Had he stopped here, it is probable that he would have answered all engagements, but his future proceed ings ruined all. It was impossible that the value of shares could long continue at such a high rate. He thought, however, that it was necessary to do all that he could to keep them up, as the whole fortunes of many people were in the bank. He had issued out notes to double the circulation of the country, which raised the price of everything to an enormous pitch, and conse quently the exchange was against France in all foreign trade. This was principally occasioned by his opening an office to purchase 500 livres shares at 9000 livres '\ which obliged him to issue out many notes. People of prudence who were concerned opposed this scheme, and indeed it was the first thing that made his bank lose credit, and occasioned its dissolution. As he was not obliged to pay the capital sums, only the annual dividend of 200 livres arising from the profits 3, he might have let them fall to their original 500 without any great loss but that of reputation; but his buying up the shares occasioned his issuing out so many notes that they must of necessity return upon him. This was so much the case that he was obliged to open offices in different parts of Paris for the payment of them. When in this manner oppressed, he was making continual changes on the coin, in order to dissuade people from returning on the bank, and disgust them at gold and silver4. He cried up gold, but as coin 1 Duverney, Examen, torn. i. pany, held on Dec. 30, 1719, re pp. 250, 273, 289. solved that the dividend should 2 Ibid. pp. 280, 281. be 40 per cent., or 200 livres per 3 The original fixed interest share. Ibid. pp. 215, 267, 268, 317. was only 4 per cent, or 20 livres * ' Pour degouter les peuples on the shares of 500 livres; but des monnaies d'or et d'argent.' a general meeting of the com- Ibid. p. 316.
cannot be kept much above the level of the metal, when it was so much depreciated, it was not taken. If a person had 20,000 guineas, as he was afraid that the coin would not continue at that value, he went to the bank and got it exchanged for notes. The same consideration pre vented them from returning upon the bank, as they would there be paid in coin. By this means he not only prevented his notes from coming upon him, but filled his coffers with almost all the gold in the country. In order to accomplish this part of his scheme more perfectly, he most arbitrarily published an edict prohibiting any persons from keeping by them gold or silver, beyond a certain sum1. He also took away the severe penalties that were in force against the exportation of coin, and every person was allowed to export money free from duty2. By this means much of it went to Holland. He reasoned with himself, some instrument of change is necessary, paper, gold, and silver, at present are the medium; if gold and silver be utterly exported, paper only remains, and may be rendered the sole instrument of commerce. This he thought he had done effectually when by an edict he had swept a part into his coffers, and cleared the country of the remainder. They would therefore be obliged to take paper. At last, however, after a great number of expedients, he found it was im practicable. By paying out great sums, he kept off ruin for some months, but at last published an edict that all bank notes were to be paid only in one half: and indeed if he had stood to this, as some imagined he might have done, it would have been far better than to have suffered the after consequences. Upon this edict the credit of the bank was entirely broken, and the bank notes all on a sudden sunk to nothing3. This ruined an immense number of people. Britain can never be much hurt by 1 Viz. 500 livres. Duverney, Examen, torn. i. p. 335.
2 Ibid. pp. 320, 321. 3 Ibid. torn. ii. pp. 6-8.
2l8 PART II I POLICE the breaking of a bank, because few people keep notes by them to any value1. A man worth £40,000 will scarce ever have £500 of notes by him. But the breaking of this bank in France occasioned the most dreadful confusion. The greatest part of people had their whole fortunes in notes, and were reduced to a state of beggary. The only people who were safe were the stock-jobbers who had sold out in time, or with their bank notes had purchased all the valuable goods and a great deal of land, though at the highest prices. These made immense fortunes by it.
The South Sea scheme incur own country was nothing to this. Nobody was under any obligations of going into it, the government had no share in it, and the loss was but a trifle in comparison. The clamour which Law's last edict made caused it soon to be rescinded 2, and the notes were again declared to be paid at value, but the bank never recovered its credit, and this had no effect. However, by raising the coin and other expedients, he kept it from May to October, and then 3 was obliged to leave France, which with difficulty he accomplished; his goods were confiscated and he died soon after 4. This amazing scheme was founded on these two principles, that public opulence consists in money, and that the value of money is arbitrary, founded upon the common consent of mankind. Consistent with these principles he thought he might easily increase the public opulence if he could annex the idea of money to paper, and the government could never be at any loss to produce any effect that money could do. This scheme of Mr. Law's was by no means contemptible; he really believed in it, and was the dupe of it himself. It was thought he had provided well for himself, but it was found to be otherwise. If the Duke of Orleans had lived only 2 Duverney, Exatnen, torn. ii. 132.
a few days longer it was agreed upon that he was to have been re-established. After his death it was not thought expedient to have it put in execution '.
This scheme of Law's was imitated all over Europe. It gave occasion to the South Sea Company in England, which turned out at last a mere fraud, and, could it have been carried to as great an extent as Law's, would have been productive of the same consequences. It was erected in the latter end of Queen Anne's reign, and the intention of it was to carry on a trade to the South Seas. For this purpose they bought up the greater part of the debts of the nation. Their stock, however, was not great, and the profits which could be expected from it were very inconsiderable; the expectations of the people were never greatly raised, and its fall was not very prejudicial to the nation.
[§ 14. Of Interest.]
We have only two things further to mention relating to the price of commodities, to wit, interest and exchange.
It is commonly supposed that the premium of interest depends upon the value of gold and silver2. The value of these are regulated by their quantity, for as the quantity increases, the value diminishes, and as the quantity de- 1 In W. of N. bk. ii. ch. ii. vol. exposed by Mr. Hume, that it is i. p. 318, Adam Smith declines perhaps unnecessary to say anyto give any account of the 'differ- thing more about it.' See Locke, ent operations ' of Law's scheme Some Considerations of the Conbecause they have been so fully sequences of the Lowering of and clearly explained by Du- Interest and Raising the Value of verney. Money, 2nd ed., 1696, pp. 6, 10, ii; 2 In IV. of N. bk. ii. ch. iv. vol. Law, Money and Trade Considered, i. p. 357, the common opinion is 2nd ed., p. 17, and Me'inoires sur attributed to Locke, Law, Monies- les banques in Daire's Econotnistes quieu, and 'many other writers,' financiers, p. 518; Montesquieu, and it is remarked that ' this Esprit des lot's, liv. xxii. ch. vi; notion, which at first sight seems Hume, ' Of Interest,' Political so plausible, has been so fully Discourses, 1752, pp. 61 78.
creases, the value rises. If we attend to it, however, we shall find that the premium of interest is regulated by the quantity of stock. About the time of the discovery of the West Indies it is to be observed that common interest was at 10 or 12 per cent, and since that time it has gradually diminished. The plain reason is this. Under the feudal constitution there could be very little accumulation of stock, which will appear from considering the situation of those three orders of men, which made up the whole body of the people: the peasants, the landlords, and the merchants. The peasants had leases which depended upon the caprice of their masters; they could never increase in wealth, because the landlord was ready to squeeze it all from them, and therefore they had no motive to acquire it. As little could the landlords increase their wealth, as they lived so indolent a life, and were involved in perpetual wars l. The merchants again were oppressed by all ranks, and were not able to secure the produce of their industry from rapine and violence. Thus there could be little accumulation of wealth at all; but after the fall of the feudal government these obstacles to industry were removed, and the stock of commodities began gradually to increase.
We may further observe that what one trade lends to another is not so much to be considered as money, as commodities2. No doubt it is generally money which one man delivers another in loan, but then it is immediately turned into stock, and thus the quantity of stock enables you to make a greater number of loans. The price of interest is entirely regulated by this circumstance. If there be few who have it in their power to lend money, and a great number of people who want to borrow it, the price of interest must be high; but if the quantity of stock on hand be so great as to enable a great number to lend, it must fall proportionably.
1 Above, pp. 36, 37; W. of N. bk. iii. ch. ii. vol. i. pp. 389, 390.
2 Ibid. bk. ii. ch. iv. vol. i. p. 354.
[$15. Of Exchange.} Exchange is a method invented by merchants to faci litate the payment of money at a distance. Suppose I owe £100 to a merchant at London, I apply to a banker in Glasgow for a bill upon another merchant in London, payable to my creditor. For this I must not only give the banker.£100, but I must also reward him for his trouble. This reward is called the price, or premium, of exchange. Between Glasgow and London it is sometimes at 2 per cent., sometimes more, some times less. Between London and Glasgow again it is sometimes 4 or 5 per cent, below par; and between Glasgow and the West India colonies it is often at 50 per cent, below par. The value of exchange is always regulated by the risk of sending money between two places. It is often, however, greater than the risk can be supposed to be, and this is owing to paper circulation.
Between Glasgow and London one can easily get;£ioo carried for fifteen or sixteen shillings; but as paper in Scotland makes a great part of the currency, and as there is an inconveniency in getting bank notes exchanged for gold and silver, a merchant chooses rather to pay 2 per cent, than take the trouble of changing the notes for cash, and sending the money '. This too is the cause of the high price of exchange between Virginia and Glasgow. In the American colonies the currency is paper, and their notes are 40 or 50 per cent, below par. because the funds are not sufficient. In every exchange you must pay the price, the risk, some profit to the banker, and so much for the degra dation of money in notes. This is the cause of the rise of exchange. Whenever it rises beyond the price of insurance it is owing to the money of one country being lower than that of another. This was the cause of the high price of 1 W. of N. bk. ii. ch. ii. vol. i. pp. 327. 328.
exchange between France and Holland about the time of the Mississippi Company. It was then at 80 or 90 per cent. All the money had been expelled from France by the scheme of Mr. Law, and the whole circulation was paper, and the credit of the bank had fallen. All these reasons conspired to raise the exchange to such an enormous pitch.
[J 1 6. Of the Causes of the slow Progress of Opulence.']
We come now to the next thing proposed, to examine the causes of the slow progress of opulence. When one considers the effects of the division of labour, what an immediate tendency it has to improve the arts, it appears somewhat surprising that every nation should continue so long in a poor and indigent state as we find it does. The causes of this may be considered under these two heads: first, natural impediments; and secondly, the oppression of civil government.
A rude and barbarous people are ignorant of the effects of the division of labour, and it is long before one person, by continually working at different things, can produce any more than is necessary for his daily subsistence. Before labour can be divided some accumulation of stock is neces sary; a poor man with no stock can never begin a manufac ture. Before a man can commence farmer, he must at least have laid in a year's provision, because he does not receive the fruits of his labour till the end of the season. Agreeably to this, in a nation of hunters or shepherds no person can quit the common trade in which he is employed, and which affords him daily subsistence, till he have some stock to maintain him, and begin the new trade. Every one knowrs how difficult it is, even in a refined society, to raise one's self to moderate circumstances. It is still more difficult to raise one's self by those trades which require no art nor ingenuity. A porter or day-labourer must continue poor for ever. In the beginnings of society this is still more difficult. Bare subsistence is almost all that a savage can procure, and having no stock to begin upon, nothing to maintain him but what is produced by the exertion of his own strength, it is no wonder he continues long in an indigent state. The meanest labourer in a polished society has in many respects an advantage over a savage: he has more assistance in his labour; he has only one particular thing to do, which, by assiduity, he attains a facility in performing; he has also machines and instruments which greatly assist him. An Indian has not so much as a pick axe, a spade, or a shovel, nor anything else but his own labour. This is one great cause of the slow progress of opulence in every country; till some stock be produced there can be no division of labour, and before a division of labour take place there can be very little accumulation of stock1.
The other cause that was assigned was the nature of civil government. In the infancy of society, as has been often observed, government must be \veak and feeble, and it is long before its authority can protect the industry of individuals from the rapacity of their neighbours. When people find themselves every moment in danger of being robbed of all they possess, they have no motive to be industrious. There could belittle accumulation of stock, because the indolent, which would be the greatest number, would live upon the industrious, and spend whatever they produced. When the power of government becomes so great as to defend the produce of industry, another obstacle arises from a different quarter. Among neighbouring nations in a barbarous state there are perpetual wars, one continually invading and plundering the other, and though private property be secured from the violence of neigh bours, it is in danger from hostile invasions. In this 1 W. of N. bk. ii. Introduction, vol. i. pp. 273-275.
manner it is next to impossible that any accumulation of stock can be made. It is observable that among savage nations there are always more violent convulsions than among those farther advanced in refinement. Among the Tartars and Arabs, great bands of barbarians are always roaming from one place to another in quest of plunder, and they pillage every country as they go along. Thus large tracts of country are often laid waste, and all the effects carried away. Germany too was in the same con dition about the fall of the Roman Empire; nothing can be more an obstacle to the progress of opulence.
We shall next consider the effect of oppressive measures, first, with regard to agriculture, and then with regard to commerce.
Agriculture is of all other arts the most beneficent to society, and whatever tends to retard its improvement is extremely prejudicial to the public interest. The produce of agriculture is much greater than that of any other manufacture. The rents of the whole lands in England amount to about 24 millions1, and as the rent is generally about a third of the produce, the whole annual produce of the lands must be about 72 millions. This is much more than the produce of either the linen or woollen manufactures, for, as the annual consumption is computed to be about 100 millions, if you deduce from this the 72 millions, the produce of agriculture, there will remain only 28 millions for all the other manufactures of the nation. Whatever measures therefore discourage the improvement of this art are extremely prejudicial to the progress of opulence.
One great hindrance to the progress of agriculture is the throwing great tracts of land into the hands of single persons. If any man's estate be more than he is able to cultivate, a part of it is in a manner lost. When a nation 1 Twenty millions is the estimate mentioned in W. of N. bk. v.
of savages takes possession of a country, the great and powerful divide the whole lands among them, and leave none for the lower ranks of people. In this manner the Celtae, and afterwards the Saxons, took possession of our own island l. When land is divided in great portions among the powerful, it is cultivated by slaves, which is a very unprofitable method of cultivation. The labour of a slave proceeds from no other motive but the dread of punishment, and if he could escape this, he would work none at all. Should he exert himself in the most extra ordinary manner, he cannot have the least expectations of any reward; and as all the produce of his labour goes to his master, he has no encouragement to industry. A young slave may perhaps exert himself a little at first, in order to attain his master's favour; but he soon finds that it is all in vain, and that, be his behaviour what it will, he will always meet with the same severe treatment. When lands, therefore, are cultivated by slaves, they can not be greatly improven, as they have no motive to in dustry. A cultivation of the same kind is that by villains.
The landlord gave a man a piece of ground to cultivate, allowing him to maintain himself by it, and obliging him to restore whatever was over his own maintenance. This was equally unfavourable to the progress of agriculture, because the villains, who were a kind of slaves, had no motive to industry but their own maintenance. This objection lies equally against all cultivation by slaves. Some of the West India islands have indeed been cultivated by slaves, and have been greatly improven, but they might have been cultivated by freemen at less expense; and had not the profits of sugar been very great, the planters could not have supported the expense of slaves, but their profits have been so enormous, that all the extraordinary expense of slave cultivation has vanished before it '-. In the northern 1 W. of N. bk. ii. ch. ii. vol. i. pp. 386-390.
Q colonies they employ few slaves, and, though they are in a very flourishing condition in those colonies, the lands are generally cultivated by the proprietors, which is the most favourable method to the progress of agriculture. A tenant of the best kind has always a rent to pay, and therefore has much less to lay out on improvements l. When a country sends out a colony, it may hinder a large tract of land to be occupied by a single person 2; but when savages take possession of a country, they are subject to no laws, the strongest man takes possession of most ground, and there fore among them agriculture cannot be quickly promoted.
After villains went out, as was explained before 3, tenants by steel bow succeeded. The landlord gave a farm with a stock to a villain, which were restored with half of the produce, at the end of the year, to the landlord; but as the tenant had no stock, nor though he had 4, any encouragement to lay it out on improvements, this method always was unfavourable to agriculture. For the same reason that tithes, by depriving the farmer of a tenth of his produce, hinder improvement, this, though in a higher degree, was a hindrance, because the tenant was deprived of one-half of the produce. A great part of France is still cultivated by tenants of steel bow, and it is said that it still remains in some parts of the Highlands of Scotland 5.
The next species of cultivation was that by tenants, such as we have at present. Some of the tenants by steel bow, by extreme pinching and cunning, got a small stock laid up and offered their masters a fixed rent for the ground. Thus in progress of time the present method of cultivation was introduced, though it was long 1 W. of N. bk. iii. ch. ii. vol. i. 3 Above, pp. 100, 101.
p. 397. 4 I.e.' nor, if he had possessed 2 As in the English North any stock.'
American colonies. Ibid. bk. iv. 6 W. of N. bk. iii. ch. ii. vol. i. ch. vii. pt. ii. vol. ii. p. 152. p. 393.
liable to inconveniences. If the landlord sold his land, the new proprietor was not bound to the terms of agreement, and the tenant was often turned out of his farm; the landlord too invented a method to get rid of the tenant when he pleased by selling the estate to another, on whom he had a back bond to make him return the estate whenever the tenants were turned out. As the tenants were continually in danger of being turned out, they had no motive to improve the ground. This takes place to this day in every country of Europe, except Britain. In Scotland, contracts of this kind were rendered real rights in the reign of James III \ and in England in that of Henry VII2.
Besides these there were several other impediments to the progress of agriculture. At first all rents were paid in kind, by which, in a dear year, the tenants were in danger of being ruined. A diminution of produce seldom hurts the tenant who pays his rent in money, because the price of corn rises in proportion to its scarcity 3. Society, however, is considerably advanced before money comes to be the whole instrument of commerce.
Another embarrassment was that the feudal lords sometimes allowed the king to levy subsidies from their tenants, which greatly discouraged their industry 4. Besides all, under the tyranny of the feudal aristocracy, the land lords had nothing to stop them from squeezing their tenants and raising the rents of their lands as high as they pleased. England is better secured in this respect than 1 Apparently a mistake for Blackstone, Commentaries, vol.
'James II,' who, with the act of iii. p. 201.
1449, is mentioned in W. of N. 3 This objection is not made in bk. iii. ch. ii. vol. i. p. 395. IV. of N. bk. v. ch. ii. pt. ii. art. i, - Ibid. p. 394 gives the more vol. ii. p. 422, where rents in kind exact date ' about the 141)1 are condemned along with rents of Henry VII,' for which see in service.
Bacon, Abridgement, s.v. Eject- * Ibid. bk. iii. ch. ii. vol. i.
ment, vol. ii. p. 160, and cp. pp. 396, 397. Q2 any country, because everyone who hold[s] but 405. a year for life has a vote for a member of parliament, by which, if he rent a farm, he is secure from oppression l.
Several circumstances concurred to continue the en grossment of lands. The right of primogeniture was pretty early established, and hindered estates from being divided. The institution of entails is to this day attended with the same bad consequences 2. The embarrassment, too, of the feudal law in transferring property, detarded the progress of agriculture. Any quantity of any other commodity may be bought or sold in an instant, but in purchasing four or five acres of land a great deal [of] time must be spent in examining the progress of writs3, and getting your right legally constituted. This tends greatly to the engrossment of lands, and consequently stops their improvement. If all the forms in buying lands were abolished, every person almost who had got a little money would be ready to lay it out on land, and the land by passing through the different hands would be much better improved. There is no natural reason why a thousand acres should not be as easily purchased as a thousand yards of cloth. The keeping land out of the market always hinders its improvement. A merchant who buys a little piece of land has it in his eye to improve it, and make the most of it he can. Great and ancient families have seldom either stock or inclination to improve their estates, except a small piece of pleasure-ground about their house.
There are many errors in the police of almost every country, which have contributed greatly to stop the pro gress of agriculture. Our fathers, finding themselves once in every two or three years subject to the most grievous 1 I. e. ' because every one who stead of being content with holds land to the value of 405. a his own property, he rents a year for life has a vote for farm.' Cf. W. of N. bk. iii. ch.
a member of parliament, in con- ii. vol. i. p. 394.
sequence of which fact he is 2 Above, p. 124.
secure from oppression if, in- 3 Scotch for 'investigating title.'
dearths, to escape that calamity prohibited the exportation of corn. This is still the police of the greater part of Europe, and it is the cause of all that dearth it is intended to prevent. In a plentiful year the corn of Spain, though the most fertile country in the world, is not worth the cutting down; they suffer it to lie rotting on the ground, because they would get nothing for it. The cause of this is not the indolence of the people, as is commonly imagined. The fact is, the farmer, finding he cannot dispose of his corn this year, will not risk a crop next year, but turns his grounds to grass. Next year a famine ensues, and he sows more than can be disposed of for the following season.
It is to be observed that this was one great cause of the depopulation of ancient Italy. Exportation of corn was prohibited by severe penalties, and the importation of it encouraged by high premiums, so that the Italian farmers had no encouragement to industry, not being sure of a market. In the latter times of the Republic the Emperors tried several methods of promoting the cultivation of the country, but being ignorant that the real cause of their want was the immense quantity of corn daily imported from Egypt, and other parts of Africa, all their endeavours were ineffectual. Caligula and Claudius gave their soldiers land for nothing, upon condition that they would cultivate it, but as the soldiers had no other motive, very inconsiderable improvements were made. Virgil, too, published his Georgics to bring the cultivation of land into fashion, but all was in vain. Foreign corn was always sold cheaper than their own could be raised1. Agreeably to this we find Cato in the Third Book of Cicero's Offices, preferring pasturage of any kind to farming 2. The Kings of Spain have also done all in their 1 W. of N. bk. i. ch. xi. pt. i. The passage referred to, which vol. i. p. 159, and bk. iii. ch. ii. vol. is given in full in W. of N. bk. i. i. p. 398. ch. xi. pt. i. vol. i. p. 159, occurs 2 ' Third book ' is a mistake. in the last chapter of lib. ii.
power to promote the improvement of land. Philip IV went to the plough himself in order to set the fashion. He did everything for the farmers except bringing them a good market; he conferred the titles of nobility upon several farmers; he very absurdly endeavoured to oppress manufacturers with heavy taxes in order to force them to the country; he thought that in pro portion as the inhabitants of towns became more nume rous, those in the country decreased. This notion was highly ridiculous; for the populousness of a town is the very cause of the populousness of the country, because it gives greater encouragement to industry. Every man in a town must be fed by another in the country, and it is always a sign that the country is improving when men go to town. There are no parts of the country so well inhabited nor so well cultivated as those which lie in the neighbourhood of populous cities.
All these causes have hindered, and still hinder, the improvement of agriculture, the most important branch of industry. We may observe that the greater number of manufacturers there are in any country, agriculture is the more improved, and the causes which prevent the progress of these react, as it were, upon agriculture. It is easy to show that the free export and import of corn is favourable to agriculture. In England, the country has been better stored with corn, and the price of it has gradually sunk, since the exportation of it was permitted. The bounty on exportation does harm in other respects, but it increases the quantity of corn l. In Holland corn is cheaper and plentyer than any where else, and a dearth is there unknown. That country is as it were the magazine of corn for a great part of Europe: this is entirely owing to the free export and import they enjoy. If no improper regulations took place, any country of Europe might do more than maintain itself with all sorts of grain.