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.
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