society, in
consequence of its increasing improvement. The administration of
justice became so laborious and so complicated a duty as to require
the undivided attention of the persons to whom it was entrusted. The
person entrusted with the executive power, not having leisure to attend
to the decision of private causes himself, a deputy was appointed to
decide them in his stead. In the progress ofthe Roman greatness , the
consul was too much occupied with the political affairs of the state, to
attend to the administration of justice. A prætor, therefore, was
appointed to administer it in his stead. In the progress of the
European monarchies which were founded upon the ruins of the Roman
empire, the sovereigns and the great lords came universally to consider
the administration of justice as an office, both too laborious and too
ignoble for them to execute in their own persons. They universally,
therefore, discharged themselves of the duty by appointing a deputy,
bailiff, or judge.
When the judicial is united to the executive power, it is scarce
possible that justice should not frequently be sacrificed to, what is
vulgarly called, politics. The persons entrusted with the great interests
of the state may, even without any corrupt views, sometimes imagine
it necessary to sacrifice to those interests the rights of a private man.
But upon the impartial administration of justice depends the liberty of
every individual, the sense which he has of his own security. In order
to make every individual feel himself perfectly secure in the possession
of every right which belongs to him, it is not only necessary that the
judicial should be separated from the executive power, but that it
should be rendered as much as possible independent of that power.
The judge should not be liable to be removed from his office according
to the caprice of that power. The regular payment of his salary should
not depend upon the good-will or even upon the good economy of that
power.

PART III.-Of the Expense ofpublic Works and public Institutions,

THE third and last duty of the sovereign or commonwealth is that of
erecting and maintaining those public institutions and those public
works, which, though they may be in the highest degree advantageous
to a great society, are, however, of such a nature, that the profit could
571 SMITH ON THE CAUSES OF THE WEALTH OF NATIONS.

never repay the expense to any individual or small number of indi.

viduals, and which it therefore cannot be expected that any individuaj
or small number of individuals should erect or maintain. The per-
formance of this duty requires too very different degrees of expense in
the different periods of society.
After the public institutions and public works necessary for the
defence of the society, and for the administration of justice, both of
which have already been mentioned, the other works and institutions
of this kind are chiefly those for facilitating the commerce of the
society, and those for promoting the instruction of the people. The
institutions for instruction are of two kinds : those for the education of
the youth, and those for the instruction of people of all ages. The
consideration of the manner in which the expense of those different
sorts of public works and institutions may be most properly defrayed,
will divide this third part of the present chapter into three different
articles.
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