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 manufa
turers 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


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


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.