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Of Treaties Of Commerce








When a nation binds itself by treaty, either to permit the entry of
certain goods from one foreign country which it prohibits from all
others, or to exempt the goods of one country from duties to which it
subjects those of all others, the country, or at least the merchants
and manufacturers of the country, whose commerce is so favoured, must
necessarily derive great advantage from the treaty. Those merchants
and manufacturers enjoy a sort of monopoly in the country which is so
indulgent to them. That country becomes a market, both more extensive
and more advantageous for their goods: more extensive, because the goods
of other nations being either excluded or subjected to heavier duties,
it takes off a greater quantity of theirs; more advantageous, because
the merchants of the favoured country, enjoying a sort of monopoly
there, will often sell their goods for a better price than if exposed to
the free competition of all other nations.

Such treaties, however, though they may be advantageous to the merchants
and manufacturers of the favoured, are necessarily disadvantageous to
those of the favouring country. A monopoly is thus granted against them

to a foreign nation; and they must frequently buy the foreign goods they
have occasion for, dearer than if the free competition of other nations
was admitted. That part of its own produce with which such a nation
purchases foreign goods, must consequently be sold cheaper; because,
when two things are exchanged for one another, the cheapness of the
one is a necessary consequence, or rather is the same thing, with the
dearness of the other. The exchangeable value of its annual produce,
therefore, is likely to be diminished by every such treaty. This
diminution, however, can scarce amount to any positive loss, but only to
a lessening of the gain which it might otherwise make. Though it sells
its goods cheaper than it otherwise might do, it will not probably sell
them for less than they cost; nor, as in the case of bounties, for a
price which will not replace the capital employed in bringing them to
market, together with the ordinary profits of stock. The trade could not
go on long if it did. Even the favouring country, therefore, may still
gain by the trade, though less than if there was a free competition.

Some treaties of commerce, however, have been supposed advantageous,
upon principles very different from these; and a commercial country has
sometimes granted a monopoly of this kind, against itself, to certain
goods of a foreign nation, because it expected, that in the whole
commerce between them, it would annually sell more than it would buy,
and that a balance in gold and silver would be annually returned to it.
It is upon this principle that the treaty of commerce between England
and Portugal, concluded in 1703 by Mr Methuen, has been so much
commended. The following is a literal translation of that treaty, which
consists of three articles only.

ART. I. His sacred royal majesty of Portugal promises, both in his
own name and that of his successors, to admit for ever hereafter, into
Portugal, the woollen cloths, and the rest of the woollen manufactures
of the British, as was accustomed, till they were prohibited by the law;
nevertheless upon this condition:

ART. II. That is to say, that her sacred royal majesty of Great Britain
shall, in her own name, and that of her successors, be obliged, for ever
hereafter, to admit the wines of the growth of Portugal into Britain;
so that at no time, whether there shall be peace or war between the
kingdoms of Britain and France, any thing more shall be demanded for
these wines by the name of custom or duty, or by whatsoever other
title, directly or indirectly, whether they shall be imported into
Great Britain in pipes or hogsheads, or other casks, than what shall be
demanded for the like quantity or measure of French wine, deducting or
abating a third part of the custom or duty. But if, at any time, this
deduction or abatement of customs, which is to be made as aforesaid,
shall in any manner be attempted and prejudiced, it shall be just and
lawful for his sacred royal majesty of Portugal, again to prohibit the
woollen cloths, and the rest of the British woollen manufactures.

ART. III. The most excellent lords the plenipotentiaries promise and
take upon themselves, that their above named masters shall ratify this
treaty; and within the space of two months the ratification shall be
exchanged.

By this treaty, the crown of Portugal becomes bound to admit the English
woollens upon the same footing as before the prohibition; that is, not
to raise the duties which had been paid before that time. But it does
not become bound to admit them upon any better terms than those of any
other nation, of France or Holland, for example. The crown of Great
Britain, on the contrary, becomes bound to admit the wines of Portugal,
upon paying only two-thirds of the duty which is paid for those of
France, the wines most likely to come into competition with them. So
far this treaty, therefore, is evidently advantageous to Portugal, and
disadvantageous to Great Britain.

It has been celebrated, however, as a masterpiece of the commercial

policy of England. Portugal receives annually from the Brazils a greater
quantity of gold than can be employed in its domestic commerce, whether
in the shape of coin or of plate. The surplus is too valuable to be
allowed to lie idle and locked up in coffers; and as it can find no
advantageous market at home, it must, notwithstanding; any prohibition,
be sent abroad, and exchanged for something for which there is a more
advantageous market at home. A large share of it comes annually to
England, in return either for English goods, or for those of other
European nations that receive their returns through England. Mr Barretti
was informed, that the weekly packet-boat from Lisbon brings, one week
with another, more than £50,000 in gold to England. The sum had probably
been exaggerated. It would amount to more than £2,600,000 a year, which
is more than the Brazils are supposed to afford.

Our merchants were, some years ago, out of humour with the crown of
Portugal. Some privileges which had been granted them, not by treaty,
but by the free grace of that crown, at the solicitation, indeed, it is
probable, and in return for much greater favours, defence and protection
from the crown of Great Britain, had been either infringed or revoked.
The people, therefore, usually most interested in celebrating the
Portugal trade, were then rather disposed to represent it as less
advantageous than it had commonly been imagined. The far greater part,
almost the whole, they pretended, of this annual importation of gold,
was not on account of Great Britain, but of other European nations; the
fruits and wines of Portugal annually imported into Great Britain nearly
compensating the value of the British goods sent thither.

Let us suppose, however, that the whole was on account of Great Britain,
and that it amounted to a still greater sum than Mr Barretti seems to
imagine; this trade would not, upon that account, be more advantageous
than any other, in which, for the same value sent out, we received an
equal value of consumable goods in return.

It is but a very small part of this importation which, it can be
supposed, is employed as an annual addition, either to the plate or to
the coin of the kingdom. The rest must all be sent abroad, and exchanged
for consumable goods of some kind or other. But if those consumable
goods were purchased directly with the produce of English industry, it
would be more for the advantage of England, than first to purchase with
that produce the gold of Portugal, and afterwards to purchase with that
gold those consumable goods. A direct foreign trade of consumption is
always more advantageous than a round-about one; and to bring the
same value of foreign goods to the home market requires a much smaller
capital in the one way than in the ether. If a smaller share of its
industry, therefore, had been employed in producing goods fit for the
Portugal market, and a greater in producing those lit for the other
markets, where those consumable goods for which there is a demand in
Great Britain are to be had, it would have been more for the advantage
of England. To procure both the gold which it wants for its own use, and
the consumable goods, would, in this way, employ a much smaller capital
than at present. There would be a spare capital, therefore, to be
employed for other purposes, in exciting an additional quantity of
industry, and in raising a greater annual produce.

Though Britain were entirely excluded from the Portugal trade, it could
find very little difficulty in procuring all the annual supplies of
gold which it wants, either for the purposes of plate, or of coin, or of
foreign trade. Gold, like every other commodity, is always somewhere or
another to be got for its value by those who have that value to give for
it. The annual surplus of gold in Portugal, besides, would still be sent
abroad, and though not carried away by Great Britain, would be carried
away by some other nation, which would be glad to sell it again for its
price, in the same manner as Great Britain does at present. In buying
gold of Portugal, indeed, we buy it at the first hand; whereas, in
buying it of any other nation, except Spain, we should buy it at the
second, and might pay somewhat dearer. This difference, however, would
surely be too insignificant to deserve the public attention.

Almost all our gold, it is said, comes from Portugal. With other
nations, the balance of trade is either against as, or not much in our
favour. But we should remember, that the more gold we import from
one country, the less we must necessarily import from all others. The
effectual demand for gold, like that for every other commodity, is in
every country limited to a certain quantity. If nine-tenths of this
quantity are imported from one country, there remains a tenth only to
be imported from all others. The more gold, besides, that is annually
imported from some particular countries, over and above what is
requisite for plate and for coin, the more must necessarily be exported
to some others: and the more that most insignificant object of modern
policy, the balance of trade, appears to be in our favour with some
particular countries, the more it must necessarily appear to be against
us with many others.

It was upon this silly notion, however, that England could not subsist
without the Portugal trade, that, towards the end of the late war,
France and Spain, without pretending either offence or provocation,
required the king of Portugal to exclude all British ships from his
ports, and, for the security of this exclusion, to receive into them
French or Spanish garrisons. Had the king of Portugal submitted to those
ignominious terms which his brother-in-law the king of Spain proposed
to him, Britain would have been freed from a much greater inconveniency
than the loss of the Portugal trade, the burden of supporting a very
weak ally, so unprovided of every thing for his own defence, that the
whole power of England, had it been directed to that single purpose,
could scarce, perhaps, have defended him for another campaign. The loss
of the Portugal trade would, no doubt, have occasioned a considerable
embarrassment to the merchants at that time engaged in it, who might
not, perhaps, have found out, for a year or two, any other equally
advantageous method of employing their capitals; and in this would
probably have consisted all the inconveniency which England could have
suffered from this notable piece of commercial policy.

The great annual importation of gold and silver is neither for the
purpose of plate nor of coin, but of foreign trade. A round-about
foreign trade of consumption can be carried on more advantageously by
means of these metals than of almost any other goods. As they are the
universal instruments of commerce, they are more readily received in
return for all commodities than any other goods; and, on account of
their small bulk and great value, it costs less to transport them
backward and forward from one place to another than almost any other
sort of merchandize, and they lose less of their value by being so
transported. Of all the commodities, therefore, which are bought in one
foreign country, for no other purpose but to be sold or exchanged again
for some other goods in another, there are none so convenient as gold
and silver. In facilitating all the different round-about foreign trades
of consumption which are carried on in Great Britain, consists the
principal advantage of the Portugal trade; and though it is not a
capital advantage, it is, no doubt, a considerable one.

That any annual addition which, it can reasonably be supposed, is made
either to the plate or to the coin of the kingdom, could require but a
very small annual importation of gold and silver, seems evident enough;
and though we had no direct trade with Portugal, this small quantity
could always, somewhere or another, be very easily got.

Though the goldsmiths trade be very considerable in Great Britain, the
far greater part of the new plate which they annually sell, is made from
other old plate melted down; so that the addition annually made to the
whole plate of the kingdom cannot be very great, and could require but a
very small annual importation.

It is the same case with the coin. Nobody imagines, I believe, that
even the greater part of the annual coinage, amounting, for ten years
together, before the late reformation of the gold coin, to upwards of
£800,000 a-year in gold, was an annual addition to the money before
current in the kingdom. In a country where the expense of the coinage is
defrayed by the government, the value of the coin, even when it contains
its full standard weight of gold and silver, can never be much greater
than that of an equal quantity of those metals uncoined, because it
requires only the trouble of going to the mint, and the delay, perhaps,
of a few weeks, to procure for any quantity of uncoined gold and silver
an equal quantity of those metals in coin; but in every country the
greater part of the current coin is almost always more or less worn, or
otherwise degenerated from its standard. In Great Britain it was, before
the late reformation, a good deal so, the gold being more than two
per cent., and the silver more than eight per cent. below its standard
weight. But if forty-four guineas and a-half, containing their full
standard weight, a pound weight of gold, could purchase very little more
than a pound weight of uncoined gold; forty-four guineas and a-half,
wanting a part of their weight, could not purchase a pound weight,
and something was to be added, in order to make up the deficiency. The
current price of gold bullion at market, therefore, instead of being
the same with the mint price, or £46:14:6, was then about £47:14s., and
sometimes about £48. When the greater part of the coin, however, was in
this degenerate condition, forty four guineas and a-half, fresh from the
mint, would purchase no more goods in the market than any other ordinary
guineas; because, when they came into the coffers of the merchant, being
confounded with other money, they could not afterwards be distinguished
without more trouble than the difference was worth. Like other guineas,
they were worth no more than £46:14:6. If thrown into the melting pot,
however, they produced, without any sensible loss, a pound weight of
standard gold, which could be sold at any time for between £47:14s. and
£48, either in gold or silver, as fit for all the purposes of coin as
that which had been melted down. There was an evident profit, therefore,
in melting down new-coined money; and it was done so instantaneously,
that no precaution of government could prevent it. The operations of
the mint were, upon this account, somewhat like the web of Penelope;
the work that was done in the day was undone in the night. The mint
was employed, not so much in making daily additions to the coin, as in
replacing the very best part of it, which was daily melted down.

Were the private people who carry their gold and silver to the mint
to pay themselves for the coinage, it would add to the value of those
metals, in the same manner as the fashion does to that of plate. Coined
gold and silver would be more valuable than uncoined. The seignorage, if
it was not exorbitant, would add to the bullion the whole value of the
duty; because, the government having everywhere the exclusive privilege
of coining, no coin can come to market cheaper than they think proper to
afford it. If the duty was exorbitant, indeed, that is, if it was
very much above the real value of the labour and expense requisite for
coinage, false coiners, both at home and abroad, might be encouraged, by
the great difference between the value of bullion and that of coin, to
pour in so great a quantity of counterfeit money as might reduce the
value of the government money. In France, however, though the seignorage
is eight per cent., no sensible inconveniency of this kind is found
to arise from it. The dangers to which a false coiner is everywhere
exposed, if he lives in the country of which he counterfeits the coin,
and to which his agents or correspondents are exposed, if he lives in a
foreign country, are by far too great to be incurred for the sake of a
profit of six or seven per cent.

The seignorage in France raises the value of the coin higher than in
proportion to the quantity of pure gold which it contains. Thus, by the
edict of January 1726, the mint price of fine gold of twenty-four carats
was fixed at seven hundred and forty livres nine sous and one denier
one-eleventh the mark of eight Paris ounces. {See Dictionnaire des
Monnoies, tom. ii. article Seigneurage, p. 439, par 81. Abbot de
Bazinghen, Conseiller-Commissaire en la Cour des Monnoies à Paris.} The
gold coin of France, making an allowance for the remedy of the mint,
contains twenty-one carats and three-fourths of fine gold, and two
carats one-fourth of alloy. The mark of standard gold, therefore, is
worth no more than about six hundred and seventy-one livres ten deniers.
But in France this mark of standard gold is coined into thirty louis
d'ors of twenty-four livres each, or into seven hundred and twenty
livres. The coinage, therefore, increases the value of a mark of
standard gold bullion, by the difference between six hundred and
seventy-one livres ten deniers and seven hundred and twenty livres, or
by forty-eight livres nineteen sous and two deniers.

A seignorage will, in many cases, take away altogether, and will in all
cases diminish, the profit of melting down the new coin. This profit
always arises from the difference between the quantity of bullion which
the common currency ought to contain and that which it actually does
contain. If this difference is less than the seignorage, there will be
loss instead of profit. If it is equal to the seignorage, there will
be neither profit nor loss. If it is greater than the seignorage, there
will, indeed, be some profit, but less than if there was no seignorage.
If, before the late reformation of the gold coin, for example, there had
been a seignorage of five per cent. upon the coinage, there would have
been a loss of three per cent. upon the melting down of the gold coin.
If the seignorage had been two per cent., there would have been neither
profit nor loss. If the seignorage had been one per cent., there would
have been a profit but of one per cent. only, instead of two per cent.
Wherever money is received by tale, therefore, and not by weight, a
seignorage is the most effectual preventive of the melting down of the
coin, and, for the same reason, of its exportation. It is the best
and heaviest pieces that are commonly either melted down or exported,
because it is upon such that the largest profits are made.

The law for the encouragement of the coinage, by rendering it duty-free,
was first enacted during the reign of Charles II. for a limited time,
and afterwards continued, by different prolongations, till 1769, when it
was rendered perpetual. The bank of England, in order to replenish their
coffers with money, are frequently obliged to carry bullion to the mint;
and it was more for their interest, they probably imagined, that the
coinage should be at the expense of the government than at their own.
It was probably out of complaisance to this great company, that the
government agreed to render this law perpetual. Should the custom of
weighing gold, however, come to be disused, as it is very likely to be
on account of its inconveniency; should the gold coin of England come
to be received by tale, as it was before the late recoinage this great
company may, perhaps, find that they have, upon this, as upon some other
occasions, mistaken their own interest not a little.

Before the late recoinage, when the gold currency of England was two per
cent. below its standard weight, as there was no seignorage, it was
two per cent. below the value of that quantity of standard gold bullion
which it ought to have contained. When this great company, therefore,
bought gold bullion in order to have it coined, they were obliged to pay
for it two per cent. more than it was worth after the coinage. But
if there had been a seignorage of two per cent. upon the coinage, the
common gold currency, though two per cent. below its standard weight,
would, notwithstanding, have been equal in value to the quantity of
standard gold which it ought to have contained; the value of the fashion
compensating in this case the diminution of the weight. They would,
indeed, have had the seignorage to pay, which being two per cent., their
loss upon the whole transaction would have been two per cent., exactly
the same, but no greater than it actually was.

If the seignorage had been five per cent. and the gold currency only two
per cent. below its standard weight, the bank would, in this case, have
gained three per cent. upon the price of the bullion; but as they would
have had a seignorage of five per cent. to pay upon the coinage, their
loss upon the whole transaction would, in the same manner, have been
exactly two per cent.

If the seignorage had been only one per cent., and the gold currency two
per cent. below its standard weight, the bank would, in this case, have
lost only one per cent. upon the price of the bullion; but as they would
likewise have had a seignorage of one per cent. to pay, their loss upon
the whole transaction would have been exactly two per cent., in the same
manner as in all other cases.

If there was a reasonable seignorage, while at the same time the coin
contained its full standard weight, as it has done very nearly since
the late recoinage, whatever the bank might lose by the seignorage, they
would gain upon the price of the bullion; and whatever they might gain
upon the price of the bullion, they would lose by the seignorage. They
would neither lose nor gain, therefore, upon the whole transaction, and
they would in this, as in all the foregoing cases, be exactly in the
same situation as if there was no seignorage.

When the tax upon a commodity is so moderate as not to encourage
smuggling, the merchant who deals in it, though he advances, does not
properly pay the tax, as he gets it back in the price of the commodity.
The tax is finally paid by the last purchaser or consumer. But money is
a commodity, with regard to which every man is a merchant. Nobody buys
it but in order to sell it again; and with regard to it there is,
in ordinary cases, no last purchaser or consumer. When the tax upon
coinage, therefore, is so moderate as not to encourage false coining,
though every body advances the tax, nobody finally pays it; because
every body gets it back in the advanced value of the coin.

A moderate seignorage, therefore, would not, in any case, augment the
expense of the bank, or of any other private persons who carry their
bullion to the mint in order to be coined; and the want of a moderate
seignorage does not in any case diminish it. Whether there is or is not
a seignorage, if the currency contains its full standard weight, the
coinage costs nothing to anybody; and if it is short of that weight, the
coinage must always cost the difference between the quantity of bullion
which ought to be contained in it, and that which actually is contained
in it.

The government, therefore, when it defrays the expense of coinage, not
only incurs some small expense, but loses some small revenue which it
might get by a proper duty; and neither the bank, nor any other private
persons, are in the smallest degree benefited by this useless piece of
public generosity.

The directors of the bank, however, would probably be unwilling to agree
to the imposition of a seignorage upon the authority of a speculation
which promises them no gain, but only pretends to insure them from any
loss. In the present state of the gold coin, and as long as it continues
to be received by weight, they certainly would gain nothing by such a
change. But if the custom of weighing the gold coin should ever go into
disuse, as it is very likely to do, and if the gold coin should ever
fall into the same state of degradation in which it was before the
late recoinage, the gain, or more properly the savings, of the bank,
inconsequence of the imposition of a seignorage, would probably be very
considerable. The bank of England is the only company which sends any
considerable quantity of bullion to the mint, and the burden of the
annual coinage falls entirely, or almost entirely, upon it. If this
annual coinage had nothing to do but to repair the unavoidable losses
and necessary wear and tear of the coin, it could seldom exceed fifty
thousand, or at most a hundred thousand pounds. But when the coin is
degraded below its standard weight, the annual coinage must, besides
this, fill up the large vacuities which exportation and the melting pot
are continually making in the current coin. It was upon this account,
that during the ten or twelve years immediately preceding the late
reformation of the gold coin, the annual coinage amounted, at an
average, to more than £850,000. But if there had been a seignorage of
four or five per cent. upon the gold coin, it would probably, even in
the state in which things then were, have put an effectual stop to the
business both of exportation and of the melting pot. The bank, instead
of losing every year about two and a half per cent. upon the bullion
which was to be coined into more than eight hundred and fifty thousand
pounds, or incurring an annual loss of more than £21,250 pounds, would
not probably have incurred the tenth part of that loss.

The revenue allotted by parliament for defraying the expense of the
coinage is but fourteen thousand pounds a-year; and the real expense
which it costs the government, or the fees of the officers of the mint,
do not, upon ordinary occasions, I am assured, exceed the half of that
sum. The saving of so very small a sum, or even the gaining of another,
which could not well be much larger, are objects too inconsiderable, it
may be thought, to deserve the serious attention of government. But the
saving of eighteen or twenty thousand pounds a-year, in case of an event
which is not improbable, which has frequently happened before, and which
is very likely to happen again, is surely an object which well deserves
the serious attention, even of so great a company as the bank of
England.

Some of the foregoing reasonings and observations might, perhaps, have
been more properly placed in those chapters of the first book which
treat of the origin and use of money, and of the difference between
the real and the nominal price of commodities. But as the law for the
encouragement of coinage derives its origin from those vulgar prejudices
which have been introduced by the mercantile system, I judged it more
proper to reserve them for this chapter. Nothing could be more agreeable
to the spirit of that system than a sort of bounty upon the production
of money, the very thing which, it supposes, constitutes the wealth of
every nation. It is one of its many admirable expedients for enriching
the country.





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Previous: Of Bounties



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