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Introduction To Stock Theory
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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 of commerce, and as the measure of value. In consequence of
its being the instrument of commerce, when we have money we can more
readily obtain whatever else we have occasion for, than by means of any
other commodity. The great affair, we always find, is to get money.
When that is 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
settlement there, or if the country was worth the conquering. Plano
Carpino, a monk sent ambassador from the king of France to one of the
sons of the famous Gengis Khan, says, that the Tartars used frequently
to ask him, if there was plenty of sheep and oxen in the kingdom of
France? Their inquiry had the same object with that of the Spaniards.
They wanted to know if the country was rich enough to be worth the
conquering. Among the Tartars, as among all other nations of shepherds,
who are generally ignorant of the use of money, cattle are the
instruments of commerce and the measures of value. Wealth, therefore,
according to them, consisted in cattle, as, according to the Spaniards,
it consisted in gold and silver. Of the two, the Tartar notion, perhaps,
was the nearest to the truth.

Mr Locke remarks a distinction between money and other moveable goods.
All other moveable 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 must solid and substantial
part of the moveable wealth of a nation; and to multiply those metals
ought, he thinks, upon that account, to be the great object of its
political economy.

Others admit, that if a nation could be separated from all the world,
it would be of no consequence how much or how little money circulated in
it. The consumable goods, which were 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 countries 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 on foreign wars.

In consequence of those 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 both in France and

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 to
import into their own, or to carry to some other foreign country. They
remonstrated, therefore, against this prohibition as hurtful to 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 the 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 seed-time
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 than a husbandman.
But when we consider his labours in the harvest, which is the end of
his endeavours, we shall find the worth and plentiful increase of his

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 foreign nations, which was necessarily
paid to them in the same manner, and thereby diminished that quantity:
that in this case, to prohibit the exportation of those metals, could
not prevent it, but only, by making it more dangerous, render it more
expensive: that the exchange was thereby turned more against the country
which owed the balance, than it otherwise might have been; the merchant
who purchased a bill upon the foreign country being obliged to pay the
banker who sold it, not only for the natural risk, trouble, and expense
of sending the money thither, but for the extraordinary risk arising
from the prohibition; but that the more the exchange was against any
country, the more the balance of trade became necessarily against it;
the money of that country becoming necessarily of so much less value, in
comparison with that of the country to which the balance was due. That
if the exchange between England and Holland, for example, was five per
cent. against England, it would require 105 ounces of silver in England
to purchase a bill for 100 ounces of silver in Holland: that 105 ounces
of silver in England, therefore, would be worth only 100 ounces of
silver in Holland, and would purchase only a proportionable quantity of
Dutch goods; but that 100 ounces of silver in Holland, on the
contrary, would be worth 105 ounces in England, and would purchase a
proportionable quantity of English goods; that the English goods which
were sold to Holland would be sold so much cheaper, and the Dutch goods
which were sold to England so much dearer, by the difference of the
exchange: that the one would draw so much less Dutch money to England,
and the other so much more English money to Holland, as this difference
amounted to: and that the balance of trade, therefore, would necessarily
be so much more against England, and would 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
exportation, when private people found any advantage in exporting them.
But they were sophistical, in supposing, that either to preserve or
to augment the quantity of those metals required more 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
attention, 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 expense would
generally be all laid out in the country, in smuggling the money out
of it, and could seldom occasion the exportation of a single sixpence
beyond the precise sum drawn for. The high price of exchange, 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 who were conscious
to them selves that they knew nothing about the matter. That foreign
trade enriched the country, experience demonstrated to the nobles and
country gentlemen, as well as to the merchants; but how, or in what
manner, none of them well knew. The merchants knew perfectly in what
manner it enriched themselves, it was their business to know it. But
to know in what manner it enriched the country, was no part of their
business. The 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 otherwise 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 exportation of foreign coin and of bullion
was made free. In Holland, and in some other places, this liberty was
extended even to the coin of the country. The attention of government
was turned away from guarding against the exportation of gold and
silver, to watch over the balance of trade, as the only cause which
could occasion any augmentation or diminution of those metals. From one
fruitless care, it was turned away to another care much more intricate,
much more embarrassing, and just equally fruitless. The title of Mun's
book, England'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
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, nor 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 has wherewithal
to buy wine, will always get the wine which it has occasion for; and a
country that has wherewithal to buy gold and silver, will never be in
want of those metals. They are to be bought for a certain price,
like all other commodities; and as they are the price of all other
commodities, so all other commodities are the price of those metals.
We trust, with perfect security, that the freedom of trade, without any
attention of government, will always supply us with the wine which we
have occasion for; and we may trust, with equal security, that it will
always supply us with all the gold and silver which we can afford to
purchase or to employ, either in circulating our commodities or in other

The quantity of every commodity which human industry can either purchase
or produce, naturally regulates itself in every country according 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 effectual demand, than
gold and silver; because, on account of the small bulk and great value
of those metals, no commodities can be more easily transported from one
place to another; from 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 additional 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 thousand 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 exceeds
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 importations from
Peru and Brazil exceed the effectual demand of those countries, and
sink the price of those metals there below that in the neighbouring
countries. If, on the contrary, in any particular country, their
quantity fell short of the effectual demand, so as to raise their price
above that of the neighbouring countries, the government would have no
occasion to take any pains to import them. If it were even to take pains
to prevent their importation, it would not be able to effectuate it.
Those metals, when the Spartans had got wherewithal to purchase them,
broke through all the barriers which the laws of Lycurgus opposed to
their entrance into Lacedaemon. All the sanguinary laws of the customs
are not able to prevent the importation of the teas of the Dutch and
Gottenburg East India companies; because somewhat cheaper than those of
the British company. A pound of tea, however, is about a hundred times
the bulk of one of the highest prices, sixteen shillings, that is
commonly paid for it in silver, and more than two thousand times the
bulk of the same price in gold, and, consequently, just so many times
more difficult to smuggle.

It is partly owing to the easy transportation of gold and silver, from
the places where they abound to those where they are wanted, that the
price of those metals does not fluctuate continually, like that of the
greater part of other commodities, which are hindered by their bulk from
shifting their situation, when the market 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 example,
it is supposed, without much foundation, perhaps, that during the course
of the present and preceding century, they have been constantly,
but gradually, sinking in their value, on account of the continual
importations from the Spanish West Indies. But to make any sudden
change in the price of gold and silver, so as to raise or lower at
once, sensibly and remarkably, the money price of all other commodities,
requires such a revolution in commerce as that occasioned by the
discovery of America.

If, not withstanding 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 quantity of
money in any country.

No complaint, however, is more common than that of a scarcity of money.
Money, like wine, must always be scarce 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 sometimes 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 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. They do not always send more
money abroad than usual, but they buy upon credit, both at home and
abroad, an unusual quantity of goods, which they send to some distant
market, in hopes that the returns will come in before the demand for
payment. The demand comes before the returns, and they have nothing at
hand with which they can either purchase money or give solid security
for borrowing. It is not any scarcity of gold and silver, but the
difficulty which such people find in borrowing, and which their creditor
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 every thing is readily
given in exchange, but which is not always with equal readiness to be
got in exchange for every thing. The greater part of goods, besides, are
more perishable than money, and he may frequently sustain a much greater
loss by keeping them. When his goods are upon hand, too, he is more
liable to such demands for money as he may not be able to answer, than
when he has got their price in his coffers. Over and above all this, his
profit arises more directly from selling than from buying; and he is,
upon all these accounts, generally much more anxious to exchange his
goods for money than his money for goods. But though a particular
merchant, with abundance of goods in his warehouse, may sometimes be
ruined by not being able to sell them in time, a nation or country
is not liable to the same 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 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 purchasing money, but money
can serve no other purpose besides purchasing 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 disadvantageous,
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 maintaining 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 coin requisite for circulating them: that the
quantity of plate is regulated by the number and wealth of those private
families who choose to indulge themselves in that sort of magnificence;
increase the number and wealth of such families, and a part of this
increased wealth will most probably be employed in purchasing, wherever
it is to be found, an additional quantity of plate; that to attempt
to increase the wealth of any country, either by introducing or by
detaining in it an unnecessary quantity of gold and silver, is as
absurd as it would be to attempt to increase the good cheer of private
families, by obliging them to keep an unnecessary number of kitchen
utensils. As the expense of 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 furniture of the
kitchen. Increase the use of them, increase the consumable 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, and 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 distant
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
of the country; because in that there can seldom be much redundancy.
The value of goods annually bought and sold in any country 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 opportunity of sending a greater quantity
of it abroad. All this, however, could afford but a poor resource for
maintaining a foreign war, of great expense, and several years duration.

The melting down of 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 £90,000,000, including not
only the £75,000,000 of new debt that was contracted, but the additional
2s. in the pound land-tax, and what was annually borrowed of the sinking
fund. More than two-thirds of this expense were laid out in distant
countries; in Germany, Portugal, America, in the ports of the
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 circulating gold and silver of the country
had not been supposed to exceed £18,000,000. Since the late recoinage of
the gold, however, it is believed to have been a good deal under-rated.
Let us suppose, therefore, according to the most exaggerated computation
which I remember to have either seen or heard of, that, gold and silver
together, it amounted to £30,000,000. 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 between six and seven years. Should this be supposed, it would
afford the most decisive argument, to demonstrate how unnecessary it is
for government to watch over the preservation of money, since, upon this
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, without
any body's knowing any thing of the matter. The channel of circulation,
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 ports 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 granted a bill, by sending abroad rather
commodities than gold and silver. If the commodities of Great Britain
were not in demand in that country, he would endeavour to send them to
some other country in which he could purchase a bill upon that country.
The transportation of commodities, when properly suited to the market,
is always attended with a considerable 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 Nation.

Besides the three sorts of gold and silver above mentioned, there is
in all great commercial countries a good deal of bullion alternately
imported and exported, for the purposes of foreign trade. This bullion,
as it circulates among different commercial countries, in the same
manner as the national coin circulates in every country, may be
considered as the money of the great mercantile republic. The national
coin receives its movement and direction from the commodities circulated
within the precincts of each particular country; the money in the
mercantile republic, from those circulated between different countries.
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 the war, and be
more employed in purchasing there, and in the neighbouring countries,
the pay and provisions of the different armies. But whatever 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 commodities, 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 defrayed from a great
annual produce. The expense of 1761, for example, amounted to more than
£19,000,000. No accumulation could have supported so great an annual
profusion. There is no annual produce, 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 £6,000,000 sterling, which, in some years, would
scarce have paid four months expense of the late war.

The commodities most proper for being transported to distant countries,
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 employed 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 considerable
quantity of gold and silver, or even having any such quantity to export.
A considerable part of the annual surplus of its manufactures 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 manufacturers
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. In the midst
of the most destructive foreign war, therefore, the greater part of
manufactures may frequently flourish greatly; and, on the contrary, 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 into 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 necessary 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 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
transportation 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 seldom 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 accumulation. In that
simple state, the expense even of 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 extravagance; though vanity almost
always does. Every Tartar chief, accordingly, has a treasure. The
treasures of Mazepa, chief of the Cossacks 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 treasures
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 accumulation, 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

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 opening a
more extensive market for whatever part of the produce of their labour
may exceed the home consumption, it encourages them to improve its
productive power, 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 continually 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 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 bad been its usual price, not only those who purchased it before
can purchase three times their former quantity, but it is brought down
to the level of a much greater number of purchasers, perhaps to more
than ten, perhaps to more than twenty times the former 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 renders 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 inexhaustible 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 productive 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 still
more extensive range to foreign commerce, than even that of America,
notwithstanding the greater distance. There were but two nations
in America, in any respect, superior to the savages, and these were
destroyed almost as soon as discovered. The rest were mere savages. But
the empires of China, Indostan, 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, have all followed their example; so
that no great nation of 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 any thing 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 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.

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

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 great object
of political economy to diminish as much as possible the importation of
foreign goods for home consumption, and to increase 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 encouragement to exportation.

The restraints upon importation were of two kinds.

First, restraints upon the importation of such foreign goods for home
consumption as could be produced at home, from whatever country they
were imported.

Secondly, 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

Drawbacks were given upon two different occasions. When the home
manufactures were subject to any duty or excise, either the whole or a
part of it was frequently drawn back upon their exportation; 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
manufactures, or of such sorts of industry of other kinds as were
supposed to deserve particular favour.

By advantageous treaties of commerce, particular privileges were
procured in some foreign state for the goods and merchants of the
country, beyond what were granted to those of other countries.

By the establishment of colonies in distant countries, not only
particular privileges, but a monopoly was frequently procured for the
goods and merchants of the country which established them.

The two sorts of restraints upon importation 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 farther 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 evidently tend either to
increase or diminish the real wealth and revenue of the country.

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