Of The Principle Of The Commercial Or Mercantile System

That wealth consists in money, or in gold and silver, is a popular

notion which naturally arises from the double function of money, as the

instrument 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.

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.