Every commodity rises to an extravagant height. The Portuguese pay for English cloth, additional to the natural price of it, the expense and risk of carrying it there, for nobody ever saw a Spanish or Portuguese ship in a British harbour. All the goods sent to those countries are carried by ourselves and consigned to the British factors, to be disposed of by them. But besides the carriage and insurance, the British merchant must be paid for the risk of having his money seized in Portugal, in consequence of the prohibition. All risk of forfeiture or penalty must lie upon the goods l. This has a miserable 1 Law, Money and Trade Considered, ch. ii. 2nd ed. pp. 21, 22.
effect upon the domestic industry of those countries, and has put a stop to their manufactures. Nobody ever saw a piece of Spanish cloth in any other country, yet they have the best materials in the world, and with the same art that we have, might monopolise the trade of Europe. It drew the attention of the nations who trade with them in these commodities, when a general, on a certain occasion, presented to his majesty the regiment of which he had the command clothed in the manufactures of Spain. In general they export no manufactured com modities, swords and armour excepted, as they have confessedly the best steel in the world, but only the spontaneous productions of the country, such as fruits and wines.
Regulations of a similar nature were made in Britain in King William's time1. Money was thought to constitute opulence, and therefore the accumulation of it commanded the whole of the public attention. They coined all money brought in for nothing, and the expenses of coinage, which amounted to about £140,000 2, were entirely thrown away; and, besides, great encouragement was given to exportation, because, as gold and silver were coined for nothing, coined money could never be dearer than bullion. As the exportation of bullion was free, they melted down the coin and sent it abroad. At present there is a great temptation to such practices, for an oz. of pure silver at mint price is exactly valued at 55. 2<^., but bullion is often bought at 55. 6d. As nothing is lost in melting, here is a profit of 4^. per oz. It is on this account that we seldom or never see a new shilling, and it is one of the causes that silver is so scarce in proportion to gold:t.
1 The lecturer now returns from too little. In Lord Liverpool's the digression contained in the Treatise on the Coins of the Realm, last two paragraphs. 1805, p. 75, the Mint charges are 2 MS. reads 'fourteen thousand stated to have been,£179,431 6s. pounds,' which is obviously much 3 See above, p. 190 and notes.
[$ ii. Of the Balance of Trade I\ The idea of public opulence consisting in money has been productive of other bad effects. Upon this principle most pernicious regulations have been established. Those species of commerce which drain us of our money are thought disadvantageous, and those which increase it beneficial, therefore the former are prohibited and the latter encouraged. As France is thought to produce more of the elegancies of life than this country, and as we take much from them, and they need little from us, the balance of trade is against us, and therefore almost all our trade with France is prohibited by great taxes and duties on importation. On the other hand, as Spain and Portugal take more of our commodities than we of theirs, the balance is in our favours, and this trade is not only allowed, but encouraged. The absurdity of these regulations will appear on the least reflection. All commerce that is carried on betwixt any two countries must necessarily be advantageous to both. The very intention of commerce is to exchange your own commodities for others which you think will be more convenient for you. When two men trade between themselves it is undoubtedly for the advantage of both. The one has perhaps more of one species of commodities than he has occasion for, he there fore exchanges a certain quantity of it with the other, for another commodity that will be more useful to him. The other agrees to the bargain on the same account, and in this manner the mutual commerce is advantageous to both. The case is exactly the same betwixt any two nations *. The goods which the English merchants want to import from France are certainly more valuable to them than what they give for them. Our very desire to purchase them shows that we have more use for them than either 1 W. of N. bk. iv. ch. ii. vol. i. p. 29.
the money or the commodities which we give for them. It may be said indeed that money lasts for ever, but that claret and cambrics are soon consumed. This is true: but what is the intention of industry if it be not to produce those things which are capable of being used, and are conducive to the convenience and comfort of human life? Unless we use the produce of our industry, unless we can subsist more people in a better way, what avails it? Besides, if we have money to spend upon foreign com modities, what purpose serves it to keep it in the country? If the circulation of commodities require it, there will be none to spare; and if the channel of circulation be full, no more is necessary. And if only a certain sum be necessary for that purpose, why throw more into it?
Again, by prohibiting the exportation of goods to foreign markets, the industry of the country is greatly discouraged. It is a very great motive to industry, that people have it in their power to exchange the produce of their labour for what they please, and wherever there is any restraint on people in this respect, they will not be so vigorous in improving manufactures. If we be prohibited to send corn and cloth to France, that industry is stopped which raises corn and prepares cloth for the French market. It may be said indeed that if we were allowed to trade with France we would not exchange our commodities with theirs, but our money, and thus human industry is by no means discouraged; but if we attend to it, we shall find that it comes to the same thing at last. By hindering people to dispose of their money as they think proper, you discourage those manufactures by which this money is gained. All jealousies therefore between different nations, and prejudices of this kind, are extremely [hurtful] to commerce, and limit public opulence '. This is always the case betwixt France and us in the time of war.
1 Hume, ' Of the Jealousy of Trade,' in Essays and Treatises, 1758, passim.
In general we may observe that these jealousies and prohibitions are most hurtful to the richest nations, and that in proportion as a free commerce would be advan tageous. When a rich man and a poor man deal with one another, both of them will increase their riches, if they deal prudently, but the rich man's stock will increase in a greater proportion than the poor man's. In like manner when a rich and a poor nation engage in trade, the rich nation will have the greatest advantage, and therefore the prohibition of this commerce is most hurtful to it of the two. All our trade with France is prohibited by the high duties imposed on every French commodity imported. It would, however, have been better police to encourage our trade with France. If any foreign commerce is to be pro hibited, it ought to be that with Spain and Portugal. This would have been most advantageous to England. France is much more populous, a more extensive country, farther advanced in arts and manufactures of every kind, and the industry which a commerce with that country would have excited1 at home would have been much greater.
Twenty millions of people perhaps in a great society, working as it were to one another's hands, from the nature of the division of labour before explained, would produce a thousand times more goods than another society con sisting only of two or three millions. It were happy therefore, both for this country and for France, that all national prejudices were rooted out, and a free and uninterrupted commerce established.
It may be observed in general that we never heard of any nation ruined by this balance of trade. When Gee published his book, the balance with all nations was against us, except Spain and Portugal2. It was then 1 MS. reads 'exerted.' convenient to reject as untrust- 2 And Holland, according to worthy in this case. Trade and the Custom House accounts, Navigation, chs. xii, xxxiv. which, however, Gee finds it thought that in a few years we would be reduced to an absolute state of poverty. This indeed has been the cry of all political writers since the time of Charles II; notwithstanding all this, we find ourselves far richer than before, and, when there is occasion for it, we can raise much more money than ever has been done. A late minister of state levied in one year twenty-three millions ' with greater ease than Lord Godolphin could levy six in Queen Anne's time. The French and Dutch writers, embracing the same principle, frequently alarmed their country with the same groundless terror, but they still continue to flourish. It is to be observed that the poverty of a nation can never proceed from foreign trade if carried on with wisdom and prudence. The poverty of a nation proceeds from much the same causes with those which render an individual poor. When a man consumes more than he gains by his industry, he must impoverish himself unless he has some other way of subsistence. In the same manner, if a nation consume more than it produces, poverty is inevitable; if its annual produce be ninety millions and its annual consumption an hundred, then it spends, eats, and drinks, tears, wears, ten millions more than it produces, and its stock of opulence must gradually [go] to nothing.
[§12. Of the Opinion that no Expense at Home can be hurtful^ There is still another bad effect proceeding from that absurd notion, that national opulence consists in money. It is commonly imagined that whatever people 1 For the service of the year before Adam Smith left Glasgow 1760,£19,616,119, and for that of (Sinclair, History of the Public 1761,£18,299,153, were voted, and Revenue, pt. iii. 1790, p. 69). Pitt these amounts were far in excess resigned Oct. 5, 1761, but Newof the votes for any other year castle continued in office till May, spend in their own country cannot diminish public opulence, if you take care of exports and imports. This is the foundation of Dr. Mandeville's system that private vices are public benefits: what is spent -at home is all spent among ourselves, none of it goes out of the country l. But it is evident that when any man tears, and wears, and spends his stock, without employing himself in any species of industry, the nation is at the end of the year so much the poorer by it. If he spend only the interest of the money he does no harm, as the capital still remains, and is employed in promoting industry, but if he spend the capital, the whole is gone. To illustrate this let us make a supposition, that my father at his death, instead of a thousand pounds in cash, leaves me the necessaries and conveniences of life to the same value, which is precisely the same as if he left it in money, because I afterwards purchase them in money. I get a number of idle folks about me. and eat, drink, tear, and wear, till the whole is consumed. By this, I not only reduce myself to want, but certainly rob the public stock of a thousand pounds, as it is spent and nothing produced for it. As a farther illustration of the hurt which the public receives from such practices, let us suppose that this island was invaded by a numerous band of Tartars, a people who are still in the state of shepherds, a people who lead a roving life, and have little or no idea of industry. Here they would find all commodities for the taking, they would put on fine clothes, eat, drink, tear, and wear everything they laid their hands upon. The consequence would be that from the highest degree of opulence the whole country would be reduced to the 1762,50 that either 1760 or 1761 'Levied1 should be 'raised,' as may be referred to. In IV. of N. more than half the amounts bk. iv. ch. i. vol. ii. p. 17, it is were borrowed, remarked that 'the expense of J In Fable of the Bees, pt. i. Re- 1761, for example, amounted to mark (L), Mandeville rather more than nineteen millions.' argues against the doctrine.
lowest pitch of misery, and brought back to its ancient state. The thirty millions of money would probably re main for some time, but all the necessaries of life would be consumed. This shows the absurdity of that opinion that no home consumption can hurt the opulence of a country.
Upon this principle that no public expense employed at home can be hurtful, a war in Germany is thought a dreadful calamity, as it drains the country of money, and a land war is always thought more prejudicial than a sea one for the same reason; but upon reflection, we will find that it is the same thing to the nation, how or where its stock be spent. If I purchase a thousand pounds' worth of French wines, and drink them all when they come home, the country is two thousand pounds poorer, because both the goods and money are gone; if I spend a thousand pounds worth of goods at home upon myself the country is only deprived of one thousand pounds, as the money still remains; but in maintaining an army in a distant war it is the same thing whether we pay them in goods or money, because the consumption is the same at an}' rate. Perhaps it is the better police to pay them in money, as goods are better fitted for the purposes of life at home1. For the same reason there is no dif ference between land and sea wars, as is commonly imagined.
From the above considerations it appears that Britain * should by all means be made a free port, that there should be no interruptions of any kind made to foreign trade, that if it were possible to defray the expenses of govern ment by any other method, all duties, customs, and excise should be abolished, and that free commerce and liberty of exchange should be allowed with all nations, and for all things.
1 In IV. of N. bk. iv. ch. i. vol. ii. to be the best medium for depp. 18, 19, ' the finer and more fraying the expense of distant improved manufactures ' are said wars.
P P But still further, and on the same principles as above, an apology is made for the public debt. Say they, though we [owe] at present above a hundred millions1, we owe it to ourselves, or at least very little of it to foreigners. It is just the right hand owing the left, and on the whole can be little or no disadvantage. But [it] is to be considered that the interest of this hundred millions is paid by industrious people, and given to support idle people who are employed in gathering it. Thus industry is taxed to support idleness. If the debt had not been contracted, by prudence and economy the nation would have been much richer than at present. Their industry would not be hurt by the oppression of those idle people who live upon it. Instead of the brew7er paying taxes which are often improper, the stock might have been lent out to such industrious people as would have made six or seven per cent, by it, and have given better interest than the government does: this stock would then have been employed for the country['s] welfare. When there are such heavy taxes to pay, every merchant must carry on less trade than he would otherwise do; he has his taxes to pay before he sell any of his commodities. This narrows, as it were, his stock, and hinders his trade from being so extensive as it otherwise would be'-. To stop this clamour, Sir Robert Walpole endeavoured to show that the public debt was no inconvenience:!, though it is to 1 According to W. of N. bk. v. occasion (see Historical Register, ch. iii. vol. ii. p. 523, the debt in 1733, pp. 218, 219, 222, 223) or in 1764 amounted to ^139,516,807. his pamphlet, Some Considerations '2 W. of N. bk. v. ch. iii. vol. ii. concerning the Public Funds, the pp. 526-529. Public Revenues, and the Annual 3 Walpole took half a million Supplies, 1735. Hume, however, in from the Sinking Fund in 1733, the earlier editions of his Political but he does not appear to have Discourses, said that arguments in contended that the debt was no favour of ' the new paradox, that inconvenience either in debate in public encumbrances are of themthe House of Commons on that selves advantageous, independent be supposed that a man of his abilities saw the contrary himself.
[§ 13. Of tJie Scheme of Mr. Law."]
The last bad effect that shall be taken notice of is the notion of Mr. Law, a Scotch merchant. He thought that national opulence consists in money, and that the value of gold and silver is arbitrary, and depends on constitution and agreement. He imagined that the idea of value might be brought to paper, and it preferred to money. If this could be done, he thought it would be a great convenience, as the government then might do what it pleased, raise armies, pay soldiers, and be at any expense whatever. Mr. Law proposed his scheme to the Scotch parliament in 1701 J. It was rejected, and he went over to France, where his project was relished by the Duke of Orleans. In this book2 he agrees with the fore-mentioned writers that, the balance of trade being against a nation, it must soon be drained of its money. In order to turn the balance of trade in our favours, he proposed to the Scotch Parliament the following scheme: of the necessity of contracting Green and T. H. Grose, 1875, vol. them,' might naturally have passed i. pp. 362, 363). for trials of wit among rhetori- J A mistake for' 1705.' In the cians, ' had we not seen such ab- 2nd edition of Monty and Trade, surd maxims patronized by great 1720, the bookseller requests the ministers...And these puzzling reader to receive favourably ' the arguments (for they deserve not following pages, which consist of the name of specious), though some heads of a scheme which they could not be the foundation Mr. Law proposed to the Parliaof Lord Orford's conduct— for lie ment of Scotland in the year 1705.' had more sense— served at least The year given in the text above to keep his partisans in counten- was the date of Law's Proposals ance and perplex the understand- and Reasons for Constituting a ing of the nation.' ' Of Public Council of Trade in Scotland. Credit,' Political Discourses, 1752, 2 I.e. Money and Trade Conp. 126. After 1768 this reference sidered: with a Proposal for supto Lord Orford was omitted (see plying the Nation with Money, Hume's Essays, edited by T. H. 1705.
As there was little gold or silver in this country he thought they might fall upon some other method of creating money, independent of it, to wit, by paper. On this account he proposed the erecting of a land bank at Edinburgh, in which it is to be observed, he falls into many blunders concerning tenures and the nature of property. At this bank they were to keep by them only twenty or thirty thousand pounds to answer small demands, and to give out notes for land. For two acres of arable land they were to issue out a note of equal value, and if any extraordinary demand was made upon them, they would pay so much of it in money, and so much in land. By this means in a very short time the whole land of Scotland would go from hand to hand, as a twenty-shilling note does1.
As this project never was executed, it is hard to say what the consequence might have been; it is, however, obviously liable to the following inconveniences. Taking the land rent of Scotland at five millions per annum, though it be much more, at twenty years' purchase it amounts to an hundred millions; there would then be just so much currency in the country, and if one million was then necessary for circulation there would just be ninety-nine millions for no purpose, as none of it could go abroad; they would not have been able to maintain one man more than formerly, as their food, clothes, and lodging would not have been increased, and every com modity would have risen to ninety-nine times its present value.
Mr. Law, not meeting with the encouragement he expected, went over to France in the year2 1714, and, as was before mentioned, found favour with the Duke of Orleans, then 3 Regent, and got liberty to erect a bank 1 This paragraph appears to be ~ MS. reads 'years.' intended as a summary of ch. vii. 3 'Then' refers not to 1714, but of Money and Trade. to the time when Law found sufthere, which at first was only to the extent of six millions of livres1 or ^32o,o[oo] sterling. From this beginning he carried it on to a very great height, issued out many notes, and in a short time engrossed the whole circulation of France. As Mr. Law's notes were received in payment of the revenue2, this contributed to the success of the scheme. This, too, had a greater effect in France than it could have had here, considering the number of taxes, and the manner in which they are levied. By this and other circumstances, his notes were always at par with gold and silver, especially as they were making continual changes in their coin. About that time twenty-eight livres, which were equal to eight ounces of pure silver, were raised to sixty 3, and as a diminution of coin is always the consequent of a sudden rise4, this was daily expected. Mr. Law made his notes payable in what was called the money of the day 5. Instead of promising to pay his notes, as we would say, in pounds sterling, he did it in crowns and half-crowns, which was a very proper method to make them par with gold and silver. Suppose that our coin were raised to double, a half-crown would become a crown, and so in this manner the bank notes and money \vould rise and fall together0.
ficient favour to get liberty to May, 1718.' Dutot, Reflexions erect a bank. Louis XIV died politiques sur les finances d It on Sept. i, 1715. Orleans had commerce, 1738, in Daire's Econoseen Law, and spoken of him as tnistes financiers, pp. 810, 847; ' un homme de qui il pourrait and Duverney, Examen, torn. i.
tirer des lumieres' before that pp. 216, 217.
Cheruel et Regnier, torn. xiii. p. 8 ' En ecus du poids et litre du 49). jour.' Duverney, Examen, torn.
1 Paris Duverney, Examen du i. p. 209.
livre intitule Reflexions politiques 6 It must be remembered that sur les finances etle commerce, 1740, in Adam Smith's time the pound torn. i. p. 207. sterling was just as much a mere 2 Ibid. p. 210. money of account as the French 1 ' About that time ' apparently livre. Its practical identificastands for ' between 1715 and tion with a particular coin is of As Law wanted to make his notes above par, he fell upon the following scheme. He issued out his bank notes payable in livres tournois, by which, when the coin came to be diminished, he would not be obliged to pay above one-half1. The coin was not received in the market or elsewhere, as the diminution was still expected, and did not come for some time. This favoured his design, and kept the notes above par, by which the credit of his bank was established.
The next step Mr. Law fell upon was the relieving of the public debts, which amounted to 2oo[o] millions2. As he saw the diminution must needs come, he took another method to keep up his notes. He got a grant of the exclusive privilege of trading to Canada, and established the Mississippi Company. To this he joined the African, the Turkey, and the East India companies. He also farmed the tobacco and all the public revenues of France at 52 millions 3, for in France the whole later date, and even now that coin is not called a pound, but a sovereign. Raising our coin to double would mean halving the quantity of silver coined into twenty shillings or ' /i.' Law's notes for ecus of a certain weight and fineness resembled Drummond's notes for guineas mentioned in W. of N. bk. i. ch.
1 There appears to be some mistake or omission here. A diminution of the coin, i. e. a re duction of the number of livres in an ecu of a certain weight and fineness would obviously increase the bullion value of notes for livres. So, if the coin were di minished 50 per cent, and no change made as regards the notes, Law would be obliged to pay double, not half. It may, how ever, have been supposed that the notes would be arbitrarily re duced when the coin was di minished, as an edict was soon issued declaring that this would not under any circumstances take place. The next two sentences in the text above describe the natural effect of this edict (see T)uverney,Ex(inien, torn. i. pp.235, 236), and do not at all follow from the statement that Law would not be obliged to pay above a half.
2 Dutot, in Daire's Economises financiers, p. 806, gives the amount as ' deux milliards soixante-deux millions cent trente-huit mille une livres.'
3 Duverney, Examen, torn. i. p. 249. MS. reads ' 12 millions.'
revenue is farmed by one man, who undertakes it and levies it without excisemen, and the farmers there are the richest in the country, and must be skilled in the finances and public revenues l. Mr. Law undertook this, and, having the whole trade of the country monopolized, it was difficult to say what profits he would make. He wanted to lend the government 80 or 90 millions [sterling], which he could easily do by issuing notes to that value, but then he saw that they would soon return upon him. To prevent this, his invention was set on work, and we shall see how far he succeeded. As the company he erected seemed to be in a very flourishing condition, shares were purchased in it at a very considerable rate.
He opened a subscription to it at 500 livres, so that a navy ticket or billet d'etat purchased a share into it, which raised them to a par, as they had for a long time been far below it. The government of France was never in such a miserable condition as then. The interest of the money which should have paid the billets d'etat was seized upon for other purposes. Never was monarch more degraded than Lewis XIV. After the treaty of Utrecht he had occasion to borrow 8 millions of livres from Holland, and not only to give them his bond for 32 millions, but to get some merchants to be security for him -. Since that was the case, we need not be surprised that the billets d'etat sold at great discount, as they bore no interest, and it was quite uncertain when they would be paid. Law published a declaration that one of these, which was granted for 500 livres, should purchase a share in the company, and thus they came again to par. The people still continuing in great expectations of profit, he in a few days opened a new subscription at 5000 livres, 1 Duverney, Exatnen, torn. i. obtained from foreigners on the p. 252. credit of a private person and 2 Dutot, in Daire's Economises his friends, but does not specify financiers, p. 805, mentions these Holland.
terms, and says that the loan was 2l6 PART II: POLICE and afterwards another at 10,000. At this time he was enabled to lend the government 1600 millions of livres at 3 per cent1.