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Of Drawbacks
That The Division Of Labour Is Limited By The Extent Of The Market
Conclusion Of The Mercantile System
Of The Wages Of Labour
Of Bounties
Of The Extraordinary Restraints Upon The Importation Of Goods Of Almost All Kinds
Of Taxes
Of The Rent Of Land
Of The Rise And Progress Of Cities And Towns After The Fall Of The Roman Empire
Of Wages And Profit In The Different Employments Of Labour And Stock

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Introduction To Stock Theory
Of The Profits Of Stock
Of The Different Employments Of Capitals
Of The Agricultural Systems Or Of Those Systems Of Political Economy Which Represent The Produce Of Land
Of The Component Part Of The Price Of Commodities
How The Commerce Of Towns Contributed To The Improvement Of The Country
Of The Principle Which Gives Occasion To The Division Of Labour
Of Colonies
Of Treaties Of Commerce
Of The Discouragement Of Agriculture In The Ancient State Of Europe After The Fall Of The Roman Empire

Of The Extraordinary Restraints Upon The Importation Of Goods Of Almost All Kinds

Part I--Of the Unreasonableness of those Restraints, even upon the
Principles of the Commercial System.

To lay extraordinary restraints upon the importation of goods of almost
all kinds, 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 Portugal, 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 two-third subsidies as making a complete subsidy
between them, there have been five of these general subsidies; so that,
before the commencement 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 goods, those duties are equivalent to a prohibition.
The French, in their turn, have, I believe, treated our goods and
manufactures just as hardly; though I am not so well acquainted with
the particular 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
which I am going te 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 commercial

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 purchase
both the wine and the foreign linen which it had occasion for of
France, than of Portugal and Germany. Though the value of the annual
importations from France would 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 consumed in Great

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 interest of
particular traders, are the principles which generally direct our
judgment 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 greater part
of goods are rated in them. The course of exchange is, perhaps, almost
equally so.

When the exchange between two places, such as London and Paris, is at
par, it is said to be a sign that the debts due from London to Paris are
compensated by those due from Paris to London. On the contrary, when a
premium is paid at London for a bill upon Paris, it is said to be a sign
that the debts due from London to Paris are not compensated by those due
from Paris to London, but that a balance in money must be sent out
from the latter place; for the risk, trouble, and expense, of exporting
which, the premium is both demanded and given. But the ordinary state of
debt and credit between those two cities must necessarily be regulated,
it is said, by the ordinary course of their dealings with one another.
When neither of them imports from from 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 necessarily becomes indebted
to the latter in a greater sum than the latter becomes indebted to it:
the debts and credits of each do not compensate 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, must
likewise be an indication of the ordinary course of their exports and
imports, as these necessarily regulate that state.

But though the ordinary course of exchange shall 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
example, for the merchants of England to pay for the goods which they
buy of Hamburg, Dantzic, Riga, etc. by bills upon Holland, the ordinary
state of debt and credit between England and Holland will not be
regulated entirely by the ordinary course of the dealings of those
two countries with one another, but will be influenced by that of the
dealings in England with those other places. England may be obliged to
send out every year money to Holland, though its annual exports to
that country may exceed very much the annual value of its imports from
thence, and though what is called the balance of trade may be very much
in favour of England.

In the way, besides, in which the par of exchange has hitherto been
computed, the ordinary course of exchange can afford no sufficient
indication that the ordinary state of debt and credit is in favour of
that country which seems to have, or which is supposed to have, the
ordinary course of exchange in its favour; or, in other words, the
real exchange may be, and in fact often is, so very different from the
computed one, that, from the course of the latter, no certain conclusion
can, upon many occasions, be drawn concerning that of the former.

When for a sum or 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 degenerated
from that standard. But the value of the current coin of every country,
compared with that of any other country, is in proportion, not to the
quantity of pure silver which it ought to contain, but to that which it
actually does contain. Before the reformation of the silver coin in King
William's time, exchange between England and Holland, computed in the
usual manner, according to the standard of their respective mints, was
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 exchange was so much against it;
a smaller number or 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 wore 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 reformation 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 government; and if
you carry a pound weight of standard silver to the mint, you get back
sixty-two shillings, containing a pound weight of the like standard
silver. In France a duty of eight per cent. is deducted for the coinage,
which not only defrays the expense of it, but affords a small revenue
to the government. In England, as the coinage costs nothing, the current
coin can never be much more valuable than the quantity of bullion which
it actually contains. In France, the workmanship, as you pay for it,
adds to the value, in the same manner as to that of wrought plate. A sum
of French money, therefore, containing an equal weight of pure silver,
is more valuable than a sum of English money containing an equal weight
of pure silver, and must require more bullion, or other commodities, to
purchase it. Though the current coin of the two countries, therefore,
were equally near the standards of their respective mints, a sum of
English money could not well purchase a sum of French money containing
an equal number of ounces of pure silver, nor, consequently, a bill upon
France for such a sum. If, for such a bill, no more additional money was
paid than what was sufficient to compensate the expense of the French
coinage, the real exchange might be at par between the two countries;
their debts and credits might mutually compensate one another, while
the computed exchange was considerably in favour of France. If less than
this was paid, the real exchange might be in favour of England, while
the computed was in favour of France.

Thirdly, and lastly, In some places, as at Amsterdam, Hamburg, Venice,
etc. foreign bills of exchange are paid in what they call bank money;
while in others, as at London, Lisbon, Antwerp, Leghorn, etc. they are
paid in the common currency of the country. What is called bank money,
is always of more value than the same nominal sum of common currency.
A thousand guilders in the bank of Amsterdam, for example, are of more
value than a thousand guilders of Amsterdam currency. The difference
between them is called the agio of the bank, which at Amsterdam is
generally about five per cent. Supposing the current money of the two
countries equally near to the standard of their respective mints, and
that the one pays foreign bills in this common currency, while the other
pays them in 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 its own standard, though the real
exchange should be in favour of that which pays in worse. The computed
exchange, before the late reformation of the gold coin, was generally
against London with Amsterdam, Hamburg, Venice, and, I believe, with all
other places which pay in what is called bank money. It will by no
means follow, however, that the real exchange was against it. Since the
reformation of the gold coin, it has been in favour of London, even
with those places. The computed exchange has generally been in favour
of London with Lisbon, Antwerp, Leghorn, and, if you except France, I
believe with most other parts of Europe that pay in common currency; and
it is not improbable that the real exchange was so too.

Digression concerning Banks of Deposit, particularly concerning that of

The currency of a great state, such as France or England, generally
consists almost entirely of its own coin. Should this currency,
therefore, 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 Hamburg, can seldom consist altogether in its own coin,
but must be made up, in a great measure, of the coins of all the
neighbouring states with which its inhabitants have a continual
intercourse. Such a state, 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, Hamburg, and Nuremberg, seem to have been
all originally established with this view, though some of them 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 Hamburg, 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, 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 remained after this
small deduction was made, it gave a credit in its books. This credit was
called bank money, which, as it represented money exactly according
to the standard of the mint, was always of the same real value, and
intrinsically worth more than current money. It was at the same time
enacted, that all bills drawn upon or negotiated at Amsterdam, of the
value of 600 guilders and upwards, should be paid in bank money, which
at once took away all uncertainty in the value of those bills. Every
merchant, in consequence of this regulation, was obliged to keep an
account with the bank, in order to pay his foreign bills of exchange,
which necessarily occasioned a certain demand for bank money.

Bank money, over and above both its intrinsic superiority to currency,
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 other advantages of bank money; its security, its easy and safe
transferability, its use in paying foreign bills of exchange. Over and
above all this, it could not be brought from those coffers, as 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 transferring to the bank a quantity of bank
money equal to that for which credit had been given in its books when
the deposit was made, and upon paying one-fourth per cent. for the
keeping, if the deposit was in silver; and one-half per cent. if it
was in gold; but at the same time declaring, that in default of such
payment, and upon the expiration of this term, the deposit should belong
to the bank, at the price at which it had been received, or for which
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 most precious metal. Silver, besides, being the standard metal, the
state, it has been said, wishes to encourage more the making of deposits
of silver than those of gold.

Deposits of bullion are most commonly made when the price is somewhat
lower than ordinary, and they are taken out again when it happens to
rise. In Holland the market price of bullion 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 of fine and one part alloy. The bank price, or the
credit which the bank gives for the 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 following are the prices at which the bank of Amsterdam at present
{September 1775} receives bullion and coin of different kinds:

Mexico dollars ................. 22 Guilders / mark
French crowns .................. 22
English silver coin............. 22
Mexico dollars, new coin........ 21 10
Ducatoons....................... 3 0
Rix-dollars..................... 2 8

Bar silver, containing 11-12ths fine silver, 21 Guilders / mark, and in
this proportion down to 1-4th fine, on which 5 guilders are given. Fine
bars,................. 28 Guilders / mark.

Portugal coin................. 310 Guilders / mark
Guineas....................... 310
Louis d'ors, new.............. 310
Ditto old.............. 300
New ducats.................... 4 19 8 per ducat

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.

The proportions between the bank price, the mint price, and the market
price of gold bullion, are nearly the same. A person can generally sell
his receipt for the difference between the mint price of bullion and the
market price. A receipt for bullion is almost always worth something,
and it very seldom happens, therefore, that anybody suffers his receipts
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 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 credit; 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 and the bank credit seldom keep 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 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 grant
receipts likewise, as well as bank credits; but those receipts are
frequently of no value and will bring no price in the market. Upon
ducatoons, for example, which in the currency pass for three guilders
three stivers each, the bank gives a credit of three guilders only, or
five per cent. below their current value. It grants a receipt likewise,
entitling the bearer to take out the number 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, maybe 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 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

No demand can be made upon the bank, but by means of a recipice or
receipt. The smaller mass of bank money, for which the receipts are
expired, is mixed and confounded with the much greater mass for which
they are still in force; so that, though there may be a considerable sum
of bank money, for which there are no receipts, there is no specific sum
or portion of it which may not at any time be demanded by one. The bank
cannot be debtor to two persons for the same thing; and the owner of
bank money who has no receipt, cannot demand payment of the bank till
he buys one. In ordinary and quiet times, he can find no difficulty in
getting one to buy at the market price, which generally 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 payment only
to the holders of receipts. The holders of receipts, who had no bank
money, must have received within two or three per cent. of the value of
the deposit for which their respective receipts had been granted. The
bank, therefore, it is said, would in this case make no scruple of
paying, either with money or bullion, the full value of what the owners
of bank money, who could get no receipts, were credited for in its
books; paying, at the same time, two or three per cent. to such holders
of receipts as had no bank money, that being the whole value which, in
this state of things, could justly be supposed due to them.

Even in ordinary and quiet times, it is the interest of the holders of
receipts to depress the agio, in order either to buy bank money (and
consequently the bullion which their receipts would then enable them
to take out of the bank ) so much cheaper, or to sell their receipts
to those who have bank money, and who want to take out bullion, so much
dearer; the price of a receipt being generally equal to the difference
between the market price of bank money and that of the coin or bullion
for which the receipt had been granted. It is the interest of the owners
of bank money, on the contrary, to raise the agio, in order either
to sell their bank money so much dearer, or to buy a receipt so much
cheaper. To prevent the stock-jobbing tricks which those opposite
interests might sometimes occasion, the bank has of late years come to
the resolution, to sell at all times bank money for currency at five
per cent. agio, and to buy it in again at four per cent. agio. In
consequence of this resolution, the agio can never either rise above
five, or sink below four per cent.; and the proportion between the
market price of bank and that of current money is kept at all times
very near 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 happened to influence 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 subsist, may
perhaps appear more uncertain. At Amsterdam, however, no point of faith
is better established than that, for every guilder circulated as bank
money, there is a correspondent guilder in gold or silver to be found in
the treasures 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 sufficient security
against any practices which cannot be avowed. Amidst all the revolutions
which faction has ever occasioned in the government of Amsterdam, the
prevailing party has at no time accused their predecessors of infidelity
in the administration of the bank. No accusation could have affected
more deeply the reputation and fortune of the disgraced party; and if
such an accusation could have been supported, we may be assured that it
would have been brought. In 1672, when the French king was at Utrecht,
the bank of Amsterdam paid so readily, as left no doubt of the fidelity
with which it had observed its engagements. Some of the pieces which
were then brought from its repositories, appeared to have been scorched
with the fire which happened in the town-house soon after the bank was
established. Those pieces, therefore, must have lain there from that

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 2000 people who keep accounts with the bank; and
allowing them to have, one with another, the value of £1500 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 £3,000,000 sterling, or, at eleven guilders the pound
sterling, 33,000,000 of guilders; a great sum, and sufficient to carry
on a very extensive circulation, but 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 mentioned, each
person, upon first opening an account with the bank, pays a fee of ten
guilders; and for every new account, three guilder's three stivers; for
every transfer, two stivers; and if the transfer is for less than 300
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 emoluments
amount to a good deal more than what is necessary for paying the
salaries of officers, and defraying the expense of management. What
is paid for the keeping of bullion upon receipts, is alone supposed to
amount to a neat annual revenue of between 150,000 and 200,000 guilders.
Public utility, however, and not revenue, was the original object of
this institution. Its object was to relieve the merchants from the
inconvenience of a disadvantageous exchange. The revenue which has
arisen from it was unforeseen, and may be considered as accidental. But
it is now time to return from this long digression, into which I have
been insensibly led, in endeavouring to explain the reasons why the
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.

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

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 hereafter.
But that trade which, without force or constraint, is naturally and
regularly carried on between any two places, is always advantageous,
though not always equally so, to both.

By advantage or gain, I understand, not the increase of the 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 consist
altogether in the exchange of their native commodities, they will, upon
most occasions, not only both gain, but they will gain equally, or very
nearly 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 inhabitants.
Some part of the inhabitants of each, therefore, will directly derive
their revenue and maintenance from the other. As the commodities
exchanged, too, are supposed to be of equal value, so the two capitals
employed in the trade will, upon most occasions, be equal, or very
nearly equal; and both being employed in raising the native commodities
of the two countries, the revenue and maintenance which their
distribution will afford to the inhabitants of each will be equal, or
very nearly equal. This revenue and maintenance, thus mutually afforded,
will be greater or smaller, in proportion to the extent of their
dealings. If these should annually amount to £100,000, for example, or
to £1,000,000, on each side, each of them will afford an annual revenue,
in the one case, of £100,000, and, in the other, of £1,000,000, 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
commodities. They would, in this case too, both gain, but they would not
gain equally; and the inhabitants of the country which exported nothing
but native commodities, would derive the greatest revenue from the
trade. If England, for example, should import from France nothing but
the native 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, Indostan, 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.

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, commodities
not being paid for with commodities, but with gold and silver. The
trade, however, would in this case, as in the foregoing, give some
revenue to the inhabitants of both countries, but more to those of
France than to those of England. It would give some revenue to those of
England. The capital which had been employed in producing the English
goods that purchased this gold and silver, the capital which had been
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 £100,000, when
sent to France, will purchase wine which is in England worth £110,000,
the exchange will augment the capital of England by £10,000. If £100,000
of English gold, in the same manner, purchase French wine, which in
England is worth £110,000, this exchange will equally augment the
capital of England by £10,000. As a merchant, who has £110,000 worth of
wine in his cellar, is a richer man than he who has only £100,000 worth
of tobacco in his warehouse, so is he likewise a richer man than he who
has only £100,000 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 capital 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 exchange. 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.
But a round-about foreign trade of consumption, which is carried on with
gold and silver, does not seem to be less advantageous than any other
equally round-about one. Neither is a country which has no mines, more
likely to be exhausted of gold and silver by this annual exportation of
those metals, than one which does not grow tobacco by the like annual
exportation of that plant. As a country which has wherewithal to buy
tobacco will never be long in want of it, so neither will one be long in
want of gold and silver which has wherewithal to purchase those metals.

It is a losing trade, it is said, which a workman carries on with the
alehouse; and the trade which a manufacturing nation would 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 employment of
a brewer, and even that of a retailer of fermented liquors, are as
necessary division's of labour as any other. It will generally be more
advantageous for a workman to buy of the brewer the quantity he has
occasion for, than to brew it himself; and if he is a poor workman,
it will generally be more advantageous for him to buy it by little and
little of the retailer, than a large quantity of the brewer. He may
no doubt buy too much of either, as he may of any other dealers in his
neighbourhood; of the butcher, if he is a glutton; or of the draper, if
he affects to be a beau among his companions. It is advantageous to the
great body of workmen, notwithstanding, that all these trades should
be free, though this freedom may be abused in 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 consumption
of fermented liquors, there seems to be no risk that a nation should do
so. Though in every country there are many people who spend upon such
liquors more than they can afford, there are always many more who spend
less. It deserves to be remarked, too, that if we consult experience,
the cheapness of wine seems to be a cause, not of drunkenness, but
of sobriety. The inhabitants of the wine countries are in general the
soberest people of 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 southern,
where it is very cheap, the soldiers, I have frequently heard it
observed, are at first debauched by the cheapness and novelty of good
wine; but after a few months residence, the greater part of them become
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 Britain 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 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 political maxims for the conduct of a great empire; for
it is the most underling tradesmen only who make it a rule to employ
chiefly their own customers. A great trader purchases his goods always
where they are cheapest and best, without regard to any little interest
of this kind.

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 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
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 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.

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 confounded
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 corporation to hinder the rest of the
inhabitants 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
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 ta be most violently

The wealth of neighbouring nations, however, though dangerous in war and
politics, is certainly advantageous in trade. In a state of hostility,
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 workmen who deal
in the same way with him. The manufacturers of a rich nation, in the
same manner, may no doubt be very dangerous rivals to those of their
neighbours. This very competition, however, is advantageous to the great
body of the people, who profit greatly, besides, by the good market
which the great expense of such a nation affords them in every other
way. Private people, who want to make a fortune, never think of retiring
to the remote and poor provinces of the country, but resort either to
the capital, or to some of the great commercial towns. They know, that
where little wealth circulates, there is little to be got; but that
where a great deal is in motion, some share of it may fall to them. The
same maxim which would in this manner direct the common 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 occasion 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, surrounded 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 acquired 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 impoverishment of all
our neighbours, so far as they are capable of producing their
intended effect, tend to render that very commerce insignificant and

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 advantageous to
Great Britain than that of any other country, and, for the same reason,
that of Great Britain to France. France is the nearest neighbour to
Great Britain. In the trade between the southern coast of England and
the northern and north-western coast 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 subsistence to four,
five, or six times the number of people, which all 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 24,000,000 of inhabitants.
Our North American colonies were never supposed to contain more than
3,000,000; and France is a much richer country than North America;
though, on account of the more 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 advantageous 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 respective countries, would have
the same superiority over that which France carries on with her own
colonies. Such is the very great difference between that trade which the
wisdom of both nations has thought proper to discourage, and that which
it has favoured the most.

But the very same circumstances which would have rendered an open and
free commerce between the two countries so 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 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 falsehood, 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 all unfavourably 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
same 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 annual
consumption, the capital of the society must annually increase in
proportion to this excess. The society in this case lives within its
revenue; and what is annually saved out of its revenue, is naturally
added to its capital, and employed so as to increase still further the
annual produce. If the exchangeable value of the annual produce, on
the contrary, fall short of the annual consumption, the capital of
the society must annually decay in proportion to this deficiency.
The expense of the society, in this case, exceeds its revenue, and
necessarily encroaches upon its capital. Its capital, 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 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 increasing
or gradually decaying.

The balance of produce and consumption may be constantly in favour of a
nation, though what is called the balance of trade be generally against
it. A nation may import to a greater value than it exports for half
a century, perhaps, together; the gold and silver which comes into
it during all this time, may be all immediately 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
increasing; and yet its real wealth, the exchangeable value of the
annual produce of its lands and labour, may, during the same period,
have been increasing in a much greater proportion. The state of our
North American colonies, and of the trade which they carried on with
Great Britain, before the commencement of the present disturbances,
{This paragraph was written in the year 1775.} may serve as a proof that
this is by no means an impossible supposition.

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