1776
                         AN INQUIRY INTO THE NATURE AND
                        CAUSES OF THE WEALTH OF NATIONS
                                 by Adam Smith

                          BOOK FOUR
               OF SYSTEMS OF POLITICAL ECONOMY
                         INTRODUCTION

    POLITICAL economy, considered as a branch of the science of a
statesman or legislator, proposes two distinct objects: first, to
provide a plentiful revenue or subsistence for the people, or more
properly to enable them to provide such a revenue or subsistence for
themselves; and secondly, to supply the state or commonwealth with a
revenue sufficient for the public services. It proposes to enrich both
the people and the sovereign.
    The different progress of opulence in different ages and nations
has given occasion to two different systems of political economy
with regard to enriching the people. The one may be called the
system of commerce, the other that of agriculture. I shall endeavour
to explain both as fully and distinctly as I can, and shall begin with
the system of commerce. It is the modern system, and is best
understood in our own country and in our own times.
                             CHAPTER I
      Of the Principle of the Commercial, or Mercantile System

    THAT wealth consists in money, or and silver, is a popular
notion which naturally arises from the double function of money, as
the instrument of commerce and as the measure of value. In consequence
of its being the instrument of commerce, when we have money we can
more readily obtain whatever else we have occasion for than by means
of any other commodity. The great affair, we always find, is to get
money. When that is obtained, there is no difficulty in making any
subsequent purchase. In consequence of its being the measure of value,
we estimate that of all other commodities by the quantity of money
which they will exchange for. We say of a rich man that he is worth
a great deal, and of a poor man that he is worth very little money.
A frugal man, or a man eager to be rich, is said to love money; and
a careless, a generous, or a profuse man, is said to be indifferent
about it. To grow rich is to get money; and wealth and money, in
short, are, in common language, considered as in every respect
synonymous.
    A rich country, in the same manner as a rich man, is supposed to
be a country abounding in money; and to heap up gold and saver 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 an 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 Genghis 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 movable
goods. All other movable 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 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 most solid and substantial part of the movable 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 these 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 England.
    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 that 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 action."
    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 a hundred and five ounces of silver in England to purchase a
bill for a hundred ounces of silver in Holland: that a hundred and
five ounces of silver in England, therefore, would be worth only a
hundred ounces of silver in Holland, and would purchase only a
proportionable quantity of Dutch goods; but that a hundred ounces of
silver in Holland, on the contrary, would be worth a hundred and
five 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 themselves 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. This 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 uses.
    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 Lacedemon. All the
sanguinary laws of the customs are not able to prevent the importation
of the teas of the Dutch and Gottenburgh 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, notwithstanding 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. Overtrading 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, overtrading 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 creditors 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 find 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 everything
is readily given in exchange, but which is not always with equal
readiness to be got in exchange for everything. 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
perish, able 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 of 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 for 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, 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, 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 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 ninety millions, including not only the seventy-five millions of
new debt that was contracted, but the additional two shillings 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 eighteen millions.
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 thirty millions. 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 anybody's knowing anything 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 overtrading in all the
parts of Great Britain; and this again occasioned the usual
complaint of the scarcity of money, which always follows
overtrading. 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 had
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 particular
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 of 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 nineteen millions. 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 six millions sterling, which, in some years,
would scarce have paid four month's 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 the 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 to a foreign country as
might purchase the pay and provisions of an army would be too great.
Few countries 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
Cossacs in the Ukraine, the famous ally of Charles the XII, are said
to have been very great. The French kings of the Merovingian race
all had treasures. When they divided their kingdom among their
different children, they divided their treasure 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 soldiers.
    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 powers,
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 had 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 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 civilised 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 in 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 anything
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 commerce.
    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 encouragements 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 countries.
    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
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 other countries.
    By established 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 further 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.
                            CHAPTER II
     Of Restraints upon the Importation from Foreign Countries
             of such Goods as can be produced at Home

    BY restraining, either by high duties or by absolute prohibitions,
the importation of such goods from foreign countries as can be
produced at home, the monopoly of the home market is more or less
secured to the domestic industry employed in producing them. Thus
the prohibition of importing either live cattle or salt provisions
from foreign countries secures to the graziers of Great Britain the
monopoly of the home market for butcher's meat. The high duties upon
the importation of corn, which in times of moderate plenty amount to a
prohibition, give a like advantage to the growers of that commodity.
The prohibition of the importation of foreign woollens is equally
favourable to the woollen manufacturers. The silk manufacture,
though altogether employed upon foreign materials, has lately obtained
the same advantage. The linen manufacture has not yet obtained it, but
is making great strides towards it. Many other sorts of
manufacturers have, in the same manner, obtained in Great Britain,
either altogether or very nearly, a monopoly against their countrymen.
The variety of goods of which the importation into Great Britain is
prohibited, either absolutely, or under certain circumstances, greatly
exceeds what can easily be suspected by those who are not well
acquainted with the laws of the customs.
    That this monopoly of the home market frequently gives great
encouragement to that particular species of industry which enjoys
it, and frequently turns towards that employment a greater share of
both the labour and stock of the society than would otherwise have
gone to it, cannot be doubted. But whether it tends either to increase
the general industry of the society, or to give it the most
advantageous direction, is not, perhaps, altogether so evident.
    The general industry of the society never can exceed what the
capital of the society can employ. As the number of workmen that can
be kept in employment by any particular person must bear a certain
proportion to his capital, so the number of those that can be
continually employed by all the members of a great society must bear a
certain proportion to the whole capital of that society, and never can
exceed that proportion. No regulation of commerce can increase the
quantity of industry in any society beyond what its capital can
maintain. It can only divert a part of it into a direction into
which it might not otherwise have gone; and it is by no means
certain that this artificial direction is likely to be more
advantageous to the society than that into which it would have gone of
its own accord.
    Every individual is continually exerting himself to find out the
most advantageous employment for whatever capital he can command. It
is his own advantage, indeed, and not that of the society, which he
has in view. But the study of his own advantage naturally, or rather
necessarily, leads him to prefer that employment which is most
advantageous to the society.
    First, every individual endeavours to employ his capital as near
home as he can, and consequently as much as he can in the support of
domestic industry; provided always that he can thereby obtain the
ordinary, or not a great deal less than the ordinary profits of stock.
    Thus, upon equal or nearly equal profits, every wholesale merchant
naturally prefers the home trade to the foreign trade of
consumption, and the foreign trade of consumption to the carrying
trade. In the home trade his capital is never so long out of his sight
as it frequently is in the foreign trade of consumption. He can know
better the character and situation of the persons whom he trusts,
and if he should happen to be deceived, he knows better the laws of
the country from which he must seek redress. In the carrying trade,
the capital of the merchant is, as it were, divided between two
foreign countries, and no part of it is ever necessarily brought home,
or placed under his own immediate view and command. The capital
which an Amsterdam merchant employs in carrying corn from Konigsberg
to Lisbon, and fruit and wine from Lisbon to Konigsberg, must
generally be the one half of it at Konigsberg and the other half at
Lisbon. No part of it need ever come to Amsterdam. The natural
residence of such a merchant should either be at Konigsberg or Lisbon,
and it can only be some very particular circumstances which can make
him prefer the residence of Amsterdam. The uneasiness, however,
which he feels at being separated so far from his capital generally
determines him to bring part both of the Konigsberg goods which he
destines for the market of Lisbon, and of the Lisbon goods which he
destines for that of Konigsberg, to Amsterdam: and though this
necessarily subjects him to a double charge of loading and
unloading, as well as to the payment of some duties and customs, yet
for the sake of having some part of his capital always under his own
view and command, he willingly submits to this extraordinary charge;
and it is in this manner that every country which has any considerable
share of the carrying trade becomes always the emporium, or general
market, for the goods of all the different countries whose trade it
carries on. The merchant, in order to save a second loading and
unloading, endeavours always to sell in the home market as much of the
goods of all those different countries as he can, and thus, so far
as he can, to convert his carrying trade into a foreign trade of
consumption. A merchant, in the same manner, who is engaged in the
foreign trade of consumption, when he collects goods for foreign
markets, will always be glad, upon equal or nearly equal profits, to
sell as great a part of them at home as he can. He saves himself the
risk and trouble of exportation, when, so far as he can, he thus
converts his foreign trade of consumption into a home trade. Home is
in this manner the centre, if I may say so, round which the capitals
of the inhabitants of every country are continually circulating, and
towards which they are always tending, though by particular causes
they may sometimes be driven off and repelled from it towards more
distant employments. But a capital employed in the home trade, it
has already been shown, necessarily puts into motion a greater
quantity of domestic industry, and gives revenue and employment to a
greater number of the inhabitants of the country, than an equal
capital employed in the foreign trade of consumption: and one employed
in the foreign trade of consumption has the same advantage over an
equal capital employed in the carrying trade. Upon equal, or only
nearly equal profits, therefore, every individual naturally inclines
to employ his capital in the manner in which it is likely to afford
the greatest support to domestic industry, and to give revenue and
employment to the greatest number of people of his own country.
    Secondly, every individual who employs his capital in the
support of domestic industry, necessarily endeavours so to direct that
industry that its produce may be of the greatest possible value.
    The produce of industry is what it adds to the subject or
materials upon which it is employed. In proportion as the value of
this produce is great or small, so will likewise be the profits of the
employer. But it is only for the sake of profit that any man employs a
capital in the support of industry; and he will always, therefore,
endeavour to employ it in the support of that industry of which the
produce is likely to be of the greatest value, or to exchange for
the greatest quantity either of money or of other goods.
    But the annual revenue of every society is always precisely
equal to the exchangeable value of the whole annual produce of its
industry, or rather is precisely the same thing with that exchangeable
value. As every individual, therefore, endeavours as much as he can
both to employ his capital in the support of domestic industry, and so
to direct that industry that its produce may be of the greatest value;
every individual necessarily labours to render the annual revenue of
the society as great as he can. He generally, indeed, neither
intends to promote the public interest, nor knows how much he is
promoting it. By preferring the support of domestic to that of foreign
industry, he intends only his own security; and by directing that
industry in such a manner as its produce may be of the greatest value,
he intends only his own gain, and he is in this, as in many other
cases, led by an invisible hand to promote an end which was no part of
his intention. Nor is it always the worse for the society that it
was no part of it. By pursuing his own interest he frequently promotes
that of the society more effectually than when he really intends to
promote it. I have never known much good done by those who affected to
trade for the public good. It is an affectation, indeed, not very
common among merchants, and very few words need be employed in
dissuading them from it.
    What is the species of domestic industry which his capital can
employ, and of which the produce is likely to be of the greatest
value, every individual, it is evident, can, in his local situation,
judge much better than any statesman or lawgiver can do for him. The
statesman who should attempt to direct private people in what manner
they ought to employ their capitals would not only load himself with a
most unnecessary attention, but assume an authority which could safely
be trusted, not only to no single person, but to no council or
senate whatever, and which would nowhere be so dangerous as in the
hands of a man who had folly and presumption enough to fancy himself
fit to exercise it.
    To give the monopoly of the home market to the produce of domestic
industry, in any particular art or manufacture, is in some measure
to direct private people in what manner they ought to employ their
capitals, and must, in almost all cases, be either a useless or a
hurtful regulation. If the produce of domestic can be brought there as
cheap as that of foreign industry, the regulation is evidently
useless. If it cannot, it must generally be hurtful. It is the maxim
of every prudent master of a family never to attempt to make at home
what it will cost him more to make than to buy. The tailor does not
attempt to make his own shoes, but buys them of the shoemaker. The
shoemaker does not attempt to make his own clothes, but employs a
tailor. The farmer attempts to make neither the one nor the other, but
employs those different artificers. All of them find it for their
interest to employ their whole industry in a way in which they have
some advantage over their neighbours, and to purchase with a part of
its produce, or what is the same thing, with the price of a part of
it, whatever else they have occasion for.
    What is prudence in the conduct of every private family can scarce
be folly in that of a great kingdom. If a foreign country can supply
us with a commodity cheaper than we ourselves can make it, better
buy it of them with some part of the produce of our own industry
employed in a way in which we have some advantage. The general
industry of the country, being always in proportion to the capital
which employs it, will not thereby be diminished, no more than that of
the above-mentioned artificers; but only left to find out the way in
which it can be employed with the greatest advantage. It is
certainly not employed to the greatest advantage when it is thus
directed towards an object which it can buy cheaper than it can
make. The value of its annual produce is certainly more or less
diminished when it is thus turned away from producing commodities
evidently of more value than the commodity which it is directed to
produce. According to the supposition, that commodity could be
purchased from foreign countries cheaper than it can be made at
home. It could, therefore, have been purchased with a part only of the
commodities, or, what is the same thing, with a part only of the price
of the commodities, which the industry employed by an equal capital
would have produced at home, had it been left to follow its natural
course. The industry of the country, therefore, is thus turned away
from a more to a less advantageous employment, and the exchangeable
value of its annual produce, instead of being increased, according
to the intention of the lawgiver, must necessarily be diminished by
every such regulation.
    By means of such regulations, indeed, a particular manufacture may
sometimes be acquired sooner than it could have been otherwise, and
after a certain time may be made at home as cheap or cheaper than in
the foreign country. But though the industry of the society may be
thus carried with advantage into a particular channel sooner than it
could have been otherwise, it will by no means follow that the sum
total, either of its industry, or of its revenue, can ever be
augmented by any such regulation. The industry of the society can
augment only in proportion as its capital augments, and its capital
can augment only in proportion to what can be gradually saved out of
its revenue. But the immediate effect of every such regulation is to
diminish its revenue, and what diminishes its revenue is certainly not
very likely to augment its capital faster than it would have augmented
of its own accord had both capital and industry been left to find
out their natural employments.
    Though for want of such regulations the society should never
acquire the proposed manufacture, it would not, upon that account,
necessarily be the poorer in any one period of its duration. In
every period of its duration its whole capital and industry might
still have been employed, though upon different objects, in the manner
that was most advantageous at the time. In every period its revenue
might have been the greatest which its capital could afford, and
both capital and revenue might have been augmented with the greatest
possible rapidity.
    The natural advantages which one country has over another in
producing particular commodities are sometimes so great that it is
acknowledged by all the world to be in vain to struggle with them.
By means of glasses, hotbeds, and hot walls, very good grapes can be
raised in Scotland, and very good wine too can be made of them at
about thirty times the expense for which at least equally good can
be brought from foreign countries. Would it be a reasonable law to
prohibit the importation of all foreign wines merely to encourage
the making of claret and burgundy in Scotland? But if there would be a
manifest absurdity in turning towards any employment thirty times more
of the capital and industry of the country than would be necessary
to purchase from foreign countries an equal quantity of the
commodities wanted, there must be an absurdity, though not
altogether so glaring, yet exactly of the same kind, in turning
towards any such employment a thirtieth, or even a three-hundredth
part more of either. Whether the advantages which one country has over
another be natural or acquired is in this respect of no consequence.
As long as the one country has those advantages, and the other wants
them, it will always be more advantageous for the latter rather to buy
of the former than to make. It is an acquired advantage only, which
one artificer has over his neighbour, who exercises another trade; and
yet they both find it more advantageous to buy of one another than
to make what does not belong to their particular trades.
    Merchants and manufacturers are the people who derive the greatest
advantage from this monopoly of the home market. The prohibition of
the importation of foreign cattle, and of salt provisions, together
with the high duties upon foreign corn, which in times of moderate
plenty amount to a prohibition, are not near so advantageous to the
graziers and farmers of Great Britain as other regulations of the same
kind are to its merchants and manufacturers. Manufactures, those of
the finer kind especially, are more easily transported from one
country to another than corn or cattle. It is in the fetching and
carrying manufactures, accordingly, that foreign trade is chiefly
employed. In manufactures, a very small advantage will enable
foreigners to undersell our own workmen, even in the home market. It
will require a very great one to enable them to do so in the rude
produce of the soil. If the free importation of foreign manufactures
were permitted, several of the home manufactures would probably
suffer, and some of them, perhaps, go to ruin altogether, and a
considerable part of the stock and industry at present employed in
them would be forced to find out some other employment. But the freest
importation of the rude produce of the soil could have no such
effect upon the agriculture of the country.
    If the importation of foreign cattle, for example, were made
ever so free, so few could be imported that the grazing trade of Great
Britain could be little affected by it. Live cattle are, perhaps,
the only commodity of which the transportation is more expensive by
sea than by land. By land they carry themselves to market. By sea, not
only the cattle, but their food and their water too, must be carried
at no small expense and inconveniency. The short sea between Ireland
and Great Britain, indeed, renders the importation of Irish cattle
more easy. But though the free importation of them, which was lately
permitted only for a limited time, were rendered perpetual, it could
have no considerable effect upon the interest of the graziers of Great
Britain. Those parts of Great Britain which border upon the Irish
Sea are all grazing countries. Irish cattle could never be imported
for their use, but must be driven through those very extensive
countries, at no small expense and inconveniency, before they could
arrive at their proper market. Fat cattle could not be driven so
far. Lean cattle, therefore, only could be imported, and such
importation could interfere, not with the interest of the feeding or
fattening countries, to which, by reducing the price of lean cattle,
it would rather be advantageous, but with that of the breeding
countries only. The small number of Irish cattle imported since
their importation was permitted, together with the good price at which
lean cattle still continue to sell, seem to demonstrate that even
the breeding countries of Great Britain are never likely to be much
affected by the free importation of Irish cattle. The common people of
Ireland, indeed, are said to have sometimes opposed with violence
the exportation of their cattle. But if the exporters had found any
great advantage in continuing the trade, they could easily, when the
law was on their side, have conquered this mobbish opposition.
    Feeding and fattening countries, besides, must always be highly
improved, whereas breeding countries are generally uncultivated. The
high price of lean cattle, by augmenting the value of uncultivated
land, is like a bounty against improvement. To any country which was
highly improved throughout, it would be more advantageous to import
its lean cattle than to breed them. The province of Holland,
accordingly, is said to follow this maxim at present. The mountains of
Scotland, Wales, and Northumberland, indeed, are countries not capable
of much improvement, and seem destined by nature to be the breeding
countries of Great Britain. The freest importation of foreign cattle
could have no other effect than to hinder those breeding countries
from taking advantage of the increasing population and improvement
of the rest of the kingdom, from raising their price to an
exorbitant height, and from laying a real tax upon all the more
improved and cultivated parts of the country.
    The freest importation of salt provisions, in the same manner,
could have as little effect upon the interest of the graziers of Great
Britain as that of live cattle. Salt provisions are not only a very
bulky commodity, but when compared with fresh meat, they are a
commodity both of worse quality, and as they cost more labour and
expense, of higher price. They could never, therefore, come into
competition with the fresh meat, though they might with the salt
provisions of the country. They might be used for victualling ships
for distant voyages and such like uses, but could never make any
considerable part of the food of the people. The small quantity of
salt provisions imported from Ireland since their importation was
rendered free is an experimental proof that our graziers have
nothing to apprehend from it. It does not appear that the price of
butcher's meat has ever been sensibly affected by it.
    Even the free importation of foreign corn could very little affect
the interest of the farmers of Great Britain. Corn is a much more
bulky commodity than butcher's meat. A pound of wheat at a penny is as
dear as a pound of butcher's meat at fourpence. The small quantity
of foreign corn imported even in times of the greatest scarcity may
satisfy our farmers that they can have nothing to fear from the freest
importation. The average quantity imported, one year with another,
amounts only, according to the very well informed author of the tracts
upon the corn trade, to twenty-three thousand seven hundred and
twenty-eight quarters of all sorts of grain, and does not exceed the
five hundred and seventy-first part of the annual consumption. But
as the bounty upon corn occasions a greater exportation in years of
plenty, so it must of consequence occasion a greater importation in
years of scarcity than in the actual state of tillage would
otherwise take place. By means of it the plenty of one year does not
compensate the scarcity of another, and as the average quantity
exported is necessarily augmented by it, so must likewise, in the
actual state of tillage, the average quantity imported. If there
were no bounty, as less corn would be exported, so it is probable
that, one year with another, less would be imported than at present.
The corn-merchants, the fetchers and carriers of corn between Great
Britain and foreign countries would have much less employment, and
might suffer considerably; but the country gentlemen and farmers could
suffer very little. It is in the corn merchants accordingly, rather
than in the country gentlemen and farmers, that I have observed the
greatest anxiety for the renewal and continuation of the bounty.
    Country gentlemen and farmers are, to their great honour, of all
people, the least subject to the wretched spirit of monopoly. The
undertaker of a great manufactory is sometimes alarmed if another work
of the same kind is established within twenty miles of him. The
Dutch undertaker of the woollen manufacture at Abbeville stipulated
that no work of the same kind should be established within thirty
leagues of that city. Farmers and country gentlemen, on the
contrary, are generally disposed rather to promote than to obstruct
the cultivation and improvement of their neighbours' farms and
estates. They have no secrets such as those of the greater part of
manufacturers, but are generally rather fond of communicating to their
neighbours and of extending as far as possible any new practice
which they have found to be advantageous. Pius Questus, says old Cato,
stabilissimusque, minimeque invidiosus; minimeque male cogitantes
sunt, qui in eo studio occupati sunt. Country gentlemen and farmers,
dispersed in different parts of the country, cannot so easily
combine as merchants and manufacturers, who, being collected into
towns, and accustomed to that exclusive corporation spirit which
prevails in them, naturally endeavour to obtain against all their
countrymen the same exclusive privilege which they generally possess
against the inhabitants of their respective towns. They accordingly
seem to have been the original inventors of those restraints upon
the importation of foreign goods which secure to them the monopoly
of the home market. It was probably in imitation of them, and to put
themselves upon a level with those who, they found, were disposed to
oppress them, that the country gentlemen and farmers of Great
Britain in so far forgot the generosity which is natural to their
station as to demand the exclusive privilege of supplying their
countrymen with corn and butcher's meat. They did not perhaps take
time to consider how much less their interest could be affected by the
freedom of trade than that of the people whose example they followed.
    To prohibit by a perpetual law the importation of foreign corn and
cattle is in reality to enact that the population and industry of
the country shall at no time exceed what the rude produce of its own
soil can maintain.
    There seem, however, to be two cases in which it will generally be
advantageous to lay some burden upon foreign for the encouragement
of domestic industry.
    The first is, when some particular sort of industry is necessary
for the defence of the country. The defence of Great Britain, for
example, depends very much upon the number of its sailors and
shipping. The Act of Navigation, therefore, very properly endeavours
to give the sailors and shipping of Great Britain the monopoly of
the trade of their own country in some cases by absolute
prohibitions and in others by heavy burdens upon the shipping of
foreign countries. The following are the principal dispositions of
this Act.
    First, all ships, of which the owners and three-fourths of the
mariners are not British subjects, are prohibited, upon pain of
forfeiting ship and cargo, from trading to the British settlements and
plantations, or from being employed in the coasting trade of Great
Britain.
    Secondly, a great variety of the most bulky articles of
importation can be brought into Great Britain only, either in such
ships as are above described, or in ships of the country where those
goods are purchased, and of which the owners, masters, and
three-fourths of the mariners are of that particular country; and when
imported even in ships of this latter kind, they are subject to double
aliens' duty. If imported in ships of any other country, the penalty
is forfeiture of ship and goods. When this act was made, the Dutch
were, what they still are, the great carriers of Europe, and by this
regulation they were entirely excluded from being the carriers to
Great Britain, or from importing to us the goods of any other European
country.
    Thirdly, a great variety of the most bulky articles of importation
are prohibited from being imported, even in British ships, from any
country but that in which they are produced, under pains of forfeiting
ship and cargo. This regulation, too, was probably intended against
the Dutch. Holland was then, as now, the great emporium for all
European goods, and by this regulation British ships were hindered
from loading in Holland the goods of any other European country.
    Fourthly, salt fish of all kinds, whale-fins, whale-bone, oil, and
blubber, not caught by and cured on board British vessels, when
imported into Great Britain, are subjected to double aliens' duty. The
Dutch, as they are they the principal, were then the only fishers in
Europe that attempted to supply foreign nations with fish. By this
regulation, a very heavy burden was laid upon their supplying Great
Britain.
    When the Act of Navigation was made, though England and Holland
were not actually at war, the most violent animosity subsisted between
the two nations. It had begun during the government of the Long
Parliament, which first framed this act, and it broke out soon after
in the Dutch wars during that of the Protector and of Charles the
Second. It is not impossible, therefore, that some of the
regulations of this famous act may have proceeded from national
animosity. They are as wise, however, as if they had all been dictated
by the most deliberate wisdom. National animosity at that particular
time aimed at the very same object which the most deliberate wisdom
would have recommended, the diminution of the naval power of
Holland, the only naval power which could endanger the security of
England.
    The Act of Navigation is not favourable to foreign commerce, or to
the growth of that opulence which can arise from it. The interest of a
nation in its commercial relations to foreign nations is, like that of
a merchant with regard to the different people with whom he deals,
to buy as cheap and to sell as dear as possible. But it will be most
likely to buy cheap, when by the most perfect freedom of trade it
encourages all nations to bring to it the goods which it has
occasion to purchase; and, for the same reason, it will be most likely
to sell dear, when its markets are thus filled with the greatest
number of buyers. The Act of Navigation, it is true, lays no burden
upon foreign ships that come to export the produce of British
industry. Even the ancient aliens' duty, which used to be paid upon
all goods exported as well as imported, has, by several subsequent
acts, been taken off from the greater part of the articles of
exportation. But if foreigners, either by prohibitions or high duties,
are hindered from coming to sell, they cannot always afford to come to
buy; because coming without a cargo, they must lose the freight from
their own country to Great Britain. By diminishing the number of
sellers, therefore, we necessarily diminish that of buyers, and are
thus likely not only to buy foreign goods dearer, but to sell our
own cheaper, than if there was a more perfect freedom of trade. As
defence, however it is of much more importance than opulence, the
Act of Navigation is, perhaps, the wisest of all the commercial
regulations of England.
    The second case, in which it will generally be advantageous to lay
some burden upon foreign for the encouragement of domestic industry
is, when some tax is imposed at home upon the produce of the latter.
In this case, it seems reasonable that an equal tax should be
imposed upon the like produce of the former. This would not give the
monopoly of the home market to domestic industry, nor turn towards a
particular employment a greater share of the stock and labour of the
country than what would naturally go to it. It would only hinder any
part of what would naturally go to it from being turned away by the
tax into a less natural direction, and would leave the competition
between foreign and domestic industry, after the tax, as nearly as
possible upon the same footing as before it. In Great Britain, when
any such tax is laid upon the produce of domestic industry, it is
usual at the same time, in order to stop the clamorous complaints of
our merchants and manufacturers that they will be undersold at home,
to lay a much heavier duty upon the importation of all foreign goods
of the same kind.
    This second limitation of the freedom of trade according to some
people should, upon some occasions, be extended much farther than to
the precise foreign commodities which could come into competition with
those which had been taxed at home. When the necessaries of life
have been taxed any country, it becomes proper, they pretend, to tax
not only the like necessaries of life imported from other countries,
but all sorts of foreign goods which can come into competition with
anything that is the produce of domestic industry. Subsistence, they
say, becomes necessarily dearer in consequence of such taxes; and
the price of labour must always rise with the price of the
labourers' subsistence. Every commodity, therefore, which is the
produce of domestic industry, though not immediately taxed itself,
becomes dearer in consequence of such taxes, because the labour
which produces it becomes so. Such taxes, therefore, are really
equivalent, they say, to a tax upon every particular commodity
produced at home. In order to put domestic upon the same footing
with foreign industry, therefore, it becomes necessary, they think, to
lay some duty upon every foreign commodity equal to this enhancement
of the price of the home commodities with which it can come into
competition.
    Whether taxes upon the necessaries of life, such as those in Great
Britain upon soap, salt, leather, candles, etc., necessarily raise the
price of labour, and consequently that of all other commodities, I
shall consider hereafter when I come to treat of taxes. Supposing,
however, in the meantime, that they have this effect, and they have it
undoubtedly, this general enhancement of the price of all commodities,
in consequence of that of labour, is a case which differs in the two
following respects from that of a particular commodity of which the
price was enhanced by a particular tax immediately imposed upon it.
    First, it might always be known with great exactness how far the
price of such a commodity could be enhanced by such a tax: but how far
the general enhancement of the price of labour might affect that of
every different commodity about which labour was employed could
never be known with any tolerable exactness. It would be impossible,
therefore, to proportion with any tolerable exactness the tax upon
every foreign to this enhancement of the price of every home
commodity.
    Secondly, taxes upon the necessaries of life have nearly the
same effect upon the circumstances of the people as a poor soil and
a bad climate. Provisions are thereby rendered dearer in the same
manner as if it required extraordinary labour and expense to raise
them. As in the natural scarcity arising from soil and climate it
would be absurd to direct the people in what manner they ought to
employ their capitals and industry, so is it likewise in the
artificial scarcity arising from such taxes. To be left to
accommodate, as well as they could, their industry to their situation,
and to find out those employments in which, notwithstanding their
unfavourable circumstances, they might have some advantage either in
the home or in the foreign market, is what in both cases would
evidently be most for their advantage. To lay a new tax upon them,
because they are already overburdened with taxes, and because they
already pay too dear for the necessaries of life, to make them
likewise pay too dear for the greater part of other commodities, is
certainly a most absurd way of making amends.
    Such taxes, when they have grown up to a certain height, are a
curse equal to the barrenness of the earth and the inclemency of the
heavens; and yet it is in the richest and most industrious countries
that they have been most generally imposed. No other countries could
support so great a disorder. As the strongest bodies only can live and
enjoy health under an unwholesome regimen, so the nations only that in
every sort of industry have the greatest natural and acquired
advantages can subsist and prosper under such taxes. Holland is the
country in Europe in which they abound most, and which from peculiar
circumstances continues to prosper, not by means of them, as has
been most absurdly supposed, but in spite of them.
    As there are two cases in which it will generally be
advantageous to lay some burden upon foreign for the encouragement
of domestic industry, so there are two others in which it may
sometimes be a matter of deliberation; in the one, how far it is
proper to continue the free importation of certain foreign goods;
and in the other, how far, or in what manner, it may be proper to
restore that free importation after it has been for some time
interrupted.
    The case in which it may sometimes be a matter of deliberation how
far it is proper to continue the free importation of certain foreign
goods is, when some foreign nation restrains by high duties or
prohibitions the importation of some of our manufactures into their
country. Revenge in this case naturally dictates retaliation, and that
we should impose the like duties and prohibitions upon the importation
of some or all of their manufactures into ours. Nations,
accordingly, seldom fail to retaliate in this manner. The French
have been particularly forward to favour their own manufactures by
restraining the importation of such foreign goods as could come into
competition with them. In this consisted a great part of the policy of
Mr. Colbert, who, notwithstanding his great abilities, seems in this
case to have been imposed upon by the sophistry of merchants and
manufacturers, who are always demanding a monopoly against their
countrymen. It is at present the opinion of the most intelligent men
in France that his operations of this kind have not been beneficial to
his country. That minister, by the tariff of 1667, imposed very high
duties upon a great number of foreign manufactures. Upon his
refusing to moderate them in favour of the Dutch, they in 1671
prohibited the importation of the wines, brandies, and manufactures of
France. The war of 1672 seems to have been in part occasioned by
this commercial dispute. The peace of Nimeguen put an end to it in
1678 by moderating some of those duties in favour of the Dutch, who in
consequence took off their prohibition. It was about the same time
that the French and English began mutually to oppress each other's
industry by the like duties and prohibitions, of which the French,
however, seem to have set the first example. The spirit of hostility
which has subsisted between the two nations ever since has hitherto
hindered them from being moderated on either side. In 1697 the English
prohibited the importation of bonelace, the manufacture of Flanders.
The government of that country, at that time under the dominion of
Spain, prohibited in return the importation of English woollens. In
1700, the prohibition of importing bonelace into England was taken off
upon condition that the importance of English woollens into Flanders
should be put on the same footing as before.
    There may be good policy in retaliations of this kind, when
there is a probability that they will procure the repeal of the high
duties or prohibitions complained of. The recovery of a great
foreign market will generally more than compensate the transitory
inconveniency of paying dearer during a short time for some sorts of
goods. To judge whether such retaliations are likely to produce such
an effect does not, perhaps, belong so much to the science of a
legislator, whose deliberations ought to be governed by general
principles which are always the same, as to the skill of that
insidious and crafty animal, vulgarly called a statesman or
politician, whose councils are directed by the momentary
fluctuations of affairs. When there is no probability that any such
repeal can be procured, it seems a bad method of compensating the
injury done to certain classes of our people to do another injury
ourselves, not only to those classes, but to almost all the other
classes of them. When our neighbours prohibit some manufacture of
ours, we generally prohibit, not only the same, for that alone would
seldom affect them considerably, but some other manufacture of theirs.
This may no doubt give encouragement to some particular class of
workmen among ourselves, and by excluding some of their rivals, may
enable them to raise their price in the home market. Those workmen,
however, who suffered by our neighbours' prohibition will not be
benefited by ours. On the contrary, they and almost all the other
classes of our citizens will thereby be obliged to pay dearer than
before for certain goods. Every such law, therefore, imposes a real
tax upon the whole country, not in favour of that particular class
of workmen who were injured by our neighbours' prohibition, but of
some other class.
    The case in which it may sometimes be a matter of deliberation,
how far, or in what manner, it is proper to restore the free
importation of foreign goods, after it has been for some time
interrupted, is, when particular manufactures, by means of high duties
or prohibitions upon all foreign goods which can come into competition
with them, have been so far extended as to employ a great multitude of
hands. Humanity may in this case require that the freedom of trade
should be restored only by slow gradations, and with a good deal of
reserve and circumspection. Were those high duties and prohibitions
taken away all at once, cheaper foreign goods of the same kind might
be poured so fast into the home market as to deprive all at once
many thousands of our people of their ordinary employment and means of
subsistence. The disorder which this would occasion might no doubt
be very considerable. It would in all probability, however, be much
less than is commonly imagined, for the two following reasons:-
    First, all those manufactures, of which any part is commonly
exported to other European countries without a bounty, could be very
little affected by the freest importation of foreign goods. Such
manufactures must be sold as cheap abroad as any other foreign goods
of the same quality and kind, and consequently must be sold cheaper at
home. They would still, therefore, keep possession of the home market,
and though a capricious man of fashion might sometimes prefer
foreign wares, merely because they were foreign, to cheaper and better
goods of the same kind that were made at home, this folly could,
from the nature of things, extend to so few that it could make no
sensible impression upon the general employment of the people. But a
great part of all the different branches of our woollen manufacture,
of our tanned leather, and of our hardware, are annually exported to
other European countries without any bounty, and these are the
manufactures which employ the greatest number of hands. The silk,
perhaps, is the manufacture which would suffer the most by this
freedom of trade, and after it the linen, though the latter much
less than the former.
    Secondly, though a great number of people should, by thus
restoring the freedom of trade, be thrown all at once out of their
ordinary employment and common method of subsistence, it would by no
means follow that they would thereby be deprived either of
employment or subsistence. By the reduction of the army and navy at
the end of the late war, more than a hundred thousand soldiers and
seamen, a number equal to what is employed in the greatest
manufactures, were all at once thrown out of their ordinary
employment; but, though they no doubt suffered some inconveniency,
they were not thereby deprived of all employment and subsistence.
The greater part of the seamen, it is probable, gradually betook
themselves to the merchant-service as they could find occasion, and in
the meantime both they and the soldiers were absorbed in the great
mass of the people, and employed in a great variety of occupations.
Not only no great convulsion, but no sensible disorder arose from so
great a change in the situation of more than a hundred thousand men,
all accustomed to the use of arms, and many of them to rapine and
plunder. The number of vagrants was scarce anywhere sensibly increased
by it, even the wages of labour were not reduced by it in any
occupation, so far as I have been able to learn, except in that of
seamen in the merchant service. But if we compare together the
habits of a soldier and of any sort of manufacturer, we shall find
that those of the latter do not tend so much to disqualify him from
being employed in a new trade, as those of the former from being
employed in any. The manufacturer has always been accustomed to look
for his subsistence from his labour only: the soldier to expect it
from his pay. Application and industry have been familiar to the
one; idleness and dissipation to the other. But it is surely much
easier to change the direction of industry from one sort of labour
to another than to turn idleness and dissipation to any. To the
greater part of manufactures besides, it has already been observed,
there are other collateral manufactures of so similar a nature that
a workman can easily transfer his industry from one of them to
another. The greater part of such workmen too are occasionally
employed in country labour. The stock which employed them in a
particular manufacture before will still remain in the country to
employ an equal number of people in some other way. The capital of the
country remaining the same, the demand for labour will likewise be the
same, or very nearly the same, though it may be exerted in different
places and for different occupations. Soldiers and seamen, indeed,
when discharged from the king's service, are at liberty to exercise
any trade, within any town or place of Great Britain or Ireland. Let
the same natural liberty of exercising what species of industry they
please, be restored to all his Majesty's subjects, in the same
manner as to soldiers and seamen; that is, break down the exclusive
privileges of corporations, and repeal the Statute of
Apprenticeship, both which are real encroachments upon natural
liberty, and add to these the repeal of the Law of Settlements, so
that a poor workman, when thrown out of employment either in one trade
or in one place, may seek for it in another trade or in another
place without the fear either of a prosecution or of a removal, and
neither the public nor the individuals will suffer much more from
the occasional disbanding some particular classes of manufacturers
than from that of soldiers. Our manufacturers have no doubt great
merit with their country, but they cannot have more than those who
defend it with their blood, nor deserve to be treated with more
delicacy.
    To expect, indeed, that the freedom of trade should ever be
entirely restored in Great Britain is as absurd as to expect that an
Oceana or Utopia should ever be established in it. Not only the
prejudices of the public, but what is much more unconquerable, the
private interests of many individuals, irresistibly oppose it. Were
the officers of the army to oppose with the same zeal and unanimity
any reduction in the numbers of forces with which master manufacturers
set themselves against every law that is likely to increase the number
of their rivals in the home market; were the former to animate their
soldiers in the same manner as the latter enflame their workmen to
attack with violence and outrage the proposers of any such regulation,
to attempt to reduce the army would be as dangerous as it has now
become to attempt to diminish in any respect the monopoly which our
manufacturers have obtained against us. This monopoly has so much
increased the number of some particular tribes of them that, like an
overgrown standing army, they have become formidable to the
government, and upon many occasions intimidate the legislature. The
Member of Parliament who supports every proposal for strengthening
this monopoly is sure to acquire not only the reputation of
understanding trade, but great popularity and influence with an
order of men whose numbers and wealth render them of great importance.
If he opposes them, on the contrary, and still more if he has
authority enough to be able to thwart them, neither the most
acknowledged probity, nor the highest rank, nor the greatest public
services can protect him from the most infamous abuse and
detraction, from personal insults, nor sometimes from real danger,
arising from the insolent outrage of furious and disappointed
monopolists.
    The undertaker of a great manufacture, who, by the home markets
being suddenly laid open to the competition of foreigners, should be
obliged to abandon his trade, would no doubt suffer very considerably.
That part of his capital which had usually been employed in purchasing
materials and in paying his workmen might, without much difficulty,
perhaps, find another employment. But that part of it which was
fixed in workhouses, and in the instruments of trade, could scarce
be disposed of without considerable loss. The equitable regard,
therefore, to his interest requires that changes of this kind should
never be introduced suddenly, but slowly, gradually, and after a
very long warning. The legislature, were it possible that its
deliberations could be always directed, not by the clamorous
importunity of partial interests, but by an extensive view of the
general good, ought upon this very account, perhaps, to be
particularly careful neither to establish any new monopolies of this
kind, nor to extend further those which are already established. Every
such regulation introduces some degree of real disorder into the
constitution of the state, which it will be difficult afterwards to
cure without occasioning another disorder.
    How far it may be proper to impose taxes upon the importation of
foreign goods, in order not to prevent their importation but to
raise a revenue for government, I shall consider hereafter when I come
to treat of taxes. Taxes imposed with a view to prevent, or even to
diminish importation, are evidently as destructive of the revenue of
the customs as of the freedom of trade.
                          CHAPTER III
    Of the extraordinary Restraints upon the Importation of Goods
   of almost all kinds from those Countries with which the Balance
                is supposed to be disadvantageous

                             PART 1
         Of the Unreasonableness of those Restraints
      even upon the Principles of the Commercial System

    TO lay extraordinary restraints upon the those particular
countries with which the importation of goods of almost all kinds from
balance of trade is supposed to be disadvantageous, is the second
expedient by which the commercial system proposes to increase the
quantity of gold and silver. Thus in Great Britain, Silesia lawns
may be imported for home consumption upon paying certain duties. But
French cambrics and lawns are prohibited to be imported, except into
the port of London, there to be warehoused for exportation. Higher
duties are imposed upon the wines of France than upon those of
Portugal, or indeed of any other country. By what is called the impost
1692, a duty of five-and-twenty per cent of the rate or value was laid
upon all French goods; while the goods of other nations were, the
greater part of them, subjected to much lighter duties, seldom
exceeding five per cent. The wine, brandy, salt and vinegar of
France were indeed excepted; these commodities being subjected to
other heavy duties, either by other laws, or by particular clauses
of the same law. In 1696, a second duty of twenty-five per cent, the
first not having been thought a sufficient discouragement, was imposed
upon all French goods, except brandy; together with a new duty of
five-and-twenty pounds upon the ton of French wine, and another of
fifteen pounds upon the ton of French vinegar. French goods have never
been omitted in any of those general subsidies, or duties of five
per cent, which have been imposed upon all, or the greater part of the
goods enumerated in the book of rates. If we count the one-third and
two-third subsidies as making a complete subsidy between them, there
have been five of these general subsidies; so that before the
commencement of the present war seventy-five per cent may be
considered as the lowest duty to which the greater part of the goods
of the growth, produce, or manufacture of France were liable. But upon
the greater part of goods, those duties are equivalent to a
prohibition. The French in their turn have, I believe, treated our
goods and manufactures just as hardly; though I am not so well
acquainted with the particular hardships which they have imposed
upon them. Those mutual restraints have put an end to almost all
fair commerce between the two nations, and smugglers are now the
principal importers, either of British goods into France, or of French
goods into Great Britain. The principles which I have been examining
in the foregoing chapter took their origin from private interest and
the spirit of monopoly; those which I am going to examine in this,
from national prejudice and animosity. They are, accordingly, as might
well be expected, still more unreasonable. They are so, even upon
the principles of the commercial system.
    First, though it were certain that in the case of a free trade
between France and England, for example, the balance would be in
favour of France, it would by no means follow that such a trade
would be disadvantageous to England, or that the general balance of
its whole trade would thereby be turned more against it. If the
wines of France are better and cheaper than those of Portugal, or
its linens than those of Germany, it would be more advantageous for
Great Britain to purchase both the wine and the foreign linen which it
had occasion for of France than of Portugal and Germany. Though the
value of the annual importations from France would thereby be
greatly augmented, the value of the whole annual importations would be
diminished, in proportion as the French goods of the same quality were
cheaper than those of the other two countries. This would be the case,
even upon the supposition that the whole French goods imported were to
be consumed in Great Britain.
    But, secondly, a great part of them might be re-exported to
other countries, where, being sold with profit, they might bring
back a return equal in value, perhaps, to the prime cost of the
whole French goods imported. What has frequently been said of the East
India trade might possibly be true of the French; that though the
greater part of East India goods were bought with gold and silver, the
re-exportation of a part of them to other countries brought back
more gold and silver to that which carried on the trade than the prime
cost of the whole amounted to. One of the most important branches of
the Dutch trade, at present, consists in the carriage of French
goods to other European countries. Some part even of the French wine
drank in Great Britain is clandestinely imported from Holland and
Zeeland. If there was either a free trade between France and
England, or if French goods could be imported upon paying only the
same duties as those of other European nations, to be drawn back
upon exportation, England might have some share of a trade which is
found so advantageous to Holland.
    Thirdly, and lastly, there is no certain criterion by which we can
determine on which side what is called the balance between any two
countries lies, or which of them exports to the greatest value.
National prejudice and animosity, prompted always by the private
interest of particular traders, are the principles which generally
direct our judgment upon all questions concerning it. There are two
criterions, however, which have frequently been appealed to upon
such occasions, the customhouse books and the course of exchange.
The custom-house books, I think, it is now generally acknowledged, are
a very uncertain criterion, on account of the inaccuracy of the
valuation at which the greater part of goods are rated in them. The
course of exchange is, perhaps, almost equally so.
    When the exchange between two places, such as London and Paris, is
at par, it is said to be a sign that the debts due from London to
Paris are compensated by those due from Paris to London. On the
contrary, when a premium is paid at London for a bill upon Paris, it
is said to be a sign that the debts due from London to Paris are not
compensated by those due from Paris to London, but that a balance in
money must be sent out from the latter place; for the risk, trouble,
and expense of exporting which, the premium is both demanded and
given. But the ordinary state of debt and credit between those two
cities must necessarily be regulated, it is said, by the ordinary
course of their dealings with one another. When neither of them
imports from the other to a greater amount than it exports to that
other, the debts and credits of each may compensate one another. But
when one of them imports from the other to a greater value than it
exports to that other, the former necessarily becomes indebted to
the latter in a greater sum than the latter becomes indebted to it;
the debts and credits of each do not compensate one another, and money
must be sent out from that place of which the debts overbalance the
credits. The ordinary course of exchange, therefore, being an
indication of the ordinary state of debt and credit between two
places, must likewise be an indication of the ordinary course of their
exports and imports, as these necessarily regulate that state.
    But though the ordinary course of exchange should be allowed to be
a sufficient indication of the ordinary state of debt and credit
between any two places, it would not from thence follow that the
balance of trade was in favour of that place which had the ordinary
state of debt and credit in its favour. The ordinary state of debt and
credit between any two places is not always entirely regulated by
the ordinary course of their dealings with one another; but is often
influenced by that of the dealings of either with many other places.
If it is usual, for example, for the merchants of England to pay for
the goods which they buy of Hamburg, Danzig, Riga, etc., by bills upon
Holland, the ordinary state of debt and credit between England and
Holland will not be regulated entirely by the ordinary course of the
dealings of those two countries with one another, but will be
influenced by that of the dealings of England with those other places.
England may be obliged to send out every year money to Holland, though
its annual exports to that country may exceed very much the annual
value of its imports from thence; and though what is called the
balance of trade may be very much in favour of England.
    In the way, besides, in which the par of exchange has hitherto
been computed, the ordinary course of exchange can afford no
sufficient indication that the ordinary state of debt and credit is in
favour of that country which seems to have, or which is supposed to
have, the ordinary course of exchange in its favour: or, in other
words, the real exchange may be, and, in fact, often is so very
different from the computed one, that from the course of the latter no
certain conclusion can, upon many occasions, be drawn concerning
that of the former.
    When for a sum of money paid in England, containing, according
to the standard of the English mint, a certain number of ounces of
pure silver, you receive a bill for a sum of money to be paid in
France, containing, according to the standard of the French mint, an
equal number of ounces of pure silver, exchange is said to be at par
between England and France. When you pay more, you are supposed to
give a premium, and exchange is said to be against England and in
favour of France. When you pay less, you are supposed to get a
premium, and exchange is said to be against France and in favour of
England.
    But, first, we cannot always judge of the value of the current
money of different countries by the standard of their respective
mints. In some it is more, in others it is less worn, clipt, and
otherwise degenerated from that standard. But the value of the current
coin of every country, compared with that of any other country, is
in proportion not to the quantity of pure silver which it ought to
contain, but to that which it actually does contain. Before the
reformation of the silver coin in King William's time, exchange
between England and Holland, computed in the usual manner according to
the standard of their respective mints, was five-and-twenty per cent
against England. But the value of the current coin of England, as we
learn from Mr. Lowndes, was at that time rather more than
five-and-twenty per cent below its standard value. The real
exchange, therefore, may even at that time have been in favour of
England, notwithstanding the computed exchange was so much against it;
a smaller number of ounces of pure silver actually paid in England may
have purchased a bill for a greater number of ounces of pure silver to
be paid in Holland, and the man who was supposed to give may in
reality have got the premium. The French coin was, before the late
reformation of the English gold coin, much less worn than the English,
and was perhaps two or three per cent nearer its standard. If the
computed exchange with France, therefore, was not more than two or
three per cent against England, the real exchange might have been in
its favour. Since the reformation of the gold coin, the exchange has
been constantly in favour of England, and against France.
    Secondly, in some countries, the expense of coinage is defrayed by
the government; in others, it is defrayed by the private people who
carry their bullion to the mint, and the government even derives
some revenue from the coinage. In England, it is defrayed by the
government, and if you carry a pound weight of standard silver to
the mint, you get back sixty-two shillings, containing a pound
weight of the like standard silver. In France, a duty of eight per
cent is deducted for the coinage, which not only defrays the expense
of it, but affords a small revenue to the government. In England, as
the coinage costs nothing; the current coin can never be much more
valuable than the quantity of bullion which it actually contains. In
France, the workmanship, as you pay for it, adds to the value in the
same manner as to that of wrought plate. A sum of French money,
therefore, containing a certain weight of pure silver, is more
valuable than a sum of English money containing an equal weight of
pure silver, and must require more bullion, or other commodities, to
purchase it. Though the current coin of the two countries,
therefore, were equally near the standards of their respective
mints, a sum of English money could not well purchase a sum of
French money containing an equal number of ounces of pure silver,
nor consequently a bill upon France for such a sum. If for such a bill
no more additional money was paid than what was sufficient to
compensate the expense of the French coinage, the real exchange
might be at par between the two countries, their debts and credits
might mutually compensate one another, while the computed exchange was
considerably in favour of France. If less than this was paid, the real
exchange might be in favour of England, while the computed was in
favour of France.
    Thirdly, and lastly, in some places, as at Amsterdam, Hamburg,
Venice, etc., foreign bills of exchange are paid in what they call
bank money; while in others, as at London, Lisbon, Antwerp, Leghorn,
etc., they are paid in the common currency of the country. What is
called bank money is always of more value than the same nominal sum of
common currency. A thousand guilders in the Bank of Amsterdam, for
example, are of more value than a thousand guilders of Amsterdam
currency. The difference between them is called the agio of the
bank, which, at Amsterdam, is generally about five per cent. Supposing
the current money of the two countries equally near to the standard of
their respective mints, and that the one pays foreign bills in this
common currency, while the other pays them in bank money, it is
evident that the computed exchange may be in favour of that which pays
in bank money, though the real exchange should be in favour of that
which pays in current money; for the same reason that the computed
exchange may be in favour of that which pays in better money, or in
money nearer to its own standard, though the real exchange should be
in favour of that which pays in worse. The computed exchange, before
the late reformation of the gold coin, was generally against London
with Amsterdam, Hamburg, Venice, and, I believe, with all other places
which pay in what is called bank money. It will by no means follow,
however, that the real exchange was against it. Since the
reformation of the gold coin, it has been in favour of London even
with those places. The computed exchange has generally been in
favour of London with Lisbon, Antwerp, Leghorn, and, if you except
France, I believe, with most other parts of Europe that pay in
common currency; and it is not improbable that the real exchange was
so too.

  DIGRESSION CONCERNING BANKS OF DEPOSIT, PARTICULARLY CONCERNING
                      THAT OF AMSTERDAM

    The currency of a great state, such as France or England,
generally consists almost entirely of its own coin. Should this
currency, therefore, be at any time worn, clipt, or otherwise degraded
below its standard value, the state by a reformation of its coin can
effectually re-establish its currency. But the currency of a small
state, such as Genoa or Hamburg, can seldom consist altogether in
its own coin, but must be made up, in a great measure, of the coins of
all the neighbouring states with which its inhabitants have a
continual intercourse. Such a state, therefore, by reforming its coin,
will not always be able to reform its currency. If foreign bills of
exchange are paid in this currency, the uncertain value of any sum, of
what is in its own nature so uncertain, must render the exchange
always very much against such a state, its currency being, in all
foreign states, necessarily valued even below what it is worth.
    In order to remedy the inconvenience to which this disadvantageous
exchange must have subjected their merchants, such small states,
when they began to attend to the interest of trade, have frequently
enacted, that foreign bills of exchange of a certain value should be
paid not in common currency, but by an order upon, or by a transfer in
the books of a certain bank, established upon the credit, and under
the protection of the state; this bank being always obliged to pay, in
good and true money, exactly according to the standard of the state.
The banks of Venice, Genoa, Amsterdam, Hamburg, and Nuremberg, seem to
have been all originally established with this view, though some of
them may have afterwards been made subservient to other purposes.
The money of such banks being better than the common currency of the
country, necessarily bore an agio, which was greater or smaller
according as the currency was supposed to be more or less degraded
below the standard of the state. The agio of the Bank of Hamburg,
for example, which is said to be commonly about fourteen per cent is
the supposed difference between the good standard money of the
state, and the clipt, worn, and diminished currency poured into it
from all the neighbouring states.
    Before 1609 the great quantity of clipt and worn foreign coin,
which the extensive trade of Amsterdam brought from all parts of
Europe, reduced the value of its currency about nine per cent below
that of good money fresh from the mint. Such money no sooner
appeared than it was melted down or carried away, as it always is in
such circumstances. The merchants, with plenty of currency, could
not always find a sufficient quantity of good money to pay their bills
of exchange; and the value of those bills, in spite of several
regulations which were made to prevent it, became in a great measure
uncertain.
    In order to remedy these inconveniences, a bank was established in
1609 under the guarantee of the city. This bank received both
foreign coin, and the light and worn coin of the country at its real
intrinsic value in the good standard money of the country, deducting
only so much as was necessary for defraying the expense of coinage,
and the other necessary expense of management. For the value which
remained, after this small deduction was made, it gave a credit in its
books. This credit was called bank money, which, as it represented
money exactly according to the standard of the mint, was always of the
same real value, and intrinsically worth more than current money. It
was at the same time enacted, that all bills drawn upon or
negotiated at Amsterdam of the value of six hundred guilders and
upwards should be paid in bank money, which at once took away all
uncertainty in the value of those bills. Every merchant, in
consequence of this regulation, was obliged to keep an account with
the bank in order to pay his foreign bills of exchange, which
necessarily occasioned a certain demand for bank money.
    Bank money, over and above its intrinsic superiority to
currency, and the additional value which this demand necessarily gives
it, has likewise some other advantages. It is secure from fire,
robbery, and other accidents; the city of Amsterdam is bound for it;
it can be paid away by a simple transfer, without the trouble of
counting, or the risk of transporting it from one place to another. In
consequence of those different advantages, it seems from the beginning
to have borne agio, and it is generally believed that all the money
originally deposited in the bank was allowed to remain there, nobody
caring to demand payment of a debt which he could sell for a premium
in the market. By demanding payment of the bank, the owner of a bank
credit would lose this premium. As a shilling fresh from the mint will
buy no more goods in the market than one of our common worn shillings,
so the good and true money which might be brought from the coffers
of the bank into those of a private person, being mixed and confounded
with the common currency of the country, would be of no more value
than that currency from which it could no longer be readily
distinguished. While it remained in the coffers of the bank, its
superiority was known and ascertained. When it had come into those
of a private person, its superiority could not well be ascertained
without more trouble than perhaps the difference was worth. By being
brought from the coffers of the bank, besides, it lost all the other
advantages of bank money; its security, its easy and safe
transferability, its use in paying foreign bills of exchange. Over and
above all this, it could not be brought from those coffers, as it will
appear by and by, without previously paying for the keeping.
    Those deposits of coin, or those deposits which the bank was bound
to restore in coin, constituted the original capital of the bank, or
the whole value of what was represented by what is called bank
money. At present they are supposed to constitute but a very small
part of it. In order to facilitate the trade in bullion, the bank
has been for these many years in the practice of giving credit in
its books upon deposits of gold and silver bullion. This credit is
generally about five per cent below the mint price of such bullion.
The bank grants at the same time what is called a recipe or receipt,
entitling the person who makes the deposit, or the bearer, to take out
the bullion again at any time within six months, upon
re-transferring to the bank a quantity of bank money equal to that for
which credit had been given in its books when the deposit was made,
and upon paying one-fourth per cent for the keeping, if the deposit
was in silver; and one-half per cent if it was in gold; but at the
same time declaring that, in default of such payment, and upon the
expiration of this term, the deposit should belong to the bank at
the price at which it had been received, or for which credit had
been given in the transfer books. What is thus paid for the keeping of
the deposit may be considered as a sort of warehouse rent; and why
this warehouse rent should be so much dearer for gold than for silver,
several different reasons have been assigned. The fineness of gold, it
has been said, is more difficult to be ascertained than that of
silver. Frauds are more easily practised, and occasion a greater
loss in the more precious metal. Silver, besides, being the standard
metal, the state, it has been said, wishes to encourage more the
making of deposits of silver than those of gold.
    Deposits of bullion are most commonly made when the price is
somewhat lower than ordinary; and they are taken out again when it
happens to rise. In Holland the market price of bullion is generally
above the mint price, for the same reason that it was so in England
before the late reformation of the gold coin. The difference is said
to be commonly from about six to sixteen stivers upon the mark, or
eight ounces of silver of eleven parts fine and one part alloy. The
bank price, or the credit which the bank gives for deposits of such
silver (when made in foreign coin, of which the fineness is well known
and ascertained, such as Mexico do