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THE HARVARD CLASSICS

The Five-Foot Shelf of Books

THE HARVARD CLASSICS
EDITED BY CHARLES W, ELIOT, LL.D.

An Inquiry Into the Nature
and Causes of the

Wealth of Nations

By Adam Smith

EDITED BY C. J. BULLOCK, PH.D.
Pro/euor of Economics, Harvard Unictriity

W/M Introduction and f'iotcs
Volume lo

P. F. Collier & Son Corporation

NEW YORK

Copyright, 1909
By p. F. Collier & Son

MANVrACTURSD IN U. S. A.

CONTENTS

BOOK I

PAGE

Of the Causes of Improvement in the productive Power
OF Labour, and of the Order according to which its
Produce is naturally distributed among the differ-
ent Ranks of the People 9

chap.

I. Of the Division of Labour 9

IL Of the Principle Which Gives Occasion to the Division of

Labour i8

in. That the Division of Labour is Limited by the Extent of the

Market 22

IV. Of the Origin and Use of Money 27

V. Of the Real and Nominal Price of Commodities, or of Their

Price in Labour, and Their Price in Money .... 34

VI. Of the Component Parts of the Price of Commodities 48

VII. Of the Natural and Market Price of Commodities ... 56

VIII. Of the Wages of Labour 66

IX. Of the Profits of Stock 90

X. Of Wages and Profit in the Different Employments of

Labour and Stock loi

XI. Of the Rent of Land 147

BOOK II

Of the Nature, Accumulation, and Employment of Stock 212
chap.

I. Of the Division of Stock 215

II. Of Money Considered as a Particular Branch of the General

Stock of the Society, or of the Expence of Maintaining

the National Capital 223

III. Of the Accumulation of Capital, or of Productive and Un-

productive Labour 258

IV. Of Stock Lent at Interest 278

V. Of the Different Employment of Capitals 287

I

2 CONTENTS

BOOK III

PACE

Of the Different Progress of Opulencr in Different

Nations 304

CHAP.

I. Of the Natural Progress of Opulence 304

BOOK IV
Of Systems of Poutical CEconomy 310

CHAP.

I. Of the Principle of the Commercial or Mercantile System . 311
II. Of Restraints Upon the Importation from Foreign Countries

of Such Goods as Can Be Produced at Home 332

III. Of the Extraordinary Restraints upon the Importation of

Goods of Almost All Kinds, from Those Countries with

which the Balance Is Supposed to Be Disadvantageous . 353

IV. Of Drawbacks 371

V. Of Bounties 374

VI. Of Treaties of Commerce 389

VII. Of Colonies 395

VIII. Conclusion of the Mercantile System 405

IX. Of the Agricultural Systems, or of the Systems of Political
CEconomy, Which Represent the Produce of Land as
Either the Sole or the Principal Source of the Revenue
and Wealth of Every Country 426

BOOK V
Of the Revenue of the Sovereign or Commonwealth . 447

CHAP.

I. Of the Expences of the Sovereign or Commonwealth 447
II. Of the Sources of the General or Public Revenue of the So-
ciety 468

III. Of Public Debts 549

INTRODUCTORY NOTE

Adam Smith, political economist and moral philosopher, was ix)rn in
Kirkcaldy, Scotland, June 5, 1723. His father, a lawyer and customs
official, died before the birth of his son, who was brought up through a
delicate childhood by his mother. At fourteen he was sent to the Uni-
versity of Glasgow, where he came under the influence of Francis
Hutcheson, and in 1740 he went up to Oxford as Snell exhibitioner at
Balliol College, remaining there till 1746. After leaving Oxford, he gave
lectures upon English Literature and Economics, and in 1751 became
professor of logic, and in 1752 of moral philosophy, at Glasgow. The
reputation won by his lectures was increased by the publication, in 1759,
of his "Theory of the Moral Sentiments," one result of which was his
appointment as travelling tutor to the third Duke of Buccleuch. In this
capacity he spent nearly three years in France, and made the acquaintance
of many of the intellectual leaders of that country. Returning to Britain
in the end of 1766, he lived chiefly in Kirkcaldy and London, working
Ufwn his "Wealth of Nations," which was finally published in 1776. It
met with immediate success, and in a few years had taken an authorita-
tive place with both philosophers and men of afTairs. In the following
year Smith was appointed a Commissioner of Customs, and took a house
in Edinburgh, where he lived quiedy and at ease till his death on
July 17, 1790.

Political economy had been studied long before Adam Smith, but the
"Wealth of Nations" may be said to constitute it for the first time as a
separate science. The work was based upon a vast historical knowledge,
and its principles were worked out with remarkable sanity as well as
ingenuity, and skilfully illuminated by apt illustrations. In spite of more
than a century of speculation, criticism, and the amassing of new facts
and fresh experience, the work still stands as the best all-round state-
ment and defence of some of the fundamental principles of the science
of economics.

The most notable feature of the teaching of the "Wealth of Nations,"
from the point of view of its divergence from previous economic thought
as well as of its subsequent influence, is the statement of the doctrine of
natural liberty. Smith believed that "man's self-interest is God's prov-
idence," and held that if government abstained from interfering with
free competition, industrial problems would work themselves out and the
practical maximum of efficiency would be reached. This same doctrine

4 INTRODUCTORY NOTE

was applied to international relations, and Smith's working out of it
here is the classical statement of the argument for free trade.

In its original form the book contained a considerable number of
digressions and illustrations which the progress of knowledge and of
industrial civilization have shown to be inaccurate or useless, and of these
the present edition has been unburdened. This process, while greatly
increasing the interest and readableness of the book, has left intact
Smith's main argument, which is here offered to the reader as admittedly
the best foundation for the study of [wlitical economy.

INTRODUCTION

AND PLAN OF THE WORK

The annual labour of every nation is the fund which originally sujv
plies it with all the necessaries and conveniencies of life which it annually
consumes, and which consist always either in the immediate produce of
that labour, or in what is purchased with that produce from other nations.

According therefore, as this produce, or what is purchased with it,
bears a greater or smaller proportion to the number of those who are to
consume it, the nation will be better or worse supplied with all the
necessaries and conveniencies for which it has occasion.

But this proportion must in every nation be regulated by two different
circumstances; first, by the skill, dexterity, and judgment with which its
labour is generally applied; and, secondly, by the proportion between the
number of those who are employed in useful labour, and that of those
who are not so employed. Whatever be the soil, climate, or extent of ter-
ritory of any particular nation, the abundance or scantiness of its annual
supply must, in that {particular situation, depend upon those two cir-
cumstances.

The abundance or scantiness of this supply too seems to depend more
ujxjn the former of those two circumstances than upon the latter. Among
the savage nations of hunters and fishers, every individual who is able
to work, is more or less employed in useful labour, and endeavours to
provide, as well as he can, the necessaries and conveniencies of life, for
himself, or such of his family or tribe as are either too old, or too young,
or too infirm to go a hunting and fishing. Such nations, however, are
so miserably poor that, from mere want, they are frequendy reduced, or,
at least, think themselves reduced, to the necessity sometimes of directly
destroying, and sometimes of abandoning their infants, their old people,
and those afflicted with lingering diseases, to perish with hunger, or to
be devoured by wild beasts. Among civilized and thriving nations, on
the contrary, though a great number of people do not labour at all,
many of whom consume the produce of ten times, frequendy of a hun-
dred times more labour than the greater part of those who work; yet the
produce of the whole labour of the society is so great, that all are often
abundandy supplied, and a workman, even of the lowest and poorest

5

6 INTRODUCTION

order, if he is frugal and industrious, may enjoy a greater share of the
necessaries and conveniencies of life than it is possible for any savage
to acquire.

The causes of this improvement, in the productive powers of labour,
and the order, according to which its produce is naturally distributed
among the different ranks and conditions of men in the society, make
the subject of the First Book of this Inquiry.

Whatever be the actual state of the skill, dexterity, and judgment with
which labour is applied in any nation, the abundance or scantiness of
its annual supply must depend, during the continuance of that state,
upon the proportion between the number of those who are annually
employed in useful labour, and of those who are not so employed.
The number of useful and productive labourers, it will hereafter appear,
is every where in proportion to the quantity of capital stock which is
employed in setting them to work and to the particular way in which it
is so employed. The Second Book, therefore, treats of the nature of
capital stock, of the manner in which it is gradually accumulated, and
of the different quantities of labour which it puts into motion, according
to the different ways in which it is employed.

Nations tolerably well advanced as to skill, dexterity, and judgment,
in the application of labour, have followed very different plans in the
general conduct or direction of it; and those plans have not all been
equally favourable to the greatness of its produce. The policy of some
nations has given extraordinary encouragement to the industry of the
country; that of others to the industry of towns. Scarce any nation has
dealt equally and impartially with every sort of industry. Since the down-
fall of the Roman empire, the policy of Europe has been more favour-
able to arts, manufactures, and commerce, the industry of towns; than to
agriculture, the industry of the country. The circumstances which seem
to have introduced and established this policy are explained in the Third
Book.

Though those different plans were, perhaps, first introduced by the
private interests and prejudices of particular orders of men, without any
regard to, or foresight of, their consequences upon the general welfare of
the society; yet they have given occasion to very different theories of
political oeconomy; of which some magnify the importance of that indus-
try which is carried on in towns, others of that which is carried on in
the country. Those theories have had a considerable influence, not only
upon the opinions of men of learning, but upon the public conduct of
princes and sovereign states. I have endeavoured, in the Fourth Book, to

INTRODUCTION 7

explain, as fully and distinctly as I can, those different theories, and the
principal effects which they have produced in different ages and nations.
To explain in what has consisted the revenue of the great body of the
people, or what has been the nature of those funds, which, in different
ages and nations, have supplied their annual consumption, is the object
of these Four first Books. The Fifth and last Book treats of the revenue
of the sovereign, or commonwealth. In this book I have endeavoured
to show; first, what are the necessary expences of the sovereign, or com-
monwealth; which of those exjxnces ought to be defrayed by the general
contribution of the whole society; and which of them, by that of some
particular part only, or of some (xirticular members of it: secondly, what
are the different methods in which the whole society may be made to
contribute towards defraying the expwnces incumbent on the whole
society, and what are the principal advantages and inconvcniencies of
each of those methods: and, thirdly and lastly, what are the reasons and
causes which have induced almost all modern governments to mortgage
some part of this revenue, or to contract debts, and what have been the
effects of those debts upon the real wealth, the annual produce of the
land and labour of the society.

AN INQUIRY INTO THE NATURE AND CAUSES

OF THE

WEALTH OF NATIONS

BOOK I

Of the Causes of Improvement in the productive Power

OF Labour and of the Order according to which

ITS Produce is naturally distributed among

the different Ranks of the People.

CHAPTER I
Of the Division of Labour

THE greatest improvement in the productive powers of
labour, and the greater part of the skill, dexterity, and judg-
ment with which it is any where directed, or applied, seem
to have been the effects of the division of labour.

The effects of the division of labour, in the general business, of
society, will be more easily understood, by considering in what man-
ner it operates in some particular manufactures. It is commonly sup>-
posed to be carried furthest in some very trifling ones; not perhaps
that it really is carried further in them than in others of more impor-
tance: but in those trifling manufactures which are destined to sup-
ply the small wants of but a small number of people, the whole
number of workmen must necessarily be small; and those employed
in every different branch of the work can often be collected into the
same workhouse, and placed at once under the view of the spectator.
In those great manufactures, on the contrary, which are destined
to supply the great wants of the great body of the people, every dif-
ferent branch of the work employs so great a number of workmen,
that it is impossible to collect them all into the same workhouse. We
can seldom see more, at one time, than those employed in one single

9

10 WEALTH OF NATIONS

branch. Though in such manufactures, therefore, the work may
really be divided into a much greater number of parts, than in those
of a more trifling nature, the division is not near so obvious, and has
accordingly been much less observed.

To take an example, therefore, from a very trifling manufacture;
but one in which the division of labour has been very often taken
notice of, the trade of the pin-maker; a workman not educated to
this business (which the division of labour has rendered a distinct
trade), nor acquainted with the use of the machinery employed in
it (to the invention of which the same division of labour has prob-
ably given occasion), could scarce, perhaps, with his utmost industry,
make one pin in a day, and certainly could not make twenty. But
in the way in which this business is now carried on, not only the
whole work is a peculiar trade, but it is divided into a number of
branches, of which the greater part are likewise peculiar trades. One
man draws out the wire, another straights it, a third cuts it, a fourth
points it, a fifth grinds it at the top for receiving the head; to make
the head requires two or three distinct operations; to put it on, is a
[peculiar business, to whiten the pins is another; it is even a trade by
itself to put them into the paper; and the important business of
making a pin is, in this manner, divided into about eighteen dis-
tinct operations, which, in some manufactories, are all performed by
distinct hands, though in others the same man will sometimes per-
form two or three of them. I have seen a small manufactory of this
kind where ten men only were employed, and where some of them
consequently f)erformed two or three distinct op)erations. But though
they were very fxxjr, and therefore but indifferently accommodated
with the necessary machinery, they could, when they exerted them-
selves, make among them about twelve pounds of pins in a day.
There are in a pound upwards of four thousand pins of a middling
size. Those ten persons, therefore, could make among them upwards
of forty-eight thousand pins in a day. Each person, therefore, mak-
ing a tenth part of forty-eight thousand pins, might be considered as
making four thousand eight hundred pins in a day. But if they had
all wrought separately and independently, and without any of them
having been educated to this peculiar business, they certainly could
not each of them have made twenty, perhaps not one pin in a day;

DIVISION OF LABOUR II

that is, certainly, not the two hundred and fortieth, perhaps not the
four thousand eight hundredth part of what they are at present
capable of performing, in consequence of a proper division and com-
bination of their different operations.

In every other art and manufacture, the effects of the division of
labour are similar to what they are in this very trifling one; though,
in many of them, the labour can neither be so much subdivided, nor
reduced to so great a simplicity of operation. The division of labour,
however, so far as it can be introduced, occasions, in every art, a
proportionate increase of the productive powers of labour. The sepa-
ration of different trades and employments from one another, seems
to have taken place, in consequence of this advantage. This separa-
tion too is generally carried furthest in those countries which enjoy
the highest degree of industry and improvement; what is the work
of one man in a rude state of society, being generally that of several
in an improved one. In every improved society, the farmer is gen-
erally nothing but a farmer; the manufacturer, nothing but a manu-
facturer. The labour too which is necessary to produce any one
complete manufacture, is almost always divided among a great num-
ber of hands. How many different trades are employed in each
branch of the linen and woollen manufacturers, from the growers of
the flax and the wool, to the bleachers and smoothers of the linen,
or to the dyers and dressers of the cloth! The nature of agriculture,
indeed, does not admit of so many subdivisions of labour, nor of so
complete a separation of one business from another, as manufactures.
It is impossible to separate so entirely, the business of the grazier
from that of the corn-farmer, as the trade of carpenter is commonly
separated from that of the smith. The spinner is almost always a
distinct person from the weaver; but the ploughman, the harrower,
the sower of the seed, and the reaper of the corn, are often the same.
The occasions for those different sorts of labour returning with the
different seasons of the year, it is impossible that one man should be
constandy employed in any one of them. This impossibility of
making so complete and entire a separation of all the different
branches of labour employed in agriculture, is perhaps the reason
why the improvement of the productive powers of labour in this
art, does not always keep pace with their improvement in manu-

12 WEALTH OF NATIONS

factures. The most opulent nations, indeed, generally excel all their
neighbours in agriculture as well as in manufactures; but they are
commonly more distinguished by their superiority in the latter than
in the former. Their lands are in general better cultivated, and hav-
ing more labour and expence bestowed ujxjn them, produce more
in proportion to the extent and natural fertility of the ground. But
this superiority of produce is seldom much more than in proportion
to the superiority of labour and expence. In agriculture, the labour
of the rich country is not always much more productive than that
of the poor; or, at least, it is never so much more productive, as it
commonly is in manufactures. The corn of the rich country, there-
fore, will not always, in the same degree of goodness, come cheaper
to market than that of the poor. The corn of Poland, in the same de-
gree of goodness, is as cheap as that of France, notwithstanding the
superior opulence and improvement of the latter country. The corn
of France is, in the corn provinces, fully as good, and in most years
nearly about the same price with the corn of England, though, in
opulence and improvement, France is perhaps inferior to England.
The corn-lands of England, however, are better cultivated than those
of France, and the corn-lands of France are said to be much better
cultivated than those of Poland. But though the poor country, not-
withstanding the inferiority of its cultivation, can, in some measure,
rival the rich in the cheapness and goodness of its corn, it can pretend
to no such competition in its manufactures; at least if those manufac-
tures suit the soil, climate, and situation of the rich country. The silks
of France are better and cheaper than those of England, because the
silk manufacture, at least under the present high duties upon the im-
portation of raw silk, does not so well suit the climate of England
as that of France. But the hard-ware and the coarse woollens of
England are beyond all comparison superior to those of France, and
much cheaper too in the same degree of goodness. In Poland there
are said to be scarce any manufactures of any kind, a few of those
coarser household manufactures excepted, without which no country
can well subsist.

This great increase of the quantity of work, which, in consequence
of the division of labour, the same number of people are capable of
performing, is owing to three different circumstances; first, to the

DIVISION OF LABOUR I3

increase of dexterity in every particular workman; secondly, to the
saving of the time which is commonly lost in passing from one spe-
cies of work to another; and lastly, to the invention of a great num-
ber of machines which facilitate and abridge labour, and enable one
man to do the work of many.

First, the improvement of the dexterity of the workman necessar-
ily increases the quantity of the work he can perform; and the divi-
sion of labour, by reducing every man's business to some one
simple operation, and by making this operation the sole employment
of his life, necessarily increases very much the dexterity of the work-
man. A common smith, who, though accustomed to handle the
hammer, has never been used to make nails, if upon some particular
occasion he is obliged to attempt it, will scarce, I am assured, be
able to make above two or three hundred nails in a day, and those
too very bad ones. A smith who has been accustomed to make nails,
but whose sole or principal business has not been that of a nailer,
can seldom with his utmost diligence make more than eight hun-
dred or a thousand nails in a day. I have seen several boys under
twenty years of age who had never exercised any other trade but that
of making nails, and who, when they exerted themselves, could
make, each of them, upwards of two thousand three hundred nails
in a day. The making of a nail, however, is by no means one of the
simplest operations. The same person blows the bellows, stirs or
mends the fire as there is occasion, heats the iron, and forges every
part of the nail: In forging the head too he is obliged to change his
tools. The different operations into which the making of a pin, or
of a metal button, is subdivided, are all of them much more simple,
and the dexterity of the person, of whose life it has been the sole
business to perform them, is usually much greater. The rapidity
with which some of the operations of those manufactures are per-
formed, exceeds what the human hand could, by those who had
never seen them, be supposed capable of acquiring.

Secondly, the advantage which is gained by saving the time com-
monly lost in passing from one sort of work to another, is much
greater than we should at first view be apt to imagine it. It is im-
possible to pass very quickly from one kind of work to another, that
is carried on in a different place, and with quite different tools. A

14 WEALTH OF NATIONS

country weaver, who cultivates a small farm, must lose a good deal
of time in passing from his loom to the field, and from the field to
his loom. When the two trades can be carried on in the same
workhouse, the loss of time is no doubt much less. It is even in this
case, however, very considerable. A man commonly saunters a little
in turning his hand from one sort of employment to another. When
he first begins the new work he is seldom very keen and hearty; his
mind, as they say, does not go to it, and for some time he rather
trifles than applies to good purpose. The habit of sauntering and of
indolent careless application, which is naturally, or rather necessarily
acquired by every country workman who is obliged to change his
work and his tools every half hour, and to apply his hand in twenty
different ways almost every day of his life; renders him almost
always slothful and lazy, and incapable of any vigorous application
even on the most pressing occasions. Independent, therefore, of his
deficiency in point of dexterity, this cause alone must always reduce
considerably the quantity of work which he is capable of performing.
Thirdly, and lastly, every body must be sensible how much labour
is facilitated and abridged by the application of proper machinery.
It is unnecessary to give any example. I shall only observe, there-
fore, that the invention of all those machines by which labour is so
much facilitated and abridged, seems to have been originally owing
to the division of labour. Men are much more likely to discover
easier and readier methods of attaining any object, when the whole
attention of their minds is directed towards that single object, than
when it is dissipated among a great variety of things. But in conse-
quence of the division of labour, the whole of every man's attention
comes naturally to be directed towards some one very simple object.
It is naturally to be expected, therefore, that some one or other of
those who are employed in each particular branch of labour should
soon find out easier and readier methods of performing their own
particular work, wherever the nature of it admits of such improve-
ment. A great part of the machines made use of in those manufac-
tures in which labour is most subdivided, were originally the inven-
tions of common workmen, who, being each of them employed in
some very simple of>eration, naturally turned their thoughts towards
finding out easier and readier methods of performing it. Whoever

DIVISION OF LABOUR I5

has been much accustomed to visit such manufactures, must fre-
quently have been shewn very pretty machines, which were the in-
ventions of such workmen, in order to facilitate and quicken their
own particular part of the work. In the first fire-engines, a boy was
constantly employed to open and shut alternately the communication
between the boiler and the cylinder, according as the piston either
ascended or descended. One of those boys, who loved to play with
his companions, observed that, by tying a string from the handle of
the valve which opened this communication to another part of the
machine, the valve would open and shut without his assistance, and
leave him at liberty to divert himself with his play-fellows. One of
the greatest improvements that has been made upon this machine,
since it was first invented, was in this manner the discovery of a boy
who wanted to save his own labour.

All the improvements in machinery, however, have by no means
been the inventions of those who had occasion to use the machines.
Many improvements have been made by the ingenuity of the makers
of the machines, when to make them became the business of a pe-
culiar trade; and some by that of those who are called philosophers
or men of speculation, whose trade it is not to do any thing, but to
observe every thing; and who, uf)on that account, are often capable
of combining together the powers of the most distant and dissimilar
objects. In the progress of society, philosophy or speculation be-
comes, like every other employment, the principal or sole trade and
occupation of a particular class of citizens. Like every other employ-
ment too, it is subdivided into a great number of different branches,
each of which affords occupation to a peculiar tribe or class of phi-
losophers; and this subdivision of employment in philosophy, as well
as in every other business, improves dexterity, and saves time. Each
individual becomes more expert in his own peculiar branch, more
work is done upon the whole, and the quantity of science is con-
siderably increased by it.

It is the great multiplication of the productions of all the different
arts, in consequence of the division of labour, which occasions, in a
well-governed society, that universal opulence which extends itself
to the lowest ranks of the people. Every workman has a great quan-
tity of his own work to dispose of beyond what he himself has oc-

l6 WEALTH OF NATIONS

casion for; and every other workman being exactly in the same situa-
tion, he is enabled to exchange a great quantity of his own goods
for a great quantity, or, what comes to the same thing, for the price
of a great quantity of theirs. He supplies them abundantly with
what they have occasion for, and they accommodate him as amply
with what he has occasion for, and a general plenty diffuses itself
through all the different ranks of the society.

Observe the accommodation of the most common artificer or day-
labourer in a civilized and thriving country, and you will perceive
that the number of people of whose industry a part, though but a
small part, has been employed in procuring him this accommodation,
exceeds all computation. The woollen coat, for example, which cov-
ers the day-labourer, as coarse and rough as it may appear, is the
produce of the joint labour of a great multitude of workmen. The
shepherd, the sorter of the wool, the wool<omber or carder, the
dyer, the scribbler, the spinner, the weaver, the fuller, the dresser,
with many others, must all join their different arts in order to com-
plete even this homely production. How many merchants and car-
riers, besides, must have been employed in transporting the materials
from some of those workmen to others who often live in a very dis-
tant part of the country! how much commerce and navigation in par-
ticular, how many ship-builders, sailors, sail-makers, rope-makers,
must have been employed in order to bring together the different
drugs made use of by the dyer, which often come from the re-
motest corners of the world! What a variety of labour too is neces-
sary in order to produce the tools of the meanest of those workmen!
To say nothing of such complicated machines as the ship of the
sailor, the mill of the fuller, or even the loom of the weaver, let us
consider only what a variety of labour is requisite in order to form
that very simple machine, the shears with which the shepherd clips
the wool. The miner, the builder of the furnace for smelting the
ore, the feller of the timber, the burner of the charcoal to be made
use of in the smelting-house, the brick-maker, the brick-layer, the
workmen who attend the furnace, the mill-wright, the forger, the
smith, must all of them join their different arts in order to produce
them. Were we to examine, in the same manner, all the different
parts of his dress and household furniture, the coarse linen shirt

DIVISION OF LABOUR I7

which he wears next his skin, the shoes which cover his feet, the
bed which he Ues on, and all the different parts which compose it,
the kitchen-grate at which he prepares his victuals, the coals which
he makes use of for that purpose, dug from the bowels of the earth,
and brought to him perhaps by a long sea and a long land carriage,
all the other utensils of his kitchen, all the furniture of his table, the
knives and forks, the earthen or pewter plates upon which he serves
up and divides his victuals, the different hands employed in prepar-
ing his bread and his beer, the glass window which lets in the heat
and the light, and keeps out the wind and the rain, with all the
knowledge and art requisite for preparing that beautiful and happy
invention, without which these northern parts of the world could
scarce have afforded a very comfortable habitation, together with
the tools of all the different workmen employed in producing those
different conveniences; if we examine, I say, all these things, and con-
sider what a variety of labour is employed about each of them, we
shall be sensible that without the assistance and co-operation of
many thousands, the very meanest person in a civilized country could
not be provided, even according to, what we very falsely imagine,
the easy and simple manner in which he is commonly accommo-
dated. Compared, indeed, with the more extravagant luxury of the
great, his accommodation must no doubt appear extremely simple
and easy; and yet it may be true, perhaps, that the accommodation
of an European prince does not always so much exceed that of an
industrious and frugal peasant, as the accommodation of the latter
exceeds that of many an African king, the absolute master of the lives
and liberties of ten thousand naked savages.

CHAPTER II

Of the Principle Which Gives Occasion to the
Division of Labour

THIS division of labour, from which so many advantages
are derived, is not originally the effect of any human wis-
dom, which foresees and intends that general opulence to
which it gives occasion. It is the necessary, though very slow and
gradual, consequence of a certain prop>ensity in human nature which
has in view no such extensive utility; the propensity to truck, barter,
and exchange one thing for another.

Whether this propensity be one of those original principles in
human nature, of which no further account can be given; or whether,
as seems more probable, it be the necessary consequence of the facul-
ties of reason and speech, it belongs not to our present subject to en-
quire. It is common to all men, and to be found in no other race of
animals, which seem to know neither this nor any other species of
contracts. Two greyhounds, in running down the same hare, have
sometimes the appearance of acting in some sort of concert. Each
turns her towards his companion, or endeavours to intercept her
when his companion turns her toward himself. This, however, is not
the effect of any contract, but of the accidental concurrence of their
passions in the same object at that particular time. Nobody ever saw
a dog make a fair and deliberate exchange of one bone for another
with another dog. Nobody ever saw one animal by its gestures and
natural cries signify to another, this is mine, that yours; I am willing
to give this for that. When an animal wants to obtain something
either of a man or of another animal, it has no other means of p)er-
suasion but to gain the favour of those whose service it requires. A
puppy fawns upon its dam, and a spaniel endeavours by a thousand
attractions to engage the attention of its master who is at dinner,
when it wants to be fed by him. Man sometimes uses the same arts
with his brethren, and when he has no other means of engaging

i8

ORIGIN OF DIVISION OF LABOUR 1 9

them to act according to his inchnations, endeavours by every servile
and fawning attention to obtain their good will. He has not time,
however, to do this upon every occasion. In civilized society he
stands at all times in need of the co-operation and assistance of great
multitudes, while his whole life is scarce sufficient to gain the friend-
ship of a few persons. In almost every other race of animals each in-
dividual, when it is grown up to maturity, is entirely independent,
and in its natural state has occasion for the assistance of no other
living creature. But man has almost constant occasion for the help of
his brethren, and it is in vain for him to expect it from their benevo-
lence only. He will be more likely to prevail if he can interest their
self-love in his favour, and shew them that it is for their own ad-
vantage to do for him what he requires of them. Whoever offers to
another a bargain of any kind, proposes to do this: Give me that
which I want, and you shall have this which you want, is the mean-
ing of every such offer; and it is in this manner that we obtain from
one another the far greater part of those good offices which we stand
in need of.

It is not from the benevolence of the butcher, the brewer, or the
baker, that we expect our dinner, but from their regard to their own
interest. We address ourselves, not to their humanity but to their self-
love, and never talk to them of our own necessities but of their ad-
vantages. Nobody but a beggar chuses to depend chieHy up>on the
benevolence of his fellow-citizens. Even a beggar does not depend
upon it entirely. The charity of well-disp)osed f)eople, indeed, suf>-
plies him with the whole fund of his subsistence. But though this
principle ultimately provides him with all the necessaries of life
which he has occasion for, it neither does nor can provide him with
them as he has occasion for them. The greater part of his occasional
wants are supplied in the same manner as those of other people, by
treaty, by barter, and by purchase. With the money which one man
gives him he purchases food. The old cloaths which another bestows
upon him he exchanges for other old cloaths which suit him better,
or for lodging, or for food, or for money, with which he can buy
either food, cloaths, or lodging, as he has occasion.

As it is by treaty, by barter, and by purchase, that we obtain from
one another the greater part of those mutual good offices which we

20 WEALTH OF NATIONS

Stand in need of, so it is this same trucking disp)osition which origi-
nally gives occasion to the division of labour. In a tribe of hunters
or shepherds a particular person makes bows and arrows, for ex-
ample, with more readiness and dexterity than any other. He fre-
quently exchanges them for cattle or for venison with his compan-
ions; and he finds at last that he can in this manner get more catde
and venison, than if he himself went to the field to catch them. From
a regard to his own interest, therefore, the making of bows and ar-
rows grows to be his chief business, and he becomes a sort of ar-
mourer. Another excels in making the frames and covers of their
litde huts or moveable houses. He is accustomed to be of use in
this way to his neighbours, who reward him in the same manner
with cattle and with venison, till at last he finds it his interest to
dedicate himself entirely to this employment, and to become a sort
of house<arpenter. In the same manner a third becomes a smith or
a brazier; a fourth a tanner or dresser of hides or skins, the principal
part of the clothing of savages. And thus the certainty of being able
to exchange all that surplus part of the produce of his own labour,
which is over and above his own consumption, for such parts of the
produce of other men's labour as he may have occasion for, en-
courages every man to apply himself to a particular occupation and
to cultivate and bring to perfection whatever talent or genius he may
jxjssess for that particular species of business.

The difference of natural talents in different men is, in reality,
much less than we are aware of; and the very different genius which
appears to distinguish men of different professions, when grown up
to maturity, is not upon many occasions so much the cause, as the
effect of the division of labour. The difference between the most
dissimilar characters, between a philosopher and a common street
porter, for example, seems to arise not so much from nature, as from
habit, custom, and education. When they came into the world, and
for the first six or eight years of their existence, they were, perhaps,
very much alike, and neither their parents nor playfellows could per-
ceive any remarkable difference. About that age, or soon after, they
come to be employed in very different occupations. The difference
of talents comes then to be taken notice of, and widens by degrees,
till at last the vanity of the philosopher is willing to acknowledge

ORIGIN OF DIVISION OF LABOUR 21

scarce any resemblance. But without the disposition to truck, barter,
and exchange, every man must have procured to himself every neces-
sary and conveniency of life which he wanted. All must have had
the same duties to perform, and the same work to do, and there
could have been no such difference of employment as could alone
give occasion to any great difference of talents.

As it is this disposition which forms that difference of talents, so
remarkable among men of different professions, so it is this same
disposition which renders that difference useful. Many tribes of ani-
mals acknowledged to be all of the same species, derive from nature
a much more remarkable distinction of genius, than what, antecedent
to custom and education, appears to take place among men. By na-
ture a philosopher is not in genius and disposition half so different
from a street porter, as a mastiff is from a greyhound, or a grey-
hound from a spaniel, or this last from a shepherd's dog. Those dif-
ferent tribes of animals, however, though all of the same species, are
of scarce any use to one another. The strength of the mastiff is not in
the least supported either by the swiftness of the greyhound, or by
the sagacity of the spaniel, or by the docility of the shepherd's dog.
The effects of those different geniuses and talents, for want of the
power or disposition to barter and exchange, cannot be brought
into a common stock, and do not in the least contribute to the bet-
ter accommodation and conveniency of the species. Each animal is
still obliged to support and defend itself, separately and independ-
ently, and derives no sort of advantage from that variety of talents
with which nature has distinguished its fellows. Among men, on the
contrary, the most dissimilar geniuses are of use to one another; the
different produces of their respective talents, by the general disposi-
tion to truck, barter, and exchange, being brought, as it were, into a
common stock, where every man may purchase whatever part of the
produce of other men's talents he has occasion for.

CHAPTER III

That the Division of Labour is Limited by the Extent
OF THE Market

AS it is the power of exchanging that gives occasion to the divi-
Z.^ sion of labour, so the extent of this division must always
X. jL. be limited by the extent of that power, or, in other words,
by the extent of the market. When the market is very small, no
person can have any encouragement to dedicate himself entirely to
one employment, for want of the jxiwer to exchange all that surplus
part of the produce of his own labour, which is over and above his
own consumption, for such parts of the produce of other men's
labour as he has occasion for.

There are some sorts of industry, even of the lowest kind, which
can be carried on no where but in a great town. A porter, for exam-
ple, can find employment and subsistence in no other place. A
village is by much too narrow a sphere for him; even an ordinary
market town is scarce large enough to afford him constant occupa-
tion. In the lone houses and very small villages which are scattered
about in so desert a country as the Highlands of Scotland, every
farmer must be butcher, baker and brewer for his own family. In
such situations we can scarce expect to find even a smith, a carpenter,
or a mason, within less than twenty miles of another of the same
trade. The scattered families that live at eight or ten miles distant
from the nearest of them, must learn to {perform themselves a great
number of little pieces of work, for which, in more pwpulous coun-
tries, they would call in the assistance of those workmen. Country
workmen are almost everywhere obliged to apply themselves to all
the different branches of industry that have so much affinity to one
another as to be employed about the same sort of materials. A coun-
try carpenter deals in every sort of work that is made of wood: a
country smith in every sort of work that is made of iron. The former
is not only a carpenter, but a joiner, a cabinet maker, and even a

LIMIT OF DIVISION OF LABOUR 2^

carver in wood, as well as a wheel-wright, a plough-wright, a cart
and waggon maker. The employments of the latter are still more
various. It is impwssible there should be such a trade as even that of
a nailer in the remote and inland parts of the Highlands of Scot-
land. Such a workman at the rate of a thousand nails a day, and
three hundred working days in the year, will make three hundred
thousand nails in the year. But in such a situation it would be im-
possible to dispose of one thousand, that is, of one day's work in the
year.

As by means of water<arriage a more extensive market is opened
to every sort of industry than what land-carriage alone can afford
it, so it is upon the sea<oast, and along the banks of navigable rivers,
that industry of every kind naturally begins to subdivide and improve
itself, and it is frequently not till a long time after that those im-
provements extend themselves to the inland parts of the country. A
broad-wheeled waggon, attended by two men, and drawn by eight
horses, in about six weeks time carries and brings back between Lon-
don and Edinburgh near four ton weight of goods. In about the
same time a ship navigated by six or eight men, and sailing between
the ports of London and Leith, frequently carries and brings back
two hundred ton weight of goods. Six or eight men, therefore, by
the help of water-carriage, can carry and bring back in the same
time the same quantity of goods between London and Edinburgh,
as fifty broad-wheeled waggons, attended by a hundred men, and
drawn by four hundred horses. Upwn two hundred tons of goods,
therefore, carried by the cheapest land<arriage from London to
Edinburgh, there must be charged the maintenance of a hundred
men for three weeks, and both the maintenance, and, what is nearly
equal to the maintenance, the wear and tear of four hundred horses
as well as of fifty great waggons. Whereas, upon the same quantity
of goods carried by water, there is to be charged only the mainte-
nance of six or eight men, and the wear and tear of a ship of two
hundred tons burthen, together with the value of the superior risk,
or the difference of the insurance between land and water-carriage.
Were there no other communication between those two places,
therefore, but by land-carriage, as no goods could be transported
from the one to the other, except such whose price was very con-

24 WEALTH OF NATIONS

siderable in proportion to their weight, they could carry on but a
small part of that commerce which at present subsists between them,
and consequendy could give but a small part of that encouragement
which they at present mutually afford to each other's industry.
There could be little or no commerce of any kind between the dis-
tant parts of the world. What goods could bear the expense of land-
carriage between London and Calcutta? Or if there were any so
precious as to be able to support this expence, with what safety could
they be transported through the territories of so many barbarous na-
tions? Those two cities, however, at present carry on a very consid-
erable commerce with each other, and by mutually affording a
market, give a good deal of encouragement to each other's industry.

Since such, therefore, are the advantages of water<arriage, it is
natural that the first improvements of art and industry should be
made where this conveniency opens the whole world for a market
to the produce of every sort of labour, and that they should always be
much later in extending themselves into the inland parts of the coun-
try. The inland parts of the country can for a long time have no
other market for the greater part of their goods, but the country
which lies round about them, and separates them from the sea-
coast, and the great navigable rivers. The extent of their market,
therefore, must for a long time be in proportion to the riches and
populousness of that country, and consequently their improvement
must always be posterior to the improvement of that country. In
our North American colonies the plantations have constandy fol-
lowed either the sea<oast or the banks of the navigable rivers, and
have scarce any where extended themselves to any considerable dis-
tance from both.

The nations that, according to the best authenticated history, ap-
pear to have been first civilized, were those that dwelt round the
coast of the Mediterranean sea. That sea, by far the greatest inlet
that is known in the world, having no tides, nor consequendy any
waves except such as are caused by the wind only, was, by the
smoothness of its surface, as well as by the multitude of its islands,
and the proximity of its neighbouring shores, extremely favourable
to the infant navigation of the world; when, from their ignorance
of the compass, men were afraid to quit the view of the coast, and

LIMIT OF DIVISION OF LABOUR 25

from the imperfection of the art of ship-building, to abandon them-
selves to the boisterous waves of the ocean. To pass beyond the
pillars of Hercules, that is, to sail out of the Streights of Gibraltar,
was, in the antient world, long considered as a most wonderful and
dangerous exploit of navigation. It was late before even the Phe-
nicians and Carthaginians, the most skilful navigators and ship-
builders of those old times, attempted it, and they were for a long
time the only nations that did attempt it.

Of all the countries on the coast of the Mediterranean sea, Egypt
seems to have been the first in which either agriculture or manufac-
tures were cultivated and improved to any considerable degree. Up-
per Egypt extends itself nowhere above a few miles from the Nile,
and in Lower Egypt that great river breaks itself into many different
canals, which, with the assistance of a little art, seem to have afforded
a communication by water<arriage, not only between all the great
towns, but between all the considerable villages, and even to many
farm-houses in the country; nearly in the same manner as the Rhine
and the Maese do in Holland at present. The extent and easiness of
this inland navigation was probably one of the principal causes of
the early improvement of Egypt.

The improvements in agriculture and manufactures seem like-
wise to have been of very great antiquity in the provinces of Bengal
in the East Indies, and in some of the eastern provinces of China;
though the great extent of this antiquity is not authenticated by any
histories of whose authority we, in this part of the world, are well
assured. In Bengal the Ganges and several other great rivers form a
great number of navigable canals in the same manner as the Nile
does in Egypt. In the eastern provinces of China, too, several great
rivers form, by their different branches, a multitude of canals, and
by communicating with one another afford an inland navigation
much more extensive than that either of the Nile or the Ganges, or
perhaps than both of them put together. It is remarkable that neither
the antient Egyptians, nor the Indians, nor the Chinese, encouraged
foreign commerce, but seem all to have derived their great opulence
from this inland navigation.

All the inland parts of Africa, and all that part of Asia which lies
any considerable way north of the Euxine and Caspian seas, the

26 WEALTH OF NATIONS

antient Scythia, the modern Tartary and Siberia, seem in all ages ol I

the world to have been in the same barbarous and uncivilized state ir i

which we find them at present. The sea of Tartary is the frozen i

ocean which admits of no navigation, and though some of the great -

est rivers in the world run through that country, they are at toe t

great a distance from one another to carry commerce and commu -

nication through the greater part of it. There are in Africa none oi [

those great inlets, such as the Baltic and Adriatic seas in Europe, tht ;

Mediterranean and Euxine seas in both Europe and Asia, and the :

gulphs of Arabia, Persia, India, Bengal, and Siam, in Asia, to carr) '

maritime commerce into the interior parts of that great continent :

and the great rivers of Africa are at too great a distance from one :

another to give cKcasion to any considerable inland navigation. Tht ;

commerce besides which any nation can carry on by means of a i

river which does not break itself into any great number of branches >

or canals, and which runs into another territory before it reaches the ;

sea, can never be very considerable; because it is always in the powei •

of the nations who possess that other territory to obstruct the com- ■

munication between the upfjer country and the sea. The navigatior i

of the Danube is of very little use to the different states of Bavaria ,

Austria and Hungary, in comparison of what it would be if any ol :

them possessed the whole of its course till it falls into the Black Sea .

CHAPTER IV
Of the Origin and Use of Money

WHEN the division of labour has been once thoroughly
established, it is but a very small part of a man's wants
which the produce of his own labour can supply. He sup-
plies the far greater part of them by exchanging that surplus part of
the produce of his own labour, which is over and above his own con-
sumption, for such parts of the produce of other men's labour as he
has occasion for. Every man thus lives by exchanging, or becomes in
some measure a merchant, and the society itself grows to be what is
properly a commercial society.

But when the division of labour first began to take place, this
power of exchanging must frequently have been very much clogged
and embarrassed in its operations. One man, we shall suppose, has
more of a certain commodity than he himself has occasion for, while
another has less. The former consequently would be glad to dispose
of, and the latter to purchase, a part of this superfluity. But if this
latter should chance to have nothing that the former stands in need
of, no exchange can be made between them. The butcher has more
meat in his shop than he himself can consume, and the brewer and
the baker would each of them be willing to purchase a part of it.
But they have nothing to offer in exchange, except the different pro-
ductions of their resjjective trades, and the butcher is already pro-
vided with all the bread and beer which he has immediate occasion
for. No exchange can, in this case, be made between them. He can-
not be their merchant, nor they his customers; and they are all of
them thus mutually less serviceable to one another. In order to avoid
the inconveniency of such situations, every prudent man in every pe-
riod of society, after the first establishment of the division of labour,
must naturally have endeavoured to manage his affairs in such a
manner, as to have at all times by him, besides the peculiar produce
of his own industry, a certain quantity of some one commodity or

27

28 WEALTH OF NATIONS

other, such as he imagined few people would be likely to refuse in
exchange for the produce of their industry.

Many different commodities, it is probable, were successively both
thought of and employed for this purpose. In the rude ages of so-
ciety, cattle are said to have been the common instrument of com-
merce; and, though they must have been a most inconvenient one,
yet in old times we find things were frequently valued according to
the number of cattle which had been given in exchange for them.
The armour of Diomede, says Homer, cost only nine oxen; but that
of Glaucus cost an hundred oxen. Salt is said to be the common in-
strument of commerce and exchanges in Abyssinia; a species of shells
in some parts of the coast of India; dried cod at Newfoundland; to-
bacco in Virginia; sugar in some of our West India colonies; hides
or dressed leather in some other countries; and there is at this day a
village in Scodand where it is not uncommon, I am told, for a work-
man to carry nails instead of money to the baker's shop or the ale-
house.

In all countries, however, men seem at last to have been deter-
mined by irresistible reasons to give the preference, for this employ-
ment, to metals above every other commodity. Metals can not only
be kept with as little loss as any other commodity, scarce any thing
being less perishable than they are, but they can likewise, without
any loss, be divided into any number of parts, as by fusion those parts
can easily be reunited again; a quality which no other equally dur-
able commodities pwssess, and which more than any other quality
renders them fit to be the instruments of commerce and circulation.
The man who wanted to buy salt, for example, and had nothing but
cattle to give in exchange for it, must have been obliged to buy salt
to the value of a whole ox, or a whole sheep, at a time. He could
seldom buy less than this, because what he was to give for it could
seldom be divided without loss; and if he had a mind to buy more,
he must, for the same reasons, have been obliged to buy double or
triple the quantity, the value, to wit, of two or three oxen, or of two
or three sheep. If on the contrary, instead of sheep or oxen, he had
metals to give in exchange for it, he could easily proportion the
quantity of the metal to the precise quantity of the commodity which
he had immediate occasion for.

ORIGIN AND USE OF MONEY 29

Different metals have been made use o£ by different nations for
this purpose. Iron was the common instrument of commerce among
the antient Spartans; copper among the antient Romans; and gold
and silver among all rich and commercial nations.

Those metals seem originally to have been made use of for this
purpose in rude bars, without any stamp or coinage. Thus we are
told by Pliny, upon the authority of Timacus, an antient historian,
that, till the time of Servius Tullius, the Romans had no coined
money, but made use of unstamped bars of copper, to purchase what-
ever they had occasion for. These rude bars, therefore, performed
at this time the function of money.

The use of metals in this rude state was attended with two very
considerable inconveniences; first with the trouble of weighing; and,
secondly, with that of assaying them. In the precious metals, where
a small difference in the quantity makes a great difference in the
value, even the business of weighing, with proper exactness, requires
at least very accurate weights and scales. The weighing of gold in
particular is an operation of some nicety. In the coarser metals, in-
deed, where a small error would be of litde consequence, less accu-
racy would, no doubt, be necessary. Yet we should find it excessively
troublesome, if every time a poor man had occasion either to buy or
sell a farthing's worth of goods, he was obliged to weigh the farthing.
The operation of assaying is still more difficult, still more tedious,
and, unless a part of the metal is fairly melted in the crucible, with
proper dissolvents, any conclusion that can be drawn from it, is ex-
tremely uncertain. Before the institution of coined money, however,
unless they went through this tedious and difficult operation, pieople
must always have been liable to the grossest frauds and impositions,
and instead of a pound weight of pure silver, or pure copper, might
receive in exchange for their goods, an adulterated composition of
the coarsest and cheapest materials, which had, however, in their
outward appearance, been made to resemble those metals. To pre-
vent such abuses, to facilitate exchanges, and thereby to encourage
all sorts of industry and commerce, it has been found necessary, in
all countries that have made any considerable advances towards im-
provement, to affix a public stamp upon certain quantities of such
particular metals, as were in those countries commonly made use of

30 WEALTH OF NATIONS

to purchase goods. Hence the origin of coined money, and of those
public offices called mints; institutions exactly of the same nature
with those of the aulnagers and stampmasters of woollen and linen
cloth. All of them are equally meant to ascertain, by means of a
public stamp, the quantity and uniform goodness of those different
commodities when brought to market.

The first public stamps of this kind that were affixed to the cur-
rent metals, seem in many cases to have been intended to ascertain,
what it was both most difficult and most important to ascertain, the
goodness or fineness of the metal, and to have resembled the sterling
mark which is at present affixed to plate and bars of silver, or the
Spanish mark which is sometimes affixed to ingots of gold, and
which being struck only up)on one side of the piece, and not covering
the whole surface, ascertains the fineness, but not the weight of the
metal. Abraham weighs to Ephron the four hundred shekels of
silver which he had agreed to pay for the field of Machpelah. They
are said, however, to be the current money of the merchant, and yet
are received by weight and not by tale, in the same manner as ingots
of gold and bars of silver are at present. The revenues of the antient
Saxon kings of England are said to have been paid, not in money
but in kind, that is, in victuals and provisions of all sorts. William
the Conqueror introduced the custom of paying them in money.
This money, however, was, for a long time, received at the excheq-
uer, by weight and not by tale.

The inconveniency and difficulty of weighing those metals with
exactness gave occasion to the institution of coins, of which the
stamp, covering entirely both sides of the piece and sometimes the
edges too, was supposed to ascertain not only the fineness, but the
weight of the metal. Such coins, therefore, were received by tale
as at present, without the trouble of weighing.

The denominations of those coins seem originally to have ex-
pressed the weight or quantity of metal contained in them. In the
time of Servius Tullius, who first coined money at Rome, the Roman
As or Pondo contained a Roman pound of good copper. It was di-
vided in the same manner as our Troyes (xjund, into twelve ounces,
each of which contained a real ounce of good copper. The English
pound sterling in the time of Edward I., contained a pound, Tower

ORIGIN AND USE OF MONEY 3 1

weight, of silver of a known fineness. The Tower pound seems to
have been something more than the Roman pound, and something
less than the Troyes pound. This last was not introduced into the
mint of England till the i8th of Henry VIII. The French livre con-
tained in the time of Charlemagne a pound, Troyes weight, of silver
of a known fineness. The fair of Troyes in Champaign was at that
time frequented by all the nations of Europe, and the weights and
measures of so famous a market were generally known and es-
teemed. The Scots money pound contained, from the time of Alex-
ander the First to that of Robert Bruce, a pound of silver of the
same weight and fineness with the English pound sterling. English,
French, and Scots pennies too, contained all of them originally a real
pennyweight of silver, the twentieth part of an ounce, and the two-
hundred-and-fortieth part of a pound. The shilling, too, seems
originally to have been the denomination of a weight. When wheat
is at twelve shillings the quarter, says an antient statute of Henry
III., then wastel bread of a farthing shall weigh eleven shillings and
four pence. The proportion, however, between the shilling and either
the penny on the one hand, or the pound on the other, seems not to
have been so constant and uniform as that between the penny and
the pound. During the first race of the kings of France, the French
sou or shilling appears upon different occasions to have contained
five, twelve, twenty, and forty pennies. Among the antient Saxons
a shilling appears at one time to have contained only five pennies,
and it is not improbable that it may have been as variable among
them as among their neighbours, the antient Franks. From the time
of Charlemagne among the French, and from that of William the
Conqueror among the English, the proportion between the pound,
the shilling, and the penny, seems to have been uniformly the same
as at present, though the value of each has been very different. For
in every country of the world, I believe, the avarice and injustice of
princes and sovereign states, abusing the confidence of their subjects,
have by degrees diminished the real quantity of metal, which had
been originally contained in their coins. The Roman As, in the lat-
ter ages of the Republic, was reduced to the twenty-fourth part of its
original value, and, instead of weighing a pound, came to weigh
only half an ounce. The English pound and penny contain at present

32 WEALTH OF NATIONS

about a third only; the Scots pound and penny about a thirty-sixth;
and the French pound and penny about a sixty-sixth part of their
original value. By means of those operations the princes and sover-
eign states which performed them were enabled, in appearance, to
pay their debts and to fufil their engagements with a smaller quan-
tity of silver than would otherwise have been requisite. It was in-
deed in appearance only; for their creditors were really defrauded
of a part of what was due to them. All other debtors in the state
were allowed the same privilege, and might pay with the same nomi-
nal sum of the new and debased coin whatever they had borrowed in
the old. Such ojjerations, therefore, have always proved favourable
to the debtor, and ruinous to the creditor, and have sometimes pro-
duced a greater and more universal revolution in the fortunes of
private persons, than could have been occasioned by a very great
public calamity.

It is in this manner that money has become in all civilized nations
the universal instrument of commerce, by the intervention of which
goods of all kinds are bought and sold, or exchanged for one another.

What are the rules which men naturally observe in exchanging
them either for money or for one another, I shall now proceed to
examine. These rules determine what may be called the relative or
exchangeable value of goods.

The word value, it is to be observed, has two different meanings,
and sometimes expresses the utility of some particular object, and
sometimes the power of purchasing other goods which the possession
of that object conveys. The one may be called "value in use;" the
other, "value in exchange." The things which have the greatest
value in use have frequently litde or no value in exchange; and on
the contrary, those which have the greatest value in exchange have
frequendy litde or no value in use. Nothing is more useful than
water: but it will purchase scarce any thing; scarce any thing can be
had in exchange for it. A diamond, on the contrary, has scarce any
value in use; but a very great quantity of other goods may frequendy
be had in exchange for it.

In order to investigate the principles which regulate the exchange-
able value of commodities, I shall endeavour to shew,

ORIGIN AND USE OF MONEY 33

First, what is the real measure of this exchangeable value; or,
wherein consists the real price of all commodities.

Secondly, what are the different parts of which this real price is
composed or made up.

And, lastly, what are the different circumstances which sometimes
raise some or all of these different parts of price above, and some-
times sink them below their natural or ordinary rate; or, what are
the causes which sometimes hinder the market price, that is, the
actual price of commodities, from coinciding exactly with what may
be called their natural price.

I shall endeavour to explain, as fully and distinctly as I can, those
three subjects in the three following chapters, for which I must very
earnesdy entreat both the patience and attention of the reader: his
patience in order to examine a detail which may perhaps in some
places appear unnecessarily tedious; and his attention in order to
understand what may, perhaps, after the fullest explication which I
am capable of giving of it, appear still in some degree obscure. I
am always willing to run some hazard of being tedious in order to
be sure that I am perspicuous; and after taking the utmost pains that
I can to be perspicuous, some obscurity may still appear to remain
upon a subject in its own nature extremely abstracted.

CHAPTER V

Of the Real and Nominal Price of Commodities, or of Their
Price in Labour, and Their Price in Money

EVERY man is rich or poor according to the degree in which
he can afford to enjoy the necessaries, conveniences, and
amusements of human Hfe. But after the division of labour
has once thoroughly taken place, it is but a very small part of these
with which a man's own labour can supply him. The far greater
part of them he must derive from the labour of other people, and
he must be rich or poor according to the quantity of that labour
which he can command, or which he can afford to purchase. The
value of any commodity, therefore, to the person who possesses it,
and who means not to use or consume it himself, but to exchange
it for other commodities, is equal to the quantity of labour which it
enables him to purchase or command. Labour, therefore, is the real
measure of the exchangeable value of all commodities.

The real price of every thing, what every thing really costs to the
man who wants to acquire it, is the toil and trouble of acquiring it.
What every thing is really worth to the man who has acquired it,
and who wants to dispose of it or exchange it for something else, is
the toil and trouble which it can save to himself, and which it can
imjx)se upon other f)eople. What is bought with money or with
goods is purchased by labour, as much as what we acquire by the
toil of our own body. That money or those goods indeed save us
this toil. They contain the value of a certain quantity of labour
which we exchange for what is supposed at the time to contain the
value of an equal quantity. Labour was the first price, the original
purchase-money that was paid for all things. It was not by gold or
by silver, but by labour, that all the wealth of the world was origi-
nally purchased; and its value, to those who possess it, and who want
to exchange it for some new productions, is precisely equal to the
quantity of labour which it can enable them to purchase or com-
mand.

34

REAL AND NOMINAL PRICE 35

Wealth, as Mr. Hobbes says, is power. But the person who either
acquires, or succeeds to a great fortune, does not necessarily acquire
or succeed to any political power, either civil or military. His for-
tune may, perhaps, afford him the means of acquiring both, but the
mere possession of that fortune does not necessarily convey to him
cither. The power which that possession immediately and directly
conveys to him, is the power of purchasing; a certain command over
all the labour, or over all the produce of labour which is then in the
market. His fortune is greater or less, precisely in proportion to the
extent of this power, or to the quantity either of other men's labour,
or, what is the same thing, of the produce of other men's labour,
which it enables him to purchase or command. The exchangeable
value of every thing must always be precisely equal to the extent of
this power which it conveys to its owner.

But though labour be the real measure of the exchangeable value
of all commodities, it is not that by which their value is commonly
estimated. It is often difficult to ascertain the proportion between
two different quantities of labour. The time spent in two different
sorts of work will not always alone determine this prof)ortion. The
different degrees of hardship endured, and of ingenuity exercised,
must likewise be taken into account. There may be more labour in
an hour's hard work than in two hours' easy business; or in an
hour's application to a trade which it cost ten years' labour to learn,
than in a month's industry at an ordinary and obvious employment.
But it is not easy to find any accurate measure either of hardship or
ingenuity. In exchanging indeed the different productions of differ-
ent sorts of labour for one another, some allowance is commonly
made for both. It is adjusted, however, not by any accurate measure,
but by the higgling and bargaining of the market, according to that
sort of rough equality which, though not exact, is sufficient for carry-
ing on the business of common life.

Every commodity besides, is more frequently exchanged for, and
thereby compared with, other commodities than with labour. It is
more natural, therefore, to estimate its exchangeable value by the
quantity of some other commodity than by that of the labour which
it can purchase. The greater part of people, too, understand better
what is meant by a quantity of a particular commodity, than by a

36 WEALTH OF NATIONS

quantity of labour. The one is a plain palpable object; the other an
abstract notion, which, though it can be made sufficiently intelligible,
is not altogether so natural and obvious.

But when barter ceases, and money has become the common in-
strument of commerce, every particular commodity is more fre-
quently exchanged for money than for any other commodity. The
butcher seldom carries his beef or his mutton to the baker, or the
brewer, in order to exchange them for bread or for beer; but he car-
ries them to the market, where he exchanges them for money, and
afterwards exchanges that money for bread and for beer. The quan-
tity of money which he gets for them regulates, too, the quantity of
bread and beer which he can afterwards purchase. It is more natu-
ral and obvious to him, therefore, to estimate their value by the
quantity of money, the commodity for which he immediately ex-
changes them, than by that of bread and beer, the commodities for
which he can exchange them only by the intervention of another
commodity; and rather to say that his butcher's meat is worth three-
pence or fourpence a pound, than that it is worth three or four
pounds of bread, or three or four quarts of small beer. Hence it
comes to pass, that the exchangeable value of every commodity is
more frequendy estimated by the quantity of money, than by the
quantity either of labour or of any other commodity which can be
had in exchange for it.

Gold and silver, however, like every other commodity, vary in
their value, are sometimes cheaper and sometimes dearer, sometimes
of easier and sometimes of more difficult purchase. The quantity of
labour which any particular quantity of them can purchase or com-
mand, or the quantity of other goods which it will exchange for, de-
pends always upon the fertility or barrenness of the mines which
happen to be known about the time when such exchanges are made.
The discovery of the abundant mines of America reduced, in the
sixteenth century, the value of gold and silver in Europe to about a
third of what it had been before. As it cost less labour to bring those
metals from the mine to the market, so when they are brought
thither they could purchase or command less labour; and this revo-
lution in their value, though perhaps the greatest, is by no means the
only one of which history gives some account. But as a measure of

REAL AND NOMINAL PRICE 37

quantity, such as the natural foot, fathom, or handful, which is con-
tinually varying in its own quantity, can never be an accurate meas-
ure of the quantity of other things; so a commodity which is itself
continually varying in its own value, can never be an accurate meas-
ure of the value of other commodities. Equal quantities of labour, at
all times and places, may be said to be of equal value to the labourer.
In his ordinary state of health, strength and spirits; in the ordinary
degree of his skill and dexterity, he must always lay down the same
portion of his ease, his liberty, and his happiness. The price which
he pays must always be the same, whatever may be the quantity of
the goods which he receives in return for it. Of these, indeed, it may
sometimes purchase a greater and sometimes a smaller quantity; but
it is their value which varies, not that of the labour which purchases
them. At all times and places that is dear which it is difficult to come
at, or which costs much labour to acquire; and that cheap which is
to be had easily, or with very litde labour. Labour alone, therefore,
never varying in its own value, is alone the ultimate and real stand-
ard by which the value of all commodities can at all times and
places be estimated and compared. It is their real price; money is
their nominal price only.

But though equal quantities of labour are always of equal value to
the labourer, yet to the person who employs him they appear some-
times to be of greater and sometimes of smaller value. He purchases
them sometimes with a greater and sometimes with a smaller quan-
tity of goods, and to him the price of labour seems to vary like that
of all other things. It appears to him dear in the one case, and cheap
in the other. In reality, however, it is the goods which are cheap
in the one case, and dear in the other.

In this popular sense, therefore, labour, like commodities, may be
said to have a real and a nominal price. Its real price may be said
to consist in the quantity of the necessaries and conveniences of life
which are given for it; its nominal price, in the quantity of money.
The labourer is rich or poor, is well or ill rewarded, in proportion
to the real, not to the nominal price of his labour.

The distinction between the real and the nominal price of com-
modities and labour, is not a matter of mere speculation, but may
sometimes be of considerable use in practice. The same real price is

38 WEALTH OF NATIONS

always of the same value; but on account of the variations in the
value of gold and silver, the same nominal price is sometimes of very
different value. When a landed estate, therefore, is sold with a reser-
vation of a perpetual rent, if it is intended that this rent should al-
ways be of the same value, it is of importance to the family in whose
favour it is reserved, that it should not consist in a particular sum of
money. Its value would in this case be liable to variations of two
different kinds; first, to those which arise from the different quan-
tities of gold and silver which are contained at different times in
coin of the same denomination; and, secondly, to those which arise
from the different values of equal quantities of gold and silver at
different times.

Princes and sovereign states have frequently fancied that they had
a temporary interest to diminish the quantity of pure metal contained
in their coins; but they seldom have fancied that they had any to
augment it. The quantity of metal contained in the coins, I believe
of all nations, has, accordingly, been almost continually diminishing,
and hardly ever augmenting. Such variations therefore tend almost
always to diminish the value of a money rent.

The discovery of the mines of America diminished the value of
gold and silver in Europe. This diminution, it is commonly sup-
posed, though I apprehend without any certain proof, is still going
on gradually, and is likely to continue to do so for a long time. Upon
this supposition, therefore, such variations are more likely to dimin-
ish, than to augment the value of a money rent, even though it
should be stipulated to be paid, not in such a quantity of coined
money of such a denomination (in so many pounds sterling, for ex-
ample), but in so many ounces either of pure silver, or of silver of a
certain standard.

The rents which have been reserved in corn have preserved their
value much better than those which have been reserved in money,
even where the denomination of the coin has not been altered. By
the i8th of Elizabeth it was enacted. That a third of the rent of all
college leases should be reserved in corn, to be paid, either in kind,
or according to the current prices at the nearest public market. The
money arising from this corn rent, though originally but a third of
the whole, is in the present times, according to Doctor Blackstone,

REAL AND NOMINAL PRICE 39

commonly near double of what arises from the other two-thirds. The
old money rents of colleges must, according to this account, have
sunk almost to a fourth part of their antient value; or are worth lit-
tle more than a fourth part of the corn which they were formerly
worth. But since the reign of Philip and Mary the denomination of
the English coin has undergone little or no alteration, and the same
number of pounds, shillings and pence have contained very nearly
the same quantity of pure silver. This degradation, therefore, in the
value of the money rents of colleges, has arisen altogether from the
degradation in the value of silver.

When the degradation in the value of silver is combined with the
diminution of the quantity of it contained in the coin of the same
denomination, the loss is frequently still greater. In Scotland, where
the denomination of the coin has undergone much greater alterations
than it ever did in England, and in France, where it has undergone
still greater than it ever did in Scodand, some antient rents, origi-
nally of considerable value, have in this manner been reduced almost
to nothing.

Equal quantities of labour will at distant times be purchased more
nearly with equal quantities of corn, the subsistence of the labourer,
than with equal quantities of gold and silver, or perhaps of any other
commodity. Equal quantities of corn, therefore, will, at distant
times, be more nearly of the same real value, or enable the possessor
to purchase or command more nearly the same quantity of the labour
of other people. They will do this, I say, more nearly than equal
quantities of almost any other commodity; for even equal quantities
of corn will not do it exacdy. The subsistence of the labourer, or the
real price of labour, as I shall endeavour to show hereafter, is very
different upon different occasions; more liberal in a society advancing
to opulence, than in one that is standing still; and in one that is
standing still, than in one that is going backwards. Every other com-
modity, however, will at any particular time purchase a greater or
smaller quantity of labour in proportion to the quantity of subsist-
ence which it can purchase at that time. A rent therefore reserved
in corn is liable only to the variations in the quantity of labour which
a certain quantity of corn can purchase. But a rent reserved in any
other commodity is liable, not only to the variations in the quantity

40 WEALTH OF NATIONS

of labour which any particular quantity of corn can purchase, but to
the variations in the quantity of corn which can be purchased by any
particular quantity of that commodity.

Though the real value of a corn rent, it is to be observed however,
varies much less from century to century than that of a money rent,
it varies much more from year to year. The money price of labour,
as I shall endeavour to show hereafter, does not fluctuate from year
to year with the money price of corn, but seems to be every where
accommodated, not to the temporary or occasional, but to the aver-
age or ordinary price of that necessary of life. The average or ordi-
nary price of corn again is regulated, as I shall likewise endeavour
to show hereafter, by the value of silver, by the richness or barren-
ness of the mines which supply the market with that metal, or by
the quantity of labour which must be employed, and consequendy
of corn which must be consumed, in order to bring any particular
quantity of silver from the mine to the market. But the value of
silver, though it sometimes varies greatly from century to century,
seldom varies much from year to year, but frequently continues the
same, or very nearly the same, for half a century or a century to-
gether. The ordinary or average money price of corn, therefore,
may, during so long a period, continue the same or very nearly the
same too, and along with it the money price of labour, provided, at
least, the society continues, in other respects, in the same or nearly
in the same condition. In the mean time the temporary and occa-
sional price of corn may frequently be double, one year, of what it
had been the year before, or fluctuate, for example, from five and
twenty to fifty shillings the quarter. But when corn is at the latter
price, not only the nominal, but the real value of a corn rent will be
double of what it is when at the former, or will command double
the quantity either of labour or of the greater part of other commodi-
ties; the money price of labour, and along with it that of most other
things, continuing the same during all these fluctuations.

Labour, therefore, it appears evidently, is the only universal, as
well as the only accurate measure of value, or the only standard by
which we can compare the values of different commodities at all
times and at all places. We cannot estimate, it is allowed, the real
value of different commodities from century to century by the quan-

REAL AND NOMINAL PRICE 4I

titles of silver which were given for them. We cannot estimate it
from year to year by the quantities of corn. By the quantities of la-
bour we can, with the greatest accuracy, estimate it both from cen-
tury to century and from year to year. From century to century,
corn is a better measure than silver, because, from century to century,
equal quantities of corn will command the same quantity of labour
more nearly than equal quantities of silver. From year to year, on
the contrary, silver is a better measure than corn, because equal
quantities of it will more nearly command the same quantity of
labour.

But though in establishing perpjetual rents, or even in letting very
long leases, it may be of use to distinguish between real and nominal
price; it is of none in buying and selling, the more common and
ordinary transactions of human life.

At the same time and place the real and the nominal price of all
commodities are exactly in proportion to one another. The more or
less money you get for any commodity, in the London market, for
example, the more or less labour it will at that time and place enable
you to purchase or command. At the same time and place, there-
fore, money is the exact measure of the real exchangeable value
of all commodities. It is so, however, at the same time and place
only.

Though at distant places, there is no regular proportion between
the real and the money price of commodities, yet the merchant who
carries goods from the one to the other has nothing to consider but
their money price, or the difference between the quantity of silver
for which he buys them, and that for which he is likely to sell them.
Half an ounce of silver at Canton in China may command a greater
quantity both of labour and of the necessaries and conveniencies of
life, than an ounce at London. A commodity, therefore, which sells
for half an ounce of silver at Canton may there be really dearer, of
more real importance to the man who possesses it there, than a com-
modity which sells for an ounce at London is to the man who pos-
sesses it at London. If a London merchant, however, can buy at
Canton for half an ounce of silver, a commodity which he can after-
wards sell at London for an ounce, he gains a hundred per cent, by
the bargain, just as much as if an ounce of silver was at London

42 WEALTH OF NATIONS

exactly of the same value as at Canton. It is of no importance to him
that half an ounce of silver at Canton would have given him the com-
mand of more labour and of a greater quantity of the necessaries
and conveniencies of life than an ounce can do at London. An ounce
at London will aways give him the command of double the quan-
tity of all these, which half an ounce could have done there, and
this is precisely what he wants.

As it is the nominal or money price of goods, therefore, which
finally determines the prudence or imprudence of all purchases and
sales, and thereby regulates almost the whole business of common
life in which price is concerned, we cannot wonder that it should
have been so much more attended to than the real price.

In such a work as this, however, it may sometimes be of use to
compare the different real values of a particular commodity at differ-
ent times and places, or the different degrees of power over the labour
of other people which it may, upon different occasions, have given to
those who possessed it. We must in this case compare, not so much
the different quantities of silver for which it was commonly sold, as
the different quantities of labour which those different quantities of
silver could have purchased. But the current prices of labour at dis-
tant times and places can scarce ever be known with any degree of
exactness. Those of corn, though they have in a few places been
regularly recorded, are in general better known and have been more
frequendy taken notice of by historians and other writers. We must
generally, therefore, content ourselves with them, not as being always
exactly in the same proportion as the current prices of labour, but as
being the nearest approximation which can commonly be had to
that proportion. I shall hereafter have occasion to make several
comparisons of this kind.

In the progress of industry, commercial nations have found it con-
venient to coin several different metals into money; gold for larger
payments, silver for purchases of moderate value, and copp)er, or
some other coarse metal, for those of still smaller consideration. They
have always, however, considered one of those metals as more pe-
culiarly the measure of value than any of the other two; and this
preference seems generally to have been given to the metal which
they happened first to make use of as the instrument of commerce.
Having once begun to use it as their standard, which they must

REAL AND NOMINAL PRICE 43

have done when they had no other money, they have generally con-
tinued to do so even when the necessity was not the same.

The Romans are said to have had nothing but copper money till
within five years before the first Punic war, when they first began to
coin silver. Copper, therefore, appears to have continued always the
measure of value in that republic. At Rome all accounts appear to
have been kept, and the value of all estates to have been computed,
either in Asses or in Sestertii. The As was always the denomination
of a copper coin. The word Sestertius signifies two Asses and a half.
Though the Sestertius, therefore, was originally a silver coin, its
value was estimated in copf)er. At Rome, one who owed a great
deal of money, was said to have a great deal of other jjeople's copper.

The northern nations who established themselves upon the ruins
of the Roman empire, seem to have had silver money from the first
beginning of their setdements, and not to have known either gold
or copper coins for several ages thereafter. There were silver coins
in England in the time of the Saxons; but there was little gold
coined till the time of Edward III. nor any copper till that of James L
of Great Britain. In England, therefore, and for the same reason, I
believe, in all other modern nations of Europe, all accounts are kept,
and the value of all goods and of all estates is generally computed
in silver: and when we mean to express the amount of a {jerson's
fortune, we seldom mention the number of guineas, but the number
of pounds sterling which we suppose would be given for it.

Originally, in all countries, I believe, a legal tender of payment
could be made only in the coin of that metal, which was peculiarly
considered as the standard or measure of value. In England, gold
was not considered as a legal tender for a long time after it was
coined into money. The proportion between the values of gold and
silver money was not fixed by any public law or proclamation; but
was left to be setded by the market. If a debtor offered payment in
gold, the creditor might either reject such payment altogether, or
accept of it at such a valuation of the gold as he and his debtor could
agree upon. Copper is not at present a legal tender, except in the
change of the smaller silver coins. In this state of things the distinc-
tion between the metal which was the standard, and that which was
not the standard, was something more than a nominal distinction.

In process of time, and as people became gradually more familiar

44 WEALTH OF NATIONS

with the use of the different metals in coin, and consequently better
acquainted with the proportion between their respective values, it
has in most countries, I believe, been found convenient to ascertain
this proportion, and to declare by a public law that a guinea, for
example, of such a weight and fineness, should exchange for one-
and-twenty shillings, or be a legal tender for a debt of that amount.
In this state of things, and during the continuance of any one regU'
lated proportion of this kind, the distinction between the metal
which is the standard, and that which is not the standard, becomes
little more than a nominal distinction.

In consequence of any change, however, in this regulated propxjr-
tion, this distinction becomes, or at least seems to become, something
more than nominal again. If the regulated value of a guinea, for
example, was either reduced to twenty, or raised to two-and-twenty
shillings, all accounts being kept and almost all obligations for debt
being expressed in silver money, the greater part of payments could
in either case be made with the same quantity of silver money as
before; but would require very different quantities of gold money;
a greater in the one case, and a smaller in the other. Silver would
appear to be more invariable in its value than gold. Silver would ap-
pear to measure the value of gold, and gold would not appear to
measure the value of silver. The value of gold would seem to depend
upon the quantity of silver which it would exchange for; and the
value of silver would not seem to depend upon the quantity of gold
which it would exchange for. This difference, however, would be
altogether owing to the custom of keeping accounts, and of express-
ing the amount of all great and small sums rather in silver than in
gold money. One of Mr. Drummond's notes for five-and-twenty or
fifty guineas would, after an alteration of this kind, be still payable
with five-and-twenty or fifty guineas in the same manner as before.
It would, after such an alteration, be payable with the same quantity
of gold as before, but with very different quantities of silver. In the
payment of such a note, gold would appear to be moce invariable in
its value than silver. Gold would appear to measure the value of
silver, and silver would not appear to measure the value of gold. If
the custom of keeping accounts, and of expressing promissory notes
and other obligations for money in this manner, should ever become

REAL AND NOMINAL PRICE 45

general, gold, and not silver, would be considered as die metal which
was peculiarly the standard or measure of value.

In reality, during the continuance of any one regulated proportion
between the respective values of the different metals in coin, the
value of the most precious metal regulates the value of the whole
coin. Twelve copper pence contain half a pound, avoirdupois, of
copper, of not the best quality, which, before it is coined, is seldom
worth sevenpence in silver. But as by the regulation twelve such
pence are ordered to exchange for a shilling, they are in the market
considered as worth a shilling, and a shilling can at any time be
had for them. Even before the late reformation of the gold coin of
Great Britain, the gold, that part of it at least which circulated in
London and its neighbourhood, was in general less degraded below
its standard weight than the greater part of the silver. One-and-
twenty worn and defaced shillings, however, were considered as
equivalent to a guinea, which perhaps, indeed, was worn and de-
faced too, but seldom so much so. The late regulations have brought
the gold coin as near perhaps to its standard weight as it is possible
to bring the current coin of any nation; and the order, to receive no
gold at the public offices but by weight, is likely to preserve it so, as
long as that order is enforced. The silver coin still continues in the
same worn and degraded state as before the reformation of the gold
coin. In the market, however, one-and-twenty shillings of this de-
graded silver coin are still considered as worth a guinea of this
excellent gold coin.

The reformation of the gold coin has evidently raised the value of
the silver coin which can be exchanged for it.

The occasional fluctuations in the market price of gold and silver
bullion arise from the same causes as the like fluctuations in that of
all other commodities. The frequent loss of those metals from vari-
ous accidents by sea and by land, the continual waste of them in
gilding and plating, in lace and embroidery, in the wear and tear o£
coin, and in that of plate; require, in all countries which possess no
mines of their own, a continual importation, in order to repair this
loss and this waste. The merchant importers, like all other mer-
chants, we may believe, endeavour, as well as they can, to suit their
occasional importations to what, they judge, is likely to be the im-

46 WEALTH OF NATIONS

mediate demand. With all their attention, however, they sometimes
over-do the business, and sometimes under-do it. When they import
more bullion than is wanted, rather than incur the risk and trouble
of exporting it again, they are sometimes willing to sell a part of it
for something less than the ordinary or average price. When, on the
other hand, they import less than is wanted, they get something more
than this price. But when, under all those occasional fluctuations,
the market price either of gold or silver bullion continues for several
years together steadily and constantly, either more or less above, or
more or less below the mint price: we may be assured that this
steady and constant, either superiority or inferiority of price, is the
effect of something in the state of the coin, which, at that time, ren-
ders a certain quantity of coin either of more value or of less value
than the precise quantity of bullion which it ought to contain. The
constancy and steadiness of the effect, supposes a proportionable con-
stancy and steadiness in the cause.

The money of any particular country is, at any particular time and
place, more or less an accurate measure of value according as the
current coin is more or less exactly agreeable to its standard, or
contains more or less exactly the precise quantity of pure gold
or pure silver which it ought to contain. If in England, for exam-
ple, forty-four guineas and a half contained exactly a pound weight
of standard gold, or eleven ounces of fine gold and one ounce of
alloy, the gold coin of England would be as accurate a measure of
the actual value of goods at any particular time and place as the
nature of the thing would admit. But if, by rubbing and wearing,
forty-four guineas and a half generally contain less than a pound
weight of standard gold; the diminution, however, being greater in
some pieces than in others; the measure of value comes to be liable to
the same sort of uncertainty to which all other weights and measures
are commonly exposed. As it rarely happens that these are exactly
agreeable to their standard, the merchant adjusts the price of his
goods, as well as he can, not to what those weights and measures
ought to be, but to what, upon an average, he finds by experience
they actually are. In consequence of a like disorder in the coin, the
price of goods comes, in the same manner, to be adjusted, not to the
quantity of pure gold or silver which the coin ought to contain, but

REAL AND NOMINAL PRICE 47

to that which, upon an average, it is found by experience it actually
does contain.

By the money-price o£ goods, it is to be observed, I understand
always the quantity of pure gold or silver for which they are sold,
without any regard to the denomination of the coin. Six shillings
and eight-pence, for example, in the time of Edward I., I consider as
the same money-price with a pound sterling in the present times;
because it contained, as nearly as we can judge, the same quantity of
pure silver.

CHAPTER VI
Of the Component Parts of the Price of Commodities

IN that early and rude state of society which precedes both the
accumulation of stock and the appropriation of land, the pro-
portion between the quantities of labour necessary for acquiring
different objects seems to be the only circumstance which can afford
any rule for exchanging them for one another. If among a nation
of hunters, for example, it usually costs twice the labour to kill a
beaver which it does to kill a deer, one beaver should naturally ex-
change for or be worth two deer. It is natural that what is usually
the produce of two days or two hours labour, should be worth double
of what is usually the produce of one day's or one hour's labour.

If the one species of labour should be more severe than the other,
some allowance will naturally be made for this superior hardship;
and the produce of one hour's labour in the one way may frequently
exchange for that of two hours labour in the other.

Or if the one species of labour requires an uncommon degree of
dexterity and ingenuity, the esteem which men have for such talents,
will naturally give a value to their produce, superior to what would
be due to the time employed about it. Such talents can seldom be
acquired but in consequence of long application, and the superior
value of their produce may frequently be no more than a reasonable
compensation for the time and labour which must be spent in ac-
quiring them. In the advanced state of society, allowances of this
kind, for superior hardship and superior skill, are commonly made
in the wages of labour; and something of the same kind must prob-
ably have taken place in its earliest and rudest jjeriod.

In this state of things, the whole produce of labour belongs to the
labourer; and the quantity of labour commonly employed in ac-
quiring or producing any commodity, is the only circumstance which
can regulate the quantity of labour which it ought commonly to
purchase, conunand, or exchange for.

48

COMPONENT PARTS OF PRICE 49

As soon as stock has accumulated in the hands of particular per-
sons, some of them will naturally employ it in setting to work indus-
trious people, whom they will supply with materials and subsistence,
in order to make a profit by the sale of their work, or by what their
labour adds to the value of the materials. In exchanging the com-
plete manufacture either for money, for labour, or for other goods,
over and above what may be sufficient to pay the price of the mate-
rials, and the wages of the workmen, something must be given for
the profits of the undertaker of the work who hazards his stock in
this adventure. The value which the workmen add to the materials,
therefore, resolves itself in this case into two parts, of which the one
pays their wages, the other the profits of their employer upon the
whole stock of materials and wages which he advanced. He could
have no interest to employ them, unless he expected from the sale
of their work something more than what was sufficient to replace
his stock to him; and he could have no interest to employ a great
stock rather than a small one, unless his profits were to bear some
proportion to the extent of his stock.

The profits of stock, it may perhaps be thought, are only a different
name for the wages of a particular sort of labour, the labour of in-
spection and direction. They are, however, altogether different, are
regulated by quite different principles, and bear no proportion to
the quantity, the hardship, or the ingenuity of this supposed labour
of inspection and direction. They are regulated altogether by the
value of the stock employed, and are greater or smaller in propor-
tion to the extent of this stock. Let us suppose, for example, that in
some particular place, where the common annual profits of manu-
facturing stock are ten per cent, there are two different manufac-
tures, in each of which twenty workmen are employed at the rate of
fifteen pounds a year each, or at the expence of three hundred a year
in each manufactory. Let us suppose too, that the coarse materials
annually wrought up in the one cost only seven hundred pounds,
while the finer materials in the other cost seven thousand. The capi-
tal annually employed in the one will in this case amount only to
one thousand pounds; whereas that employed in the other will
amount to seven thousand three hundred pounds. At the rate of ten
per cent, therefore, the undertaker of the one will expect an yearly

50 WEALTH OF NATIONS

profit of about one hundred pounds only; while that of the other
will expect about seven hundred and thirty pounds. But though their
profits are so very different, their labour of inspection and direction
may be either altogether or very nearly the same. In many great
works, almost the whole labour of this kind is committed to some
principal clerk. His wages properly express the value of this labour
of inspection and direction. Though in settling them some regard
is had commonly, not only to his labour and skill, but to the trust
which is reposed in him, yet they never bear any regular propwrtion
to the capital of which he oversees the management; and the owner
of this capital, though he is thus discharged of almost all labour, still
expects that his profits should bear a regular proportion to his capi-
tal. In the price of commodities, therefore, the profits of stock con-
stitute a component part altogether different from the wages of
labour, and regulated by quite different principles.

In this state of things, the whole produce of labour does not always
belong to the labourer. He must in most cases share it with the
owner of the stock which employs him. Neither is the quantity of
labour commonly employed in acquiring or producing any com-
modity, the only circumstance which can regulate the quantity which
it ought commonly to purchase, command, or exchange for. An ad-
ditional quantity, it is evident, must be due for the profits of the
stock which advanced the wages and furnished the materials of that
labour.

As soon as the land of any country has all become private prop-
erty, the landlords, like all other men, love to reap where they never
sowed, and demand a rent even for its natural produce. The wood
of the forest, the grass of the field, and all the natural fruits of the
earth, which, when land was in common, cost the labourer only the
trouble of gathering them, come, even to him, to have an additional
price fixed upon them. He must then pay for the licence to gather
them; and must give up to the landlord a portion of what his labour
either collects or produces. This portion, or, what comes to the same
thing, the price of this portion, constitutes the rent of land, and in
the price of the greater part of commodities makes a third component
part.

The real value of all the different component parts of price, it

COMPONENT PARTS OF PRICE 5 1

must be observed, is measured by the quantity of labour which they
can, each of them, purchase or command. Labour measures the
value not only of that part of price which resolves itself into labour,
but of that which resolves itself into rent, and of that which resolves
itself into profit.

In every society the price of every commodity finally resolves itself
into some one or other, or all of those three parts; and in every im-
proved society, all the three enter more or less, as component parts,
into the price of the far greater part of commodities.

In the price of corn, for example, one part pays the rent of the
landlord, another pays the wages or maintenance of the labourers
and labouring cattle employed in producing it, and the third pays
the profit of the farmer. These three parts seem either immediately
or ultimately to make up the whole price of corn. A fourth part, it
may perhaps be thought, is necessary for replacing the stock of the
farmer, or for compensating the wear and tear of his labouring
catde, and other instruments of husbandry. But it must be consid-
ered that the price of any instrument of husbandry, such as a labour-
ing horse, is itself made up of the same three parts; the rent of the
land up)on which he is reared, the labour of tending and rearing him,
and the profits of the farmer who advances both the rent of this
land, and the wages of this labour. Though the price of the corn,
therefore, may pay the price as well as the maintenance of the horse,
the whole price still resolves itself either immediately or ultimately
into the same three parts of rent, labour, and profit.

In the price of flour or meal, we must add to the price of the corn,
the profits of the miller, and the wages of his servants; in the price of
bread, the profits of the baker, and the wages of his servants; and in
the price of both, the labour of transporting the corn from the
house of the farmer to that of the miller, and from that of the miller
to that of the baker, together with the profits of those who advance
the wages of that labour.

The price of flax resolves itself into the same three parts as that of
corn. In the price of linen we must add to this price the wages of
the flax-dresser, of the spinner, of the weaver, of the bleacher, &c.,
together with the profits of their resfjective employers.

As any particular commodity comes to be more manufactiu-ed,

52 WEALTH OF NATIONS

that part of the price which resolves itself into wages and profit,
comes to be greater in proportion to that which resolves itself into
rent. In the progress of the manufacture, not only the number of
profits increase, but every subsequent profit is greater than the fore-
going; because the capital from which it is derived must always be
greater. The capital which employs the weavers, for example, must
be greater than that which employs the spinners; because it not only
replaces that capital with its profits, but pays, besides, the wages of
the weavers; and the profits must always bear some proportion to the
capital.

In the most improved societies, however, there are always a few
commodities of which the price resolves itself into two parts only,
the wages of labour, and the profits of stock; and a still smaller num-
ber, in which it consists altogether in the wages of labour. In the
price of sea-fish, for example, one part pays the labour of the fisher-
men, and the other the profits of the capital employed in the fishery.
Rent very seldom makes any part of it, though it does sometimes,
as I shall shew hereafter. It is otherwise, at least through the greater
part of Europe, in river fisheries. A salmon fishery pays a rent, and
rent, though it cannot well be called the rent of land, makes a part
of the price of a salmon as well as wages and profit. In some parts
of Scotland a few poor people make a trade of gathering, along the
sea-shore, those litde variegated stones commonly known by the
name of Scotch Pebbles. The price which is paid to them by the
stone-cutter is altogether the wages of their labour; neither rent nor
profit make any part of it.

But the whole price of any commodity must still finally resolve
itself into some one or other, or all of those three parts; as whatever
part of it remains after paying the rent of the land, and the price of
the whole labour employed in raising, manufacturing, and bringing
it to market, must necessarily be profit to somebody.

As the price or exchangeable value of every particular commodity,
taken separately, resolves itself into some one or other, or all of those
three parts; so that of all the commodities which compose the whole
annual produce of the labour of every country, taken complexly,
must resolve itself into the same three parts, and be parcelled out
among different inhabitants of the country, either as the wages of

COMPONENT PARTS OF PRICE 53

their labour, the profits of their stock, or the rent of their land. The
whole of what is annually either collected or produced by the labour
of every society, or what comes to the same thing, the whole price
of it, is in this manner originally distributed among some of its dif-
ferent members. Wages, profit, and rent, are the three original
sources of all revenue as well as of all exchangeable value. All other
revenue is ultimately derived from some one or other of these.

Whoever derives his revenue from a fund which is his own, must
draw it either from his labour, from his stock, or from his land. The
revenue derived from labour is called wages. That derived from
stock, by the person who manages or employs it, is called profit. That
derived from it by the person who does not employ it himself, but
lends it to another, is called the interest or the use of money. It is
the compensation which the borrower pays to the lender, for the
profit which he has an opportunity of making by the use of the
money. Part of that profit naturally belongs to the borrower, who
runs the risk and takes the trouble of employing it; and part to the
lender, who affords him the opportunity of making this profit. The
interest of money is always a derivative revenue, which, if it is not
paid from the profit which is made by the use of the money, must
be paid from some other source of revenue, unless perhaps the bor-
rower is a spendthrift, who contracts a second debt in order to pay
the interest of the first. The revenue which proceeds altogether from
land, is called rent, and belongs to the landlord. The revenue of the
farmer is derived partly from his labour, and pardy from his stock.
To him, land is only the instrument which enables him to earn the
wages of this labour, and to make the profits of this stock. All taxes,
and all the revenue which is founded upon them, all salaries, pen-
sions, and annuities of every kind, are ultimately derived from some
one or other of those three original sources of revenue, and are paid
either immediately or mediately from the wages of labour, the profits
of stock, or the rent of land.

When those three different sorts of revenue belong to different per-
sons, they are readily distinguished; but when they belong to the
same they are sometimes confounded with one another, at least in
common language.

A gentleman who farms a part of his own estate, after paying the

54 WEALTH OF NATIONS

expense o£ cultivation, should gain both the rent of the landlord and
the profit of the farmer. He is apt to denominate, however, his
whole gain, profit, and thus confounds rent with profit, at least in
common language. The greater part of our North American and
West Indian planters are in this situation. They farm, the greater
part of them, their own estates, and accordingly we seldom hear of
the rent of a plantation, but frequently of its profit.

Common farmers seldom employ any overseer to direct the gen-
eral operations of the farm. They generally too work a good deal
with their own hands, as ploughmen, harrowers, &c. What remains
of the crop after paying the rent, therefore, should not only replace
to them their stock employed in cultivation, together with its ordi-
nary profits, but pay them the wages which are due to them, both as
labourers and overseers. Whatever remains, however, after paying
the rent and keeping up the stock, is called profit. But wages evi-
dently make a part of it. The farmer, by saving these wages, must
necessarily gain them. Wages, therefore, are in this case confounded
with profit.

An independent manufacturer, who has stock enough both to
purchase materials, and to maintain himself till he can carry his
work to market, should gain both the wages of a journeyman who
works under a master, and the profit which that master makes by
the sale of the journeyman's work. His whole gains, however, are
commonly called profit, and wages are, in this case too, confounded
with profit.

A gardener who cultivates his own garden with his own hands,
unites in his own person the three different characters, of landlord,
farmer, and labourer. His produce, therefore, should pay him the
rent of the first, the profit of the second, and the wages of the third.
The whole, however, is commonly considered as the earnings of his
labour. Both rent and profit are, in this case, confounded with
wages.

As in a civilized country there are but few commodities of which
the exchangeable value arises from labour only, rent and profit con-
tributing largely to that of the far greater part of them, so the annual
produce of its labour will always be sufficient to purchase or com-
mand a much greater quantity of labour than what was employed

COMPONENT PARTS OF PRICE 55

in raising, preparing, and bringing that prcxluce to market. If the
society were annually to employ all the labour which it can annually
purchase, as the quantity of labour would increase greatly every year,
so the produce of every succeeding year would be of vastly greater
value than that of the foregoing. But there is no country in which
the whole annual produce is employed in maintaining the indus-
trious. The idle every where consume a great part of it; and accord-
ing to the different proportions in which it is annually divided be-
tween those two different orders of people, its ordinary or average
value must either annually increase, or diminish, or continue the
same from one year to another.

CHAPTER VII
Of the Natural and Market Price of Commodities

THERE is in every society or neighbourhood an ordinary
or average rate both of wages and profit in every different
employment of labour and stock. This rate is naturally reg-
ulated, as I shall show hereafter, partly by the general circumstances
of the society, their riches or poverty, their advancing, stationary, or
declining condition; and partly by the particular nature of each
employment.

There is likewise in every society or neighbourhood an ordinary
or average rate of rent, which is regulated too, as I shall shew here-
after, partly by the general circumstances of the society or neighbour-
hood in which the land is situated, and partly by the natural or
improved fertility of the land.

These ordinary or average rates may be called the natural rates
of wages, profit, and rent, at the time and place in which they com-
monly prevail.

When the price of any commodity is neither more nor less than
what is sufficient to pay the rent of the land, the wages of the labour,
and the profits of the stock employed in raising, preparing, and
bringing it to market, according to their natural rates, the commodity
is then sold for what may be called its natural price.

The commodity is then sold precisely for what it is worth, or for
what it really costs the person who brings it to market; for though in
common language what is called the prime cost of any commodity
does not comprehend the profit of the person who is to sell it again,
yet if he sells it at a price which does not allow him the ordinary rate
of profit in his neighbourhood, he is evidently a loser by the trade;
since by employing his stock in some other way he might have made
that profit. His profit, besides, is his revenue, the proper fund of
his subsistence. As, while he is preparing and bringing the goods
to market, he advances to his workmen their wages, or their sub-

56

NATURAL AND MARKET PRICE 57

sistence; so he advances to himself, in the same manner, his own sub-
sistence, which is generally suitable to the profit which he may
reasonably expect from the sale of his goods. Unless they yield
him this profit, therefore, they do not repay him what they may very
properly be said to have really cost him.

Though the price, therefore, which leaves him this profit, is not
always the lowest at which a dealer may sometimes sell his goods,
it is the lowest at which he is likely to sell them for any considerable
time; at least where there is perfect liberty, or where he may change
his trade as often as he pleases.

The actual price at which any commodity is commonly sold is
called its market price. It may either be above, or below, or exacdy
the same with its natural price.

The market price of every particular commodity is regulated by
the proportion between the quantity which is actually brought to
market, and the demand of those who are willing to pay the natural
price of the commodity, or the whole value of the rent, labour, and
profit, which must be paid in order to bring it thither. Such people
may be called the effectual demanders, and their demand the effec-
tual demand; since it may be sufficient to effectuate the bringing of
the commodity to market. It is different from the absolute demand.
A very p)oor man may be said in some sense to have a demand
for a coach and six; he might like to have it; but his demand is not
an effectual demand, as the commodity can never be brought to
market in order to satisfy it.

When the quantity of any commodity which is brought to market
falls short of the effectual demand, all those who are willing to pay
the whole value of the rent, wages, and profit, which must be paid
in order to bring it thither, cannot be supplied with the quantity
which they want. Rather than want it altogether, some of them will
be willing to give more. A competition will immediately begin
among them, and the market price will rise more or less above the
natural price, according as either the greatness of the deficiency, or
the wealth and wanton luxury of the competitors, happen 10 animate
more or less the eagerness of the competition. Among competitors
of equal wealth and luxury the same deficiency will generally occa-
sion a more or less eager competition, according as the acquisition

58 WEALTH OF NATIONS

of the commodity happens to be of more or less importance to them.
Hence the exorbitant price of the necessaries of Hfe during the block-
ade of a town or in a famine.

When the quantity brought to market exceeds the effectual de-
mand, it cannot be all sold to those who are willing to pay the whole
value of the rent, wages and profit, which must be paid in order to
bring it thither. Some part must be sold to those who are willing to
pay less, and the low price which they give for it must reduce the
price of the whole. The market price will sink more or less below
the natural price, according as the greatness of the excess increases
more or less the competition of the sellers, or according as it happens
to be more or less important to them to get immediately rid of the
commodity. The same excess in the importation of perishable, will
occasion a much greater competition than in that of durable com-
modities; in the importation of oranges, for example, than in that of
old iron.

When the quantity brought to market is just sufficient to supply
the effectual demand and no more, the market price naturally comes
to be either exactly, or as nearly as can be judged of, the same with
the natural price. The whole quantity upon hand can be disposed
of for this price, and cannot be disposed of for more. The competi-
tion of the different dealers obliges them all to accept of this price,
but does not oblige them to accept of less.

The quantity of every commodity brought to market naturally
suits itself to the effectual demand. It is the interest of all those who
employ their land, labour, or stock, in bringing any commodity to
market, that the quantity never should exceed the effectual demand;
and it is the interest of all other people that it never should fall short
of that demand.

If at any time it exceeds the effectual demand, some of the com-
ponent parts of its price must be paid below their natural rate. If
it is rent, the interest of the landlords will immediately prompt them
to withdraw a part of their land; and if it is wages or profit, the
interest of the labourers in the one case, and of their employers in
the other, will prompt them to withdraw a part of their labour or
stock from this employment. The quantity brought to market will
soon be no more than sufficient to supply the effectual demand. All

NATURAL AND MARKET PRICE 59

the different parts of its price will rise to their natural rate, and the
whole price to its natural price.

If, on the contrary, the quantity brought to market should at any
time fall short of the effectual demand, some of the component parts
of its price must rise above their natural rate. If it is rent, the interest
of all other landlords will naturally prompt them to prepare more
land for the raising of this commodity; if it is wages or profit, the
interest of all other labourers and dealers will soon prompt them to
employ more labour and stock in preparing and bringing it to
market. The quantity brought thither will soon be sufficient to
supply the effectual demand. All the different parts of its price will
soon sink to their natural rate, and the whole price to its natural
price.

The natural price, therefore, is, as it were, the central price, to
which the prices of all commodities are continually gravitating. Dif-
ferent accidents may sometimes keep them suspended a good deal
above it, and sometimes force them down even somewhat below it.
But whatever may be the obstacles which hinder them from settling
in this center of repose and continuance, they are constantly tending
towards it.

The whole quantity of industry annually employed in order to
bring any commodity to market, naturally suits itself in this manner
to the effectual demand. It naturally aims at bringing always that
precise quantity thither which may be sufficient to supply, and no
more than supply, that demand.

But in some employments the same quantity of industry will in
different years produce very different quantities of commodities;
while in others it will produce always the same, or very nearly the
same. The same number of labourers in husbandry will, in different
years, produce very different quantities of corn, wine, oil, hops, &c.
But the same number of spinners and weavers will every year pro-
duce the same or very nearly the same quantity of linen and woollen
cloth. It is only the average produce of the one sf)ecies of industry
which can be suited in any respect to the effectual demand; and
as its actual produce is frequently much greater and frequently much
less than its average produce, the quantity of the commodities
brought to market will sometimes exceed a good deal, and some-

6o WEALTH OF NATIONS

times fall short a good deal, of the effectual demand. Even though
that demand therefore should continue always the same, their mar-
ket price will be liable to great fluctuations, will sometimes fall a
good deal below, and sometimes rise a good deal above, their natural
price. In the other species of industry, the produce of equal quanti-
ties of labour being always the same, or very nearly the same, it can
be more exactly suited to the effectual demand. While that demand
continues the same, therefore, the market price of the commodities
is likely to do so too, and to be either altogether, or as nearly as can
be judged of, the same with the natural price. That the price of
linen and woollen cloth is liable neither to such frequent nor to
such great variations as the price of corn, every man's experience will
inform him. The price of the one species of commodities varies only
with the variations in the demand : That of the other varies not only
with the variations in the demand, but with the much greater and
more frequent variations in the quantity of what is brought to mar-
ket in order to supply that demand.

The occasional and temporary fluctuations in the market price of
any commodity fall chiefly upon those parts of its price which re-
solve themselves into wages and profit. That part which re-
solves itself into rent is less affected by them. A rent certain in
money is not in the least affected by them either in its rate or in its
value. A rent which consists either in a certain proportion or in a
certain quantity of the rude produce, is no doubt affected in its yearly
value by all the occasional and temporary fluctuations in the market
price of that rude produce; but it is seldom affected by them in its
yearly rate. In settling the terms of the lease, the landlord and
farmer endeavour, according to their best judgment, to adjust that
rate, not to the temporary and occasional, but to the average and
ordinary price of the produce.

Such fluctuations affect both the value and the rate either of wages
or of profit, according as the market happens to be either over-
stocked or under-stocked with commodities or with labour; with
work done, or with work to be done. A public mourning raises the
price of black cloth (with which the market is almost always under-
stocked upon such occasions), and augments the profits of the
merchants who possess any considerable quantity of it. It has no

NATURAL AND MARKET PRICE 6l

effect upon the wages of the weavers. The market is under-stocked
with commodities, not with labour; with work done, not with work
to be done. It raises the wages of journeymen taylors. The market
is here under-stocked with labour. There is an effectual demand
for more labour, for more work to be done than can be had. It smks
the price of coloured silks and cloths, and thereby reduces the profits
of the merchants who have any considerable quantity of them upon
hand. It sinks too the wages of the workmen employed in preparing
such commodities, for which all demand is stopped for six months,
perhaps for a twelvemonth. The market is here over-stocked both
with commodities and with labour.

But though the market price of every particular commodity is in
this manner continually gravitating, if one may say so, towards the
natural price, yet sometimes particular accidents, sometimes natural
causes, and sometimes particular regulations of police, may, in many
commodities, keep up the market price, for a long time together,
a good deal above the natural price.

When by an increase in the effectual demand, the market price of
some particular commodity happens to rise a good deal above the
natural price, those who employ their stocks in supplying that mar-
ket are generally careful to conceal this change. If it was commonly
known, their great profit would tempt so many new rivals to employ
their stocks in the same way, that, the effectual demand being fully
supplied, the market price would soon be reduced to the natural
price, and perhaps for some time even below it. If the market is at
a great distance from the residence of those who supply it, they may
sometimes be able to keep the secret for several years together, and
may so long enjoy their extraordinary profits without any new rivals.
Secrets of this kind, however, it must be acknowledged, can seldom
be long kept; and the extraordinary profit can last very Uttle longer
than they are kept.

Secrets in manufactures are capable of being longer kept than
secrets in trade. A dyer who has found the means of producing a
particular colour with materials which cost only half the price of
those commonly made use of, may, with good management, enjoy
the advantage of his discovery as long as he lives, and even leave it as
a legacy to his posterity. His extraordinary gains arise from the

62 WEALTH OF NATIONS

high price which is paid for his private labour. They properly con-
sist in the high wages of that labour. But as they are repeated upon
every part of his stock, and as their whole amount bears, upon that
account, a regular proportion to it, they are commonly considered as
extraordinary profits of stock.

Such enhancements of the market price are evidently the effects
of particular accidents, of which, however, the operation may some
times last for many years together.

Some natural productions require such a singularity of soil and
situation, that all the land in a great country, which is fit for produc-
ing them, may not be sufficient to supply the effectual demand. The
whole quantity brought to market, therefore, may be disposed of to
those who are willing to give more than what is sufficient to pay the
rent of the land which produced them, together with the wages of
the labour, and the profits of the stock which were employed in pre-
paring and bringing them to market, according to their natural
rates. Such commodities may continue for whole centuries together
to be sold at this high price; and that part of it which resolves itself
into the rent of land is in this case the part which is generally paid
above its natural rate. The rent of the land which affords such sin-
gular and esteemed productions, like the rent of some vineyards in
France of a peculiarly happy soil and situation, bears no regular
proportion to the rent of other equally fertile and equally well<ulti-
vated land in its neighbourhood. The wages of the labour and the
profits of the stock employed in bringing such commodities to mar-
ket, on the contrary, are seldom out of their natural proportion to
those of the other employments of labour and stock in their neigh-
bourhood.

Such enhancements of the market price are evidently the effect of
natural causes which may hinder the effectual demand from ever
being fully supplied, and which may continue, therefore, to operate
for ever.

A monofwly granted either to an individual or to a trading com-
pany has the same effect as a secret in trade or manufactures. The
monopolists, by keeping the market constantly under-stocked, by
never fully supplying the effectual demand, sell their commodities

NATURAL AND MARKET PRICE 63

much above the natural price, and raise their emoluments, whether
they consist in wages or profit, greatly above their natural rate.

The price of monopoly is upon every occasion the highest which
can be got. The natural price, or the price of free competition, on
the contrary, is the lowest which can be taken, not upon every occa-
sion indeed, but for any considerable time together. The one is
upon every occasion the highest which can be squeezed out of the
buyers, or which, it is supposed, they will consent to give: The
other is the lowest which the sellers can commonly afford to take,
and at the same time continue their business.

The exclusive privileges of corporations, statutes of apprenticeship,
and all those laws which restrain, in particular employments, the
competition to a smaller number than might otherwise go into them,
have the same tendency, though in a less degree. They are a sort
of enlarged monopolies, and may frequently, for ages together, and
in whole classes of employments, keep up the market price of partic-
ular commodities above the natural price, and maintain both the
wages of the labour and the profits of the stock employed about them
somewhat above their natural rate.

Such enhancements of the market price may last as long as the
regulations of police which give occasion to them.

The market price of any particular commodity, though it may
continue long above, can seldom continue long below, its natural
price. Whatever part of it was paid below the natural rate, the
{jersons whose interest it affected would immediately feel the loss,
and would immediately withdraw either so much land, or so
much labour, or so much stock, from being employed about it,
that the quantity brought to market would soon be no more than
sufficient to supply the effectual demand. Its market price, therefore,
would soon rise to the natural price. This at least would be the case
where there was perfect liberty.

The same statutes of apprenticeship and other corporation laws
indeed, which, when a manufacture is in prosperity, enable the
workman to raise his wages a good deal above their natural rate,
sometimes oblige him, when it decays, to let them down a good deal
below it. As in the one case they exclude many people from his

64 WEALTH OF NATIONS

employment, so in the other they exclude him from many employ-
ments. The effect of such regulations, however, is not near so dur-
able in sinking the workman's wages below, as in raising them
above, their natural rate. Their operation in the one way may
endure for many centuries, but in the other it can last no longer
than the lives of some of the workmen who were bred to the business
in the time of its prosperity. When they are gone, the number of
those who are afterwards educated to the trade will naturally suit
itself to the effectual demand. The police must be as violent as that
of Indostan or antient Egypt (where every man was bound by a
principle of religion to follow the occupation of his father, and was
supposed to commit the most horrid sacrilege if he changed it for
another), which can in any particular employment, and for several
generations together, sink either the wages of labour or the profits
of stock below their natural rate.

This is all that I think necessary to be observed at present concern-
ing the deviations, whether occasional or permanent, of the market
price of commodities from the natural price.

The natural price itself varies with the natural rate of each of its
component parts, of wages, profit, and rent; and in every society
this rate varies according to their circumstances, according to their
riches or poverty, their advancing, stationary, or decHning condition.
I shall, in the four following chapters, endeavour to explain, as fully
and distinctly as 1 can, the causes of those different variations.

First, I shall endeavour to explain what are the circumstances
which naturally determine the rate of wages, and in what manner
those circumstances are affected by the riches or poverty, by the
advancing, stationary, or declining state of the society.

Secondly, I shall endeavour to shew what are the circumstances
which naturally determine the rate of profit, and in what manner
too those circumstances are affected by the like variations in the
state of the society.

Though pecuniary wages and profits are very different in the
different employments of labour and stock; yet a certain proportion
seems commonly to take place between both the (pecuniary wages in
all the different employments of labour, and the pecuniary profits in
all the different employments of stock. This proportion, it will

NATURAL AND MARKET PRICE 65

appear hereafter, depends partly upon the nature of the different em-
ployments, and pardy upon the different laws and policy of the
society in which they are carried on. But though in many respects
dependent upon the laws and policy, this proportion seems to be
little affected by the riches or poverty of that society; by its advanc-
ing, stationary, or declining condition; but to remain the same or
very nearly the same in all those different states. I shall, in the third
place, endeavour to explain all the different circumstances which
regulate this proportion.

In the fourth and last place, I shall endeavor to show what are the
circumstances which regulate the rent of land, and which either
raise or lower the real price of all the different substances which it
produces.

CHAPTER VIII

Of the Wages of Labour

THE produce of labour constitutes the natural recompence or
wages of labour.
In that original state of things, which precedes both the
appropriation of land and the accumulation of stock, the whole pro-
duce of labour belongs to the labourer. He has neither landlord nor
master to share with him.

Had this state continued, the wages of labour would have aug-
mented with all those improvements in its productive powers, to
which the division of labour gives occasion. All things would
gradually have become cheaper. They would have been produced
by a smaller quantity of labour; and as the commodities produced
by equal quantities of labour would naturally in this state of things
be exchanged for one another, they would have been purchased like-
wise with the produce of a smaller quantity.

But though all things would have become cheaper in reality, in
appearance many things might have become dearer than before,
or have been exchanged for a greater quantity of other goods. Let
us suppose, for example, that in the greater part of employments the
productive pxiwers of labour had been improved to tenfold, or that a
day's labour could produce ten times the quantity of work which it
had done originally; but that in a particular employment they had
been improved only to double, or that a day's labour could produce
only twice the quantity of work which it had done before. In
exchanging the produce of a day's labour in the greater part of
employments, for that of a day's labour in this particular one, ten
times the original quantity of work in them would purchase only
twice the original quantity in it. Any particular quantity in it,
therefore, a fxjund weight, for example, would apf)ear to be five
times dearer than before. In reality, however, it would be twice as
cheap. Though it required five times the quantity of other goods to

66

WAGES OF LABOUR 67

purchase it, it would require only half the quantity of labour either
to purchase or to produce it. The acquisition, therefore, would be
twice as easy as before.

But this original state of things, in which the labourer enjoyed the
whole produce of his own labour, could not last beyond the first
introduction of the appropriation of land and the accumulation of
stock. It was at an end, therefore, long before the most considerable
improvements were made in the productive powers of labour, and
it would be to no purpose to trace further what might have been its
effects upon the recompence or wages of labour.

As soon as land becomes private property, the landlord demands
a share of almost all the produce which the labourer can either raise,
or collect from it. His rent makes the first deduction from the pro-
duce of the labour which is employed upon land.

It seldom happens that the person who tills the ground has where-
withal to maintain himself till he reaps the harvest. His mainten-
ance is generally advanced to him from the stock of a master, the
farmer who employs him, and who would have no interest to employ
him, unless he was to share in the produce of his labour, or unless
his stock was to be replaced to him with a profit. This profit makes
a second deduction from the produce of the labour which is em-
ployed upon land.

The produce of almost all other labour is liable to the like deduc-
tion of profit. In all arts and manufactures the greater part of the
workmen stand in need of a master to advance them the materials
of their work, and their wages and maintenance till it be compleated.
He shares in the produce of their labour, or in the value which it
adds to the materials upon which it is bestowed; and in this share
consists his profit.

It sometimes happens, indeed, that a single independent workman
has stock sufficient both to purchase the materials of his work, and to
maintain himself till it be compleated. He is both master and
workman, and enjoys the whole produce of his own labour, or the
whole value which it adds to the materials upon which it is bestowed.
It includes what are usually two distinct revenues, belonging to two
distinct persons, the profits of stock, and the wages of labour.

Such cases, however, are not very frequent, and in every part of

68 WEALTH OF NATIONS

Europe, twenty workmen serve under a master for one that is
independent; and the wages of labour are every where understood
to be, what they usually are, when the labourer is one person, and
the owner of the stock which employs him another.

What are the common wages of labour, depends every where upon
the contract usually made between those two parties, whose interests
are by no means the same. The workmen desire to get as much, the
masters to give as little as possible. The former are disposed to com-
bine in order to raise, the latter in order to lower the wages of labour.

It is not, however, difficult to foresee which of the two parties
must, upon all ordinary occasions, have the advantage in the dispute,
and force the other into a compliance with their terms. The masters,
being fewer in number, can combine much more easily; and the
law, besides, authorises, or at least does not prohibit their combina-
tions, while it prohibits those of the workmen. We have no acts of
parliament against combining to lower the price of work; but many
against combining to raise it. In all such disputes the masters can
hold out much longer. A landlord, a farmer, a master manufacturer,
or merchant, though they did not employ a single workman, could
generally live a year or two upon the stocks which they have already
acquired. Many workmen could not subsist a week, few could sub-
sist a month, and scarce any a year without employment. In the
long-run the workman may be as necessary to his master as his
master is to him; but the necessity is not so immediate.

We rarely hear, it has been said, of the combinations of masters;
though frequently of those of workmen. But whoever imagines,
upon this account, that masters rarely combine, is as ignorant of the
world as of the subject. Masters are always and every where in a sort
of tacit, but constant and uniform combination, not to raise the
wages of labour above their actual rate. To violate this combination
is every where a most unpopular action, and a sort of reproach to a
master among his neighbours and equals. We seldom, indeed, hear
of this combination, because it is the usual, and one may say, the
natural state of things which nobody ever hears of. Masters too
sometimes enter into particular combinations to sink the wages of
labour even below this rate. These are always conducted with the
utmost silence and secrecy, till the moment of execution, and when

WAGES OF LABOUR 69

the workmen yield, as they sometimes do, without resistance, though
severely felt by them, they are never heard of by other people. Such
combinations, however, are frequently resisted by a contrary defen-
sive combination of the workmen; who sometimes too, without any
provocation of this kind, combine of their own accord to raise the
price of their labour. Their usual pretences are, sometimes the
high price of provisions; sometimes the great profit which their
masters make by their work. But whether their combinations be
offensive or defensive, they are always abundantly heard of. In order
to bring the point to a sp)eedy decision, they have always recourse to
the loudest clamour, and sometimes to the most shocking violence
and outrage. They are desperate, and act with the folly and extrava-
gance of desperate men, who must either starve, or frighten their
masters into an immediate compliance with their demands. The
masters upon these occasions are just as clamorous upwn the other
side, and never cease to call aloud for the assistance of the civil magis-
trate, and the rigorous execution of those laws which have been
enacted with so much severity against the combinations of servants,
labourers, and journeymen. The workmen, accordingly, very seldom
derive any advantage from the violence of those tumultuous com-
binations, which, partly from the interposition of the civil magistrate,
partly from the superior steadiness of the masters, partly from the
necessity which the greater part of the workmen are under of sub-
mitting for the sake of present subsistence, generally end in nothing,
but the punishment or ruin of the ringleaders.

But though in disputes with their workmen, masters must gener-
ally have the advantage, there is however a certain rate below which
it seems impossible to reduce, for any considerable time, the ordinary
wages even of the lowest species of labour.

A man must always live by his work, and his wages must at least
be sufficient to maintain him. They must even upon most occasions
be somewhat more; otherwise it would be impossible for him to
bring up a family, and the race of such workmen could not last be-
yond the first generation. Mr. Cantillon seems, upon this account,
to suppose that the lowest species of common labourers must every
where earn at least double their own maintenance, in order that one
with another they may be enabled to bring up two children; the

70 WEALTH OF NATIONS

labour of the wife, on account of her necessary attendance on the
children, being supposed no more than sufficient to provide for her-
self. But one-half the children born, it is computed, die before the
age of manhood. The poorest labourers, therefore, according to this
account, must, one with another, attempt to rear at least four chil-
dren, in order that two may have an equal chance of living to that
age. But the necessary maintenance of four children, it is supposed,
may be nearly equal to that of one man. The labour of an able-
bodied slave, the same author adds, is computed to be worth double
his maintenance; and that of the meanest labourer, he thinks, can-
not be worth less than that of an able-bodied slave. Thus far at least
seems certain, that, in order to bring up a family, the labour of the
husband and wife together must, even in the lowest species of com-
mon labour, be able to earn something more than what is precisely
necessary for their own maintenance; but in what proportion,
whether in that above mentioned, or in any other, I shall not take
upon me to determine.

There are certain circumstances, however, which sometimes give
the labourers an advantage, and enable them to raise their wages
considerably above this rate; evidently the lowest which is consistent
with common humanity.

When in any country the demand for those who live by wages,
labourers, journeymen, servants of every kind, is continually increas-
ing; when every year furnishes employment for a greater number
than had been employed the year before, the workmen have no
occasion to combine in order to raise their wages. The scarcity of
hands occasions a competition among masters, who bid against one
another, in order to get workmen, and thus voluntarily break
through the natural combination of masters not to raise wages.

The demand for those who live by wages, it is evident, cannot in-
crease but in proportion to the increase of the funds which are
destined for the payment of wages. These funds are of two kinds;
first, the revenue which is over and above what is necessary for the
maintenance; and, secondly, the stock which is over and above what
is necessary for the employment of their masters.

When the landlord, annuitant, or monied man, has a greater
revenue than what he judges sufficient to maintain his own family,

WAGES OF LABOUR 7I

he employs either the whole or a part of the surplus in maintaining
one or more menial servants. Increase this surplus, and he will
naturally increase the number of those servants.

When an independent workman, such as a weaver or shoemaker,
has got more stock than what is sufficient to purchase the materials
of his own work, and to maintain himself till he can dispose of it,
he naturally employs one or more journeymen with the surplus, in
order to make a profit by their work. Increase this surplus, and he
will naturally increase the number of his journeymen.

The demand for those who live by wages, therefore, necessarily
increases with the increase of the revenue and stock of every country,
and cannot possibly increase without it. The increase of revenue and
stock is the increase of national wealth. The demand for those who
live by wages, therefore, naturally increases with the increase of
national wealth, and cannot possibly increase without it.

It is not the actual greatness of national wealth, but its continual
increase, which occasions a rise in the wages of labour. It is not,
accordingly, in the richest countries, but in the most thriving, or in
those which are growing rich the fastest, that the wages of labour are
highest. England is certainly, in the present times, a much richer
country than any part of North America. The wages of labour,
however, are much higher in North America than in any part
of England. In the province of New York, common labourers
earn three shillings and sixpence currency, equal to two shillings
sterling, a day; ship carpenters, ten shillings and sixpence currency,
with a pint of rum worth sixpence sterling, equal in all to six shill-
ings and sixpence sterling; house carf)enters and bricklayers, eight
shillings currency, equal to four shillings and sixpence sterling;
journeymen taylors, five shillings currency, equal to about two shill-
ings and tenpence sterling. These prices are all above the London
price; and wages are said to be as high in the other colonies as in
New York. The price of provisions is every where in North
America much lower than in England. A dearth has never been
known there. In the worst seasons, they have always had a suffici-
ency for themselves, though less for exportation. If the money price
of labour, therefore, be higher than it is any where in the mother
country, its real price, the real command of the necessaries and con-

72 WEALTH OF NATIONS

veniencies of life which it conveys to the labourer, must be higher
in a still greater proportion.

But though North America is not yet so rich as England, it is
much more thriving, and advancing with much greater rapidity
to the further acquisition of riches. The most decisive mark of the
prosperity of any country is the increase of the number of its
inhabitants. In Great Britain, and most other European countries,
they are not supposed to double in less than five hundred years. In
the British colonies in North America, it has been found, that they
double in twenty or five-and-twenty years. Nor in the present times
is this increase principally owing to the continual importation of
new inhabitants, but to the great multiplication of the species. Those
who Uve to old age, it is said, frequently see there from fifty to a hun-
dred, and sometimes many more, descendants from their own body.
Labour is there so well rewarded that a numerous family of children,
instead of being a burthen is a source of opulence and prosperity to
the parents. The labour of each child, before it can leave their house,
is computed to be worth a hundred pounds clear gain to them. A
young widow with four or five young children, who, among the
middling or inferior ranks of people in Europe, would have so little
chance for a second husband, is there frequently courted as a sort of
fortune. The value of children is the greatest of all encouragements
to marriage. We cannot, therefore, wonder that the people in North
America should generally marry very young. Notwithstanding the
great increase occasioned by such early marriages, there is a continual
complaint of the scarcity of hands in North America. The demand
for labourers, the funds destined for maintaining them, increase, it
seems, still faster than they can find labourers to employ.

Though the wealth of a country should be very great, yet if it has
been long stationary, we must not expect to find the wages of labour
very high in it. The funds destined for the payment of wages, the
revenue and stock of its inhabitants, may be of the greatest extent;
but if they have continued for several centuries of the same, or very
nearly of the same extent, the number of labourers employed every
year could easily supply, and even more than supply, the number
wanted the following year. There could seldom be any scarcity of
hands, nor could the masters be obliged to bid against one another in

WAGES OF LABOUR 73

order to get them. The hands, on the contrary, would, in this case,
naturally multiply beyond their employment. There would be a
constant scarcity of employment, and the labourers would be obliged
to bid against one another in order to get it. If in such a country
the wages of labour had ever been more than sufficient to maintain
the labourer, and to enable him to bring up a family, the competition
of the labourers and interest of the masters would soon reduce them
to this lowest rate which is consistent with common humanity.
China has been long one of the richest, that is, one of the most fertile,
best cultivated, most industrious, and most populous countries in the
world. It seems, however, to have been long stationary. Marco Polo,
who visited it more than five hundred years ago, describes its culti-
vation, industry, and populousness, almost in the same terms in
which they are described by travellers in the present times. It had
perhaps, even long before his time, acquired that full complement of
riches which the nature of its laws and institutions permits it to
acquire. The accounts of all travellers, inconsistent in many other
respects, agree in the low wages of labour, and in the difficulty which
a labourer finds in bringing up a family in China. If by digging the
ground a whole day he can get what will purchase a small quantity
of rice in the evening, he is contented. The condition of artificers is,
if possible, still worse. Instead of waiting indolently in their work-
houses, for the calls of their customers, as in Europe, they are con-
tinually running about the streets with the tools of their respective
trades offering their service, and as it were begging employment.
The poverty of the lower ranks of people in China far surpasses that
of the most beggarly nations in Europe. In the neighbourhood of
Canton many hundreds, it is commonly said, many thousand fam-
ilies have no habitation on the land, but live constantly in little fish-
ing boats upon the rivers and canals. The subsistence which they
find there is so scanty that they are eager to fish up the nastiest
garbage thrown overboard from any European ship. Any carrion,
the carcase of a dead dog or cat, for example, though half putrid and
stinking, is as welcome to them as the most wholesome food to the
people of other countries. Marriage is encouraged in China, not by
the profitableness of children, but by the liberty of destroying them.
In all great towns several arc every night exposed in the street, or

74 WEALTH OF NATIONS

drowned like puppies in the water. The performance of this horrid
office is even said to be the avowed business by which some people
earn their subsistence.

China, however, though it may perhaps stand still, does not seem
to go backwards. Its towns are no-where deserted by their inhabit-
ants. The lands which had once been cultivated are no-where neg-
lected. The same or very nearly the same annual labour must there-
fore continue to be performed, and the funds destined for maintain-
ing it must not, consequently, be sensibly diminished. The lowest
class of labourers, therefore, notwithstanding their scanty subsistence,
must some way or another make shift to continue their race so far
as to keep up their usual numbers.

But it would be otherwise in a country where the funds destined
for the maintenance of labour were sensibly decaying. Every year
the demand for servants and labourers would, in all the different
classes of employments, be less than it had been the year before.
Many who had been bred in the superior classes, not being able to
find employment in their own business, would be glad to seek it in
the lowest. The lowest class being not only overstocked with its own
workmen, but with the overflowings of all the other classes, the
competition for employment would be so great in it, as to reduce the
wages of labour to the most miserable and scanty subsistence of the
labourer. Many would not be able to find employment even upon
these hard terms, but would either starve, or be driven to seek a
subsistence either by begging, or by the perpetration perhaps of the
greatest enormities. Want, famine, and mortality would immedi-
ately prevail in that class, and from thence extend themselves to all
the superior classes, till the number of inhabitants in the country was
reduced to what could easily be maintained by the revenue and
stock which remained in it, and which had escaped either the tyranny
or calamity which had destroyed the rest. This p)erhaps is nearly
the present state of Bengal, and of some other of the English settle-
ments in the East Indies. In a fertile country which had before been
much depopulated, where subsistence, consequently, should not be
very difficult, and where, notwithstanding, three or four hundred
thousand people die of hunger in one year, we may be assured that
the funds destined for the maintenance of the labouring poor are

WAGES OF LABOUR 75

fast decaying. The difference between the genius of the British con-
stitution which protects and governs North America, and that of the
mercantile company which oppresses and domineers in the East In-
dies, cannot perhaps be better illustrated than by the different state
of those countries.

The liberal reward of labour, therefore, as it is the necessary effect,
so it is the natural symptom of increasing national wealth. The
scanty maintenance of the labouring poor, on the other hand, is the
natural symptom that things are at a stand, and their starving con-
dition that they are going fast backwards.

In Great Britain the wages of labour seem, in the present times, to
be evidently more than what is precisely necessary to enable the
labourer to bring up a family. In order to satisfy ourselves upon this
point it will not be necessary to enter into any tedious or doubtful
calculation of what may be the lowest sum ufxjn which it is possible
to do this. There are many plain symptoms that the wages of labour
are nowhere in this country regulated by this lowest rate which is
consistent with common humanity.

First, in almost every part of Great Britain there is a distinction,
even in the lowest sjjecies of labour, between summer and winter
wages. Summer wages are always highest. But on account of the
extraordinary exjience of fewel, the maintenance of a family is most
expensive in winter. Wages, therefore, being highest when this ex-
pence is lowest, it seems evident that they are not regulated by what is
necessary for this expence; but by the quantity and supposed value
of the work. A labourer, it may be said indeed, ought to save part
of his summer wages in order to defray his winter expence; and
that through the whole year they do not exceed what is necessary to
maintain his family through the whole year. A slave, however, or
one absolutely dependent on us for immediate subsistence, would not
be treated in this manner. His daily subsistence would be propor-
tioned to his daily necessities.

Secondly, the wages of labour do not in Great Britain fluctuate
with the price of provisions. These vary everywhere from year to
year, frequently from month to month. But in many places the
money price of labour remains uniformly the same sometimes for
half a century together. If in these places, therefore, the labouring

76 WEALTH OF NATIONS

poor can maintain their families in dear years, they must be at their
ease in times of moderate plenty, and in affluence in those of extra-
ordinary cheapness. The high price of provisions during these ten
years past has not in many parts of the kingdom been accompanied
with any sensible rise in the money price of labour. It has, indeed,
in some; owing probably more to the increase of the demand for
labour than to that of the price of provisions.

Thirdly, as the price of provisions varies more from year to year
than the wages of labour, so on the other hand, the wages of labour
vary more from place to place than the price of provisions. The
prices of bread and butcher's meat are generally the same or very
nearly the same through the greater part of the united kingdom.
These and most other things which are sold by retail, the way in
which the labouring poor buy all things, are generally fully as cheap
or cheaper in great towns than in the remoter parts of the country,
for reasons which I shall have occasion to explain hereafter. But the
wages of labour in a great town and its neighbourhood are fre-
quently a fourth or a fifth part, twenty or five-and-twenty per cent,
higher than at a few miles distance. Eighteen pence a day may be
reckoned the common price of labour in London and its neighbour-
hood. At a few miles distance it falls to fourteen and fifteen pence.
Ten p)ence may be reckoned its price in Edinburgh and its neigh-
bourhood. At a few miles distance it falls to eight pence, the usual
price of common labour through the greater part of the low country
of Scotland, where it varies a good deal less than in England. Such
a difference of prices, which it seems is not always sufficient to trans-
port a man from one parish to another, would necessarily occasion
so great a transportation of the most bulky commodities, not only
from one parish to another, but from one end of the kingdom, almost
from one end of the world to the other, as would soon reduce them
more nearly to a level. After all that has been said of the levity and
inconstancy of human nature, it appears evidently from exfjerience
that a man is of all sorts of luggage the most difficult to be trans-
ported. If the labouring poor, therefore, can maintain their families
in those parts of the kingdom where the price of labour is lowest,
they must be in affluence where it is highest.

Fourthly, the variations in the price of labour not only do not

WAGES OF LABOUR 77

corres[x>nd either in place or time with those in the price of pro-
visions, but they are frequently quite opposite.

Grain, the food of the common people, is dearer in Scotland than
in England, whence Scotland receives almost every year very large
supplies. But English corn must be sold dearer in Scotland, the
country to which it is brought, than in England, the country from
which it comes; and in proportion to its quality it cannot be sold
dearer in Scotland than the Scotch corn that comes to the same mar-
ket in competition with it. The quaUty of grain depends chiefly
upon the quantity of flour or meal which it yields at the mill, and
in this respect English grain is so much superior to the Scotch, that,
though often dearer in appearance, or in proportion to the measure
of its bulk, it is generally cheaper in reality, or in proportion to its
quality, or even to the measure of its weight. The price of labour,
on the contrary, is dearer in England than in Scotland. If the labour-
ing poor, therefore, can maintain their families in the one part of the
united kingdom, they must be in affluence in the other. Oatmeal
indeed supplies the common people in Scotland with the greatest
and the best part of their food, which is in general much inferior
to that of their neighbours of the same rank in England. This
difference, however, in the mode of their subsistence is not the
cause, but the effect, of the difference in their wages; though, by a
strange misapprehension, I have frequently heard it represented as
the cause. It is not because one man keeps a coach while his neigh-
bour walks a-foot, that the one is rich and the other poor; but because
the one is rich he keeps a coach, and because the other is poor he
walks a-foot.

During the course of the last century, taking one year with
another, grain was dearer in both parts of the united kingdom than
during that of the present. This is a matter of fact which cannot
now admit of any reasonable doubt; and the proof of it is, if possible,
still more decisive with regard to Scotland than with regard to Eng-
land. It is in Scotland supported by the evidence of the public fiars,
annual valuations made upon oath, according to the actual state
of the markets, of all the different sorts of grain in every different
county of Scotland. If such direct proof could require any collateral
evidence to confirm it, I would observe that this has likewise been

yS WEALTH OF NATIONS

the case in France, and probably in most other parts of Europe.
With regard to France there is the clearest proof. But though it is
certain that in both parts of the united kingdom grain was some-
what dearer in the last century than in the present, it is equally
certain that labour was much cheaper. If the labouring poor, there-
fore, could bring up their families then, they must be much more
at their ease now. In the last century, the most usual day wages of
common labour through the greater part of Scotland were sixpence
in summer and fivepence in winter. Three shillings a week, the
same price very nearly, still continues to be paid in some parts of
the Highlands and Western Islands. Through the greater part of
the low country the most usual wages of common labour are now
eight-pence a day; ten-pence, sometimes a shilling about Edinburgh,
in the counties which border upon England, probably on account of
that neighbourhood, and in a few other places where there has lately
been a considerable rise in the demand for labour, about Glasgow,
Carron, Ayr-shire, &c. In England the improvements of agriculture,
manufactures and commerce began much earlier than in Scotland.
The demand for labour, and consequently its price, must necessarily
have increased with those improvements. In the last century, ac-
cordingly, as well as in the present, the wages of labour were higher
in England than in Scotland, They have risen too considerably
since that time, though, on account of the greater variety of wages
paid there in different places, it is more difficult to ascertain how
much. In 1614, the pay of a foot soldier was the same as in the
present times, eight-pence a day. When it was first established it
would naturally be regulated by the usual wages of common labour-
ers, the rank of people from which foot soldiers are commonly
drawn. Lord Chief Justice Hales, who wrote in the time of Charles
11^ computes the necessary expence of a labourer's family, consisting
of six persons, the father and mother, two children able to do some-
thing, and two not able, at ten shillings a week, or twenty-six pounds
a year. If they cannot earn this by their labour, they must make it
up, he supposes, either by begging or stealing. He appears to have
enquired very carefully into this subject. In 1688, Mr. Gregory King,
whose skill in political arithmetic is so much extolled by Doctor
Davenant, computed the ordinary income of labourers and out-

WAGES OF LABOUR 79

servants to be fifteen pounds a year to a family, which he supposed
to consist, one with another, of three and a half persons. His calcu-
lation, therefore, though different in appearance, corresponding very
nearly at bottom with that of judge Hales. Both suppose the weekly
expence of such families to be about twenty pence a head. Both the
pecuniary income and expence of such families have increased con-
siderably since that time through the greater part of the kingdom;
in some places more, and in some less; though perhaps scarce any
where so much as some exaggerated accounts of the present wages
of labour have lately represented them to the public. The price of
labour, it must be observed, cannot be ascertained very accurately
any where, different prices being often paid at the same place and
for the same sort of labour, not only according to the different abili-
ties of the workmen, but according to the easiness or hardness of the
masters. Where wages are not regulated by law, all that we can
pretend to determine is what are the most usual; and experience
seems to show that law can never regulate them properly, though it
has often pretended to do so.

The real recompence of labour, the real quantity of the necessaries
and conveniencies of life which it can procure to the labourer, has,
during the course of the present century, increased perhaps in a still
greater proportion than its money price. Not only grain has become
somewhat cheaper, but many other things, from which the indus-
trious poor derive an agreeable and wholesome variety of food, have
become a great deal cheaper. Potatoes, for example, do not at pres-
ent, through the greater part of the kingdom, cost half the price
which they used to do thirty or forty years ago. The same thing
may be said of turnips, carrots, cabbages; things which were for-
merly never raised but by the spade, but which are now commonly
raised by the plough. All sort of garden stuff too has become cheaper.
The greater part of apples and even of the onions consumed in
Great Britain were in the last century imported from Flanders. The
great improvements in the coarser manufactures of both linen and
woolen cloth furnish the labourers with cheaper and better cloath-
ing; and those in the manufactures of the coarser metals, with
cheaper and better instruments of trade, as well as with many agree-
able and convenient pieces of houshold furniture. Soap, salt, candles.

8o WEALTH OF NATIONS

leather, and fermented liquors, have, indeed, become a good deal
dearer; chiefly from the taxes which have been laid upon them.
The quantity of these, however, which the labouring poor are under
any necessity of consuming, is so very small, that the increase in
their price does not compensate the diminution in that of so many
other things. The common complaint that luxury extends itself
even to the lowest ranks of the people, and that the labouring poor
will not now be contented with the same food, doathing and lodg-
ing which satisfied them in former times, may convince us that it is
not the money price of labour only, but its real recompence, which
has augmented.

Is this improvement in the circumstances of the lower ranks of
the people to be regarded as an advantage or as an inconveniency
to the society? The answer seems at first sight abundantly plain.
Servants, labourers and workmen of different kinds, make up the
far greater part of every great political society. But what improves
the circumstances of the greater part can never be regarded as an
inconveniency to the whole. No society can surely be flourishing
and happy, of which the far greater part of the members are poor
and miserable. It is but equity, besides, that they who feed, cloath
and lodge the whole body of the people, should have such a share
of the produce of their own labour as to be themselves tolerably well
fed, doathed and lodged.

Poverty, though it no doubt discourages, does not always prevent
marriage. It seems even to be favourable to generation. A half-
starved Highland woman frequently bears more than twenty chil-
dren, while a pampered fine lady is often incapable of bearing any,
and is generally exhausted by two or three. Barrenness, so frequent
among women of fashion, is very rare among those of inferior sta-
tion. Luxury in the fair sex, while it inflames perhaps the passion
for enjoyment, seems always to weaken, and frequently to destroy
altogether, the powers of generation.

But poverty, though it does not prevent the generation, is extremely
unfavourable to the rearing of children. The tender plant is pro-
duced, but in so cold a soil, and so severe a climate, soon withers and
dies. It is not uncommon, I have been frequently told, in the High-
lands of Scotland for a mother who has borne twenty children not

WAGES OF LABOUR 8 1

to have two alive. Several officers of great experience have assured
me, that so far from recruiting their regiment, they have never been
able to supply it with drums and fifes from all the soldiers' children
that were born in it. A greater number of fine children, however,
is seldom seen any where than about a barrack of soldiers. Very
few of them, it seems, arrive at the age of thirteen or fourteen. In
some places one half the children born die before they are four
years of age; in many places before they are seven; and in almost all
places before they are nine or ten. This great mortality, however,
will every where be found chiefly among the children of the com-
mon people, who cannot afford to tend them with the same care as
those of better station. Though their marriages are generally more
fruitful than those of people of fashion, a smaller proportion of
their children arrive at maturity. In foundling hospitals, and among
the children brought up by parish charities, the mortality is still
greater than among those of the common people.

Every species of animals naturally multiplies in proportion to the
means of their subsistence, and no species can ever multiply beyond
it. But in civiUzed society it is only among the inferior ranks of
people that the scantiness of subsistence can set limits to the further
multiplication of the human sp)ecies; and it can do so in no other
way than by destroying a great part of the children which their
fruitful marriages produce.

The liberal reward of labour, by enabling them to provide better
for their children, and consequently to bring up a greater number,
naturally tends to widen and extend those limits. It deserves to be
remarked too, that it necessarily does this as nearly as possible in
the proportion which the demand for labour requires. If this de-
mand is continually increasing, the reward of labour must neces-
sarily encourage in such a manner the marriage and multiplication
of labourers, as may enable them to supply that continually increas-
ing demand by a continually increasing population. If the reward
should at any time be less than what was requisite for this purpose,
the deficiency of hands would soon raise it; and if it should at any
time be more, their excessive multiplication would soon lower it to
this necessary rate. The market would be so much under-stocked
with labour in the one case, and so much over-stocked in the other.

82 WEALTH OF NATIONS

as would soon force back its price to that proper rate which the
circumstances of the society required. It is in this manner that
the demand for men, like that for any other commodity, necessarily
regulates the production of men; quickens it when it goes on too
slowly, and stops it when it advances too fast. It is this demand
which regulates and determines the state of propagation in all the
different countries of the world, in North America, in Europe, and
in China; which renders it rapidly progressive in the first, slow and
gradual in the second, and altogether stationary in the last.

The wear and tear of a slave, it has been said, is at the exp)ence
of his master; but that of a free servant is at his own expxjnce. The
wear and tear of the latter, however, is, in reality, as much at the
expence of his master as that of the former. The wages paid to
journeymen and servants of every kind must be such as may enable
them, one with another, to continue the race of journeymen and
servants, according as the increasing, diminishing, or stationary de-
mand of the society may happen to require. But though the wear
and tear of a free servant be equally at the expence of his master,
it generally costs him much less than that of a slave. The fund
destined for replacing or repairing, if I may say so, the wear and
tear of the slave, is commonly managed by a negligent master or
careless overseer. That destined for performing the same office with
regard to the free man, is managed by the free man himself. The
disorders which generally prevail in the economy of the rich, natu-
rally introduce themselves into the management of the former: The
strict frugality and parsimonious attention of the poor as naturally
establish themselves in that of the latter. Under such different
management, the same purpose must require very different degrees
of expence to execute it. It appears, accordingly, from the experience
of all ages and nations, I believe, that the work done by freemen
comes cheaper in the end than that performed by slaves. It is found
to do so even at Boston, New York, and Philadelphia, where the
wages of common labour are so very high.

The liberal reward of labour, therefore, as it is the effect of in-
creasing wealth, so it is the cause of increasing population. To com-
plain of it, is to lament over the necessary effect and cause of the
greatest public Drosoeritv.

WAGES OF LABOUR 83

It deserves to be remarked, perhaps, that it is in the progressive
state, while the society is advancing to the further acquisition, rather
than when it has acquired its full complement of riches, that the
condition of the labouring poor, of the great body of the people,
seems to be the happiest and the most comfortable. It is hard in
the stationary, and miserable in the declining state. The progressive
state is in reality the cheerful and the hearty state to all the different
orders of the society. The stationary is dull; the declining mel-
ancholy.

The liberal reward of labour, as it encourages the propagation,
so it increases the industry of the common people. The wages of
labour are the encouragement of industry, which, like every other
human quality, improves in proportion to the encouragement it
receives. A plentiful subsistence increases the bodily strength of the
labourer, and the comfortable hope of bettering his condition, and of
ending his days perhaps in ease and plenty, animates him to exert
that strength to the utmost. Where wages are high, accordingly,
we shall always find the workmen more active, diligent, and expe-
ditious, than where they are low; in England, for example, than in
Scodand; in the neighbourhood of great towns, than in remote
country places. Some workmen, indeed, when they can earn in four
days what will maintain them through the week, will be idle the
other three. This, however, is by no means the case with the greater
part. Workmen, on the contrary, when they are liberally paid by
the piece, are very apt to over-work themselves, and to ruin their
health and constitution in a few years. A carpenter in London, and
in some other places, is not supposed to last in his utmost vigour
above eight years. Something of the same kind happens in many
other trades, in which the workmen are paid by the piece; as they
generally are in manufactures, and even in country labour, wherever
wages are higher than ordinary. Almost every class of artificers is
subject to some peculiar infirmity occasioned by excessive application
to their pecuHar species of work. Ramuzzini, an eminent Italian
physician, has written a particular book concerning such disease.
We do not reckon our soldiers the most industrious set of people
among us. Yet when soldiers have been employed in some particular
sorts of work, and liberally paid by the piece, their officers have £re-

84 WEALTH OF NATIONS

quently been obliged to stipulate with the undertaker, that they
should not be allowed to earn above a certain sum every day, ac-
cording to the rate at which they were paid. Till this stipulation
was made, mutual emulation and the desire of greater gain, fre-
quently prompted them to over-work themselves, and to hurt their
health by excessive labour. Excessive application during four days
of the week, is frequently the real cause of the idleness of the other
three, so much and so loudly complained of. Great labour, either
of mind or body, continued for several days together, is in most
men naturally followed by a great desire of relaxation, which, if
not restrained by force or by some strong necessity, is almost irre-
sistible. It is the call of nature, which requires to be relieved by
some indulgence, sometimes of ease only, but sometimes too of
dissipation and diversion. If it is not complied with, the conse-
quences are often dangerous, and sometimes fatal, and such as
almost always, sooner or later, bring on the pecuHar infirmity of
the trade. If masters would always listen to the dictates of reason
and humanity, they have frequently occasion rather to moderate,
than to animate the application of many of their workmen. It will
be found, I believe, in every sort of trade, that the man who works
so moderately, as to be able to work constantly, not only preserves
his health the longest, but, in the course of the year, executes the
greatest quantity of work.

In cheap years, it is pretended, workmen are generally more idle,
and in dear ones more industrious than ordinary. A plentiful sub-
sistence therefore, it has been concluded, relaxes, and a scanty one
quickens their industry. That a little more plenty than ordinary
may render some workmen idle, cannot well be doubted; but that
it should have this effect upon the greater part, or that men in
general should work better when they are ill fed than when they
are well fed, when they are disheartened than when they are in
good spirits, when they are frequently sick than when they are
generally in good health, seems not very probable. Years of dearth,
it is to be observed, are generally among the common people years
of sickness and mortality, which cannot fail to diminish the prod-
uce of their industry.

In years of plenty, servants frequently leave their masters and

WAGES OF LABOUR 85

trust their subsistence to what they can make by their own industry.
But the same cheapness of provisions, by increasing the fund which
is destined for the maintenance of servants, encourages masters,
farmers esjaecially, to employ a greater number. Farmers upon such
occasions expect more profit from their corn by maintaining a few
more labouring servants, than by selling it at a low price in the
market. The demand for servants increases, while the number of
those who offer to supply that demand diminishes. The price of
labour, therefore, frequently rises in cheap years.

In years of scarcity, the difficulty and uncertainty of subsistence
make all such people eager to return to service. But the high price
of provisions, by diminishing the funds destined for the mainte-
nance of servants, disposes masters rather to diminish than to increase
the number of those they have. In dear years too, poor independent
workmen frequently consume the little stocks with which they had
used to supply themselves with the materials of their work, and
are obliged to become journeymen for subsistence. More people
want employment than can easily get it; many are willing to take
it upon lower terms than ordinary, and the wages of both servants
and journeymen frequently sink in dear years.

Masters of all sorts, therefore, frequently make better bargains
with their servants in dear than in cheap years, and find them more
humble and dependent in the former than in the latter. They
naturally, therefore, commend the former as more favourable to
industry. Landlords and farmers, besides, two of the largest classes
of masters, have another reason for being pleased with dear years.
The rents of the one and the profits of the other depend very much
upon the price of provisions. Nothing can be more absurd, how-
ever, than to imagine that men in general should work less when
they work for themselves, than when they work for other people.
A poor independent workman will generally be more industrious
than even a journeyman who works by the piece. The one enjoys
the whole produce of his own industry; the other shares it with
his master. The one, in his separate indef)endent state, is less liable
to the temptations of bad company, which in large manufactories
so frequently ruin the morals of the other. The superiority of the
independent workman over those servants who are hired by the

86 WEALTH OF NATIONS

month or by the year, and whose wages and maintenance are the
same whether they do much or do Httle, is Ukely to be still greater.
Cheap years tend to increase the proportion of independent work-
men to journeymen and servants of all kinds, and dear years to
diminish it.

A French author of great knowledge and ingenuity, Mr. Messance,
receiver of the tailles in the election of St. Etienne, endeavours to
show that the poor do more work in cheap than in dear years, by
comparing the quantity and value of the goods made upon those
different occasions in three different manufactures; one of coarse
woollens carried on at Elbeuf; one of linen, and another of silk,
both which extend through the whole generality of Rouen. It ap-
pears from his account, which is copied from the registers of the
public offices, that the quantity and value of the goods made in all
those three manufactures has generally been greater in cheap than
in dear years; and that it has always been greatest in the cheapest,
and least in the dearest years. All the three seem to be stationary
manufactures, or which, though their produce may vary somewhat
from year to year, are upon the whole neither going backwards
nor forwards.

The manufacture of linen in Scotland, and that of coarse woollens
in the west riding of Yorkshire, are growing manufactures, of which
the produce is generally, though with some variations, increasing
both in quantity and value. Upon examining, however, the accounts
which have been published of their annual produce, I have not been
able to observe that its variations have had any sensible connection
with the dearness or cheapness of the seasons. In 1740, a year of
great scarcity, both manufactures, indeed, appear to have declined
very considerably. But in 1756, another year of great scarcity, the
Scotch manufacture made more than ordinary advances. The York-
shire manufacture, indeed, declined, and its produce did not rise
to what it had been in 1755 till 1766, after the re[5eal of the American
stamp act. In that and the. following year it greatly exceeded what
it had ever been before, and it has continued to advance ever since.

The produce of all great manufactures for distant sale must neces-
sarily depend, not so much upon the dearness or cheapness of the
seasons in the countries where they are carried on, as upon the cir-

WAGES OF LABOUR 87

cumstances which afTect the demand in the countries where they
are consumed; upon peace or war, upon the prosperity or declension
of other rival manufactures, and upon the good or bad humour of
their principal customers. A great part of the extraordinary work,
besides, which is probably done in cheap years, never enters the
public registers of manufactures. The men servants who leave their
masters become independent labourers. The women return to their
parents, and commonly spin in order to make cloaths for themselves
and their families. Even the independent workmen do not always
work for public sale, but are employed by some of their neighbours
in manufactures for family use. The produce of their labour, there-
fore, frequently makes no figure in those public registers of which
the records are sometimes published with so much parade, and from
which our merchants and manufacturers would often vainly pretend
to announce the prosperity or declension of the greatest empires.

Though the variations in the price of labour, not only do not
always correspond with those in the price of provisions, but are
frequently quite opposite, we must not, upon this account, imagine
that the price of provisions has no influence upon that of labour.
The money price of labour is necessarily regulated by two circum-
stances: the demand for labour, and the price of the necessaries and
conveniencies of life. The demand for labour, according as it hap-
pens to be increasing, stationary, or decUning, or to require an
increasing, stationary, or declining population, determines the quan-
tity of the necessaries and conveniencies of life which must be given
to the labourer; and the money price of labour is determined by what
is requisite for purchasing this quantity. Though the money price
of labour, therefore, is sometimes high where the price of provisions
is low, it would be still higher, the demand continuing the same,
if the price of provisions was high.

It is because the demand for labour increases in years of sudden
and extraordinary plenty, and diminishes in those of sudden and
extraordinary scarcity, that the money price of labour sometimes
rises in the one, and sinks in the other.

In a year of sudden and extraordinary plenty, there are funds in
the hands o^ many of the employers of industry, sufficient to main-
tain and employ a greater number of industrious people than had

88 WEALTH OF NATIONS

been employed the year before; and this extraordinary number can-
not always be had. Those masters, therefore, who want more work-
men, bid against one another, in order to get them, which some-
times raises both the real and the money price of their labour.

The contrary of this happens in a year of sudden and extraordinary
scarcity. The funds destined for employing industry are less than
they had been the year before. A considerable number of people
are thrown out of employment, who bid against one another, in
order to get it, which sometimes lowers both the real and the money
price of labour. In 1740, a year of extraordinary scarcity, many
people were willing to work for bare subsistence. In the succeeding
years of plenty, it was more difficult to get labourers and servants.

The scarcity of a dear year, by diminishing the demand for labour,
tends to lower its price, as the high price of provisions tends to
raise it. The plenty of a cheap year, on the contrary, by increasing
the demand, tends to raise the price of labour, as the cheapness of
provisions tends to lower it. In the ordinary variations of the price
of provisions, those two opposite causes seem to counterbalance one
another; which is probably in part the reason why the wages of
labour are every-where so much more steady and permanent than
the price of provisions.

The increase in the wages of labour necessarily increases the price
of many commodities, by increasing that part of it which resolves
itself into wages, and so far tends to diminish their consumption
both at home and abroad. The same cause, however, which raises
the wages of labour, the increase of stock, tends to increase its pro-
ductive powers, and to make a smaller quantity of labour produce
a greater quantity of work. The owner of the stock which employs
a great number of labourers, necessarily endeavours, for his own
advantage, to make such a proper division and distribution of em-
ployment, that they may be enabled to produce the greatest quantity
of work possible. For the same reason, he endeavours to supply
them with the best machinery which either he or they can think of.
What takes place among the labourers in a particular workhouse,
takes place, for the same reason, among those of a great society. The
greater their number, the more they naturally divide themselves into
different classes and subdivisions of employment. More heads are

WAGES OF LABOtm 89

occupied in inventing the most proper machinery for executing the
work of each, and it is, therefore, more Ukely to be invented. There
are many commodities, therefore, which, in consequence of these
improvements, come to be produced by so much less labour than
before, that the increase of its price is more than compensated by
the diminution of its quantity.

CHAPTER IX
Of the Profits of Stock

THE rise and fall in the profits of stock depend upon the
same causes with the rise and fall in the wages of labour,
the increasing or declining state of the wealth of the society;
but those causes affect the one and the other very differently.

The increase of stock, which raises wages, tends to lower profit.
When the stocks of many rich merchants are turned into the same
trade, their mutual competition naturally tends to lower its profit;
and when there is a like increase of stock in all the different trades
carried on in the same society, the same competition must produce
the same effect in them all.

It is not easy, it has already been observed, to ascertain what are
the average wages of labour even in a particular place, and at a par-
ticular time. We can, even in this case, seldom determine more than
what are the most usual wages. But even this can seldom be done
with regard to the profits of stock. Profit is so very fluctuating, that
the person who carries on a particular trade cannot always tell you
himself what is the average of his annual profit. It is affected, not
only by every variation of price in the commodities which he deals
in, but by the good or bad fortune both of his rivals and of his cus-
tomers, and by a thousand other accidents to which goods when car-
ried either by sea or by land, or even when stored in a warehouse,
are liable. It varies, therefore, not only from year to year, but from
day to day, and almost from hour to hour. To ascertain what is the
average profit of all the different trades carried on in a great king-
dom, must be much more difficult; and to judge of what it may have
been formerly, or in remote periods of time, with any degree of pre-
cision, must be altogether impossible.

But though it may be impossible to determine with any degree of
precision, what are or were the average profits of stock, either in the
present, or in ancient times, some notion may be formed of them

90

PROFITS OF STOCK 9I

from the interest of money. It may be laid down as a maxim, that
wherever a great deal can be made by the use of money, a great deal
will commonly be given for the use of it; and that wherever little
can be made by it, less will commonly be given for it. According,
therefore, as the usual market rate of interest varies in any country,
we may be assured that the ordinary profits of stock must vary with
it, must sink as it sinks, and rise as it rises. The progress of interest,
therefore, may lead us to form some notion of the progress of profit.

By the 37th of Henry VIII. all interest above ten per cent, was
declared unlawful. More, it seems, had sometimes been taken before
that. In the reign of Edward VI. religious zeal prohibited all in-
terest. This prohibition, however, like all others of the same kind, is
said to have produced no effect, and probably rather increased than
diminished the evil of usury. The statute of Henry VIII. was re-
vived by the 13th of Elizabeth, cap. 8. and ten per cent, continued to
be the legal rate of interest till the 21st of James I. when it was re-
striaed to eight per cent. It was reduced to six per cent, soon after
the restoration, and by the 12th of Queen Anne, to five per cent. All
these different statutory regulations seem to have been made with
great propriety. They seem to have followed and not to have gone
before the market rate of interest, or the rate at which people of good
credit usually borrowed. Since the time of Queen Anne, five per
cent, seems to have been rather above than below the market rate.
Before the late war, the government borrowed at three per cent.;
and f)eople of good credit in the capital, and in many other parts of
the kingdom, at three and a half, four, and four and a half per cent.

Since the time of Henry VIII. the wealth and revenue of the coun-
try have been continually advancing, and, in the course of their
progress, their pace seems rather to have been gradually accelerated
than retarded. They seem, not only to have been going on, but to
have been going on faster and faster. The wages of labour have been
continually increasing during the same period, and in the greater
part of the different branches of trade and manufacture the profits
of stock have been diminishing.

It generally requires a greater stock to carry on any sort of trade
in a great town than in a country village. The great stocks em-
ployed in every branch of trade, and the number of rich competitors.

92 WEALTH OF NATIONS

generally reduce the rate of profit in the former below what it is in
the latter. But the wages of labour are generally higher in a great
town than in a country village. In a thriving town the people who
have great stocks to employ, frequently cannot get the number of
workmen they want, and therefore bid against one another in order
to get as many as they can, which raises the wages of labour, and
lowers the profits of stock. In the remote parts of the country there
is frequently not stock sufficient to employ all the people, who
therefore bid against one another in order to get employment, which
lowers the wages of labour, and raises the profits of stock.

In Scotland, though the legal rate of interest is the same as in Eng-
land, the market rate is rather higher. People of the best credit there
seldom borrow under five per cent. Even private bankers in Edin-
burgh give four per cent, upon their promissory notes, of which pay-
ment either in whole or in part may be demanded at pleasure. Pri-
vate bankers in London give no interest for the money which is de-
posited with them. There are few trades which cannot be carried on
with a smaller stock in Scodand than in England. The common rate
of profit, therefore, must be somewhat greater. The wages of labour,
it has already been observed, are lower in Scodand than in England.
The country too is not only much poorer, but the steps by which it
advances to a better condition, for it is evidently advancing, seem
to be much slower and more tardy.

The legal rate of interest in France has not, during the course of
the present century, been always regulated by the market rate. In
1720 interest was reduced from the twentieth to the fiftieth penny,
or from five to two per cent. In 1724 it was raised to the thirtieth
penny, or to 3 1-3 per cent. In 1725 it was again raised to the twen-
tieth penny, or to five per cent. In 1766, during the administration
of Mr. Laverdy, it was reduced to the twenty-fifth penny, or to four
per cent. The Abbe Terray raised it afterwards to the old rate of
five per cent. The supposed purpose of many of those violent reduc-
tions of interest was to prepare the way for reducing that of the pub-
lic debts; a purpose which has sometimes been executed. France is
perhaps in the present times not so rich a country as England; and
though the legal rate of interest has in France frequently been lower
than in England, the market rate has generally been higher; for

PROFITS OF STOCK 93

there, as in other countries, they have several very safe and easy
methods of evading the law. The profits of trade, I have been assured
by British merchants who had traded in both countries, are higher
in France than in England; and it is no doubt upon this account
that many British subjects chuse rather to employ their capitals in a
country where trade is in disgrace, than in one where it is highly
respected. The wages of labour are lower in France than in Eng-
land. When you go from Scotland to England, the difference which
you may remark between the dress and countenance of the common
people in the one country and in the other, sufficiently indicates the
difference in their condition. The contrast is still greater when you
return from France. France, though no doubt a richer country than
Scodand, seems not to be going forward so fast. It is a common and
even a popular opinion in the country, that it is going backwards;
an opinion which, I apprehend, is ill-founded even with regard to
France, but which nobody can possibly entertain with regard to Scot-
land, who sees the country now, and who saw it twenty or thirty
years ago.

The province of Holland, on the other hand, in proportion to the
extent of its territory and the number of its people, is a richer coun-
try than England. The government there borrow at two per cent.,
and private people of good credit at three. The wages of labour are
said to be higher in Holland than in England, and the Dutch, it is
well known, trade upon lower profits than any people in Europe.
The trade of Holland, it has been pretended by some people, is de-
caying, and it may perhaps be true that some particular branches of it
are so. But these symptoms seem to indicate sufficiendy that there
is no general decay. When profit diminishes, merchants are very
apt to complain that trade decays; though the diminution of profit is
the natural effect of its prosperity, or of a greater stock being em-
ployed in it than before. During the late war the Dutch gained the
whole carrying trade of France, of which they still retain a very
large share. The great property which they possess both in the
French and English funds, about forty millions, it is said, in the lat-
ter (in which I suspect, however, there is a considerable exaggera-
tion) ; the great sums which they lend to private people in countries
where the rate of interest is higher than in their own, are circum-

94 WEALTH OF NATIONS

stances which no doubt demonstrate the redundancy of their stock,
or that it has increased beyond what they can employ with tolerable
profit in the proper business of their own country: but they do not
demonstrate that that business has decreased. As the capital of a
private man, though acquired by a particular trade, may increase
beyond what he can employ in it, and yet that trade continue to in-
crease too; so may likewise the capital of a great nation.

In our North American and West Indian colonies, not only the
wages of labour, but the interest of money, and consequently the
profits of stock, are higher than in England. In the different colonies
both the legal and the market rate of interest run from six to eight per
cent. High wages of labour and high profits of stock, however, are
things, {jerhaps, which scarce ever go together, except in the f)eculiar
circumstances of new colonies. A new colony must always for some
time be more understocked in proportion to the extent of its territory,
and more under-peopled in proportion to the extent of its stock, than
the greater part of other countries. They have more land than they
have stock to cultivate. What they have, therefore, is applied to the
cultivation only of what is most fertile and most favourably situated,
the land near the sea shore, and along the banks of navigable rivers.
Such land too is frequently purchased at a price below the value even
of its natural produce. Stock employed in the purchase and improve-
ment of such lands must yield a very large profit, and consequently
afford to pay a very large interest. Its rapid accumulation in so
profitable an employment enables the planter to increase the num-
ber of his hands faster than he can find them in a new settlement.
Those whom he can find, therefore, are very liberally rewarded. As
the colony increases, the profits of stock gradually diminish. When
the most fertile and best situated lands have been all occupied, less
profit can be made by the cultivation of what is inferior both in soil
and situation, and less interest can be afforded for the stock which
is so employed. In the greater part of our colonies, accordingly, both
the legal and the market rate of interest have been considerably re-
duced during the course of the present century. As riches, improve-
ment, and population have increased, interest has declined. The
wages of labour do not sink with the profits of stock. The demand
for labour increases with the increase of stock whatever be its profits;

PROFITS OF STOCK 95

and after these are diminished, stock may not only continue to
increase, but to increase much faster than before. It is with industri-
ous nations who are advancing in the acquisition of riches, as with
industrious individuals. A great stock, though with small profits,
generally increases faster than a small stock with great profits.
Money, says the proverb, makes money. When you have got a litde,
it is often easy to get more. The great difficulty is to get that little.
The connection between the increase of stock and that of industry, or
of the demand for useful labour, has pardy been explained already,
but will be explained more fully hereafter in treating of the accu-
mulation of stock.

The acquisition of new territory, or of new branches of trade, may
sometimes raise the profits of stock, and with them the interest of
money, even in a country which is fast advancing in the acquisition
of riches. The stock of the country not being sufficient for the whole
accession of business, which such acquisitions present to the different
people among whom it is divided, is applied to those particular
branches only which afford the greatest profit. Part of what had
before been employed in other trades, is necessarily withdrawn from
them, and turned into some of the new and more profitable ones.
In all those old trades, therefore, the comf)etition comes to be less
than before. The market comes to be less fully supplied with many
different sorts of goods. Their price necessarily rises more or less,
and yields a greater profit to those who deal in them, who can, there-
fore, afford to borrow at a higher interest. For some time after the
conclusion of the late war, not only private people of the best credit,
but some of the greatest companies in Lx)ndon, commonly borrowed
at five per cent, who before that had not been used to pay more than
four, and four and a half per cent. The great accession both of ter-
ritory and trade, by our acquisitions in North America and the West
Indies, will sufficiently account for this, without supposing any
diminution in the capital stock of the society. So great an accession of
new business to be carried on by the old stock, must necessarily have
diminished the quantity employed in a great number of particular
branches, in which the comp)etition being less, the profits must have
been greater. I shall hereafter have occasion to mention the rea-
sons which dispose me to believe that the capital stock of Great

96 WEALTH OF NATIONS

Britain was not diminished even by the enormous expence of the
late war.

The diminution of the capital stock of the society, or of the funds
destined for the maintenance of industry, however, as it lowers the
wages of labour, so it raises the profits of stock, and consequendy the
interest of money. By the wages of labour being lowered, the owners
of what stock remains in the society can bring their goods at less
expence to market than before, and less stock being employed in sup-
plying the market than before, they can sell them dearer. Their
goods cost them less, and they get more for them. Their profits, there-
fore, being augmented at both ends, can well afford a large interest.
The great fortunes so suddenly and so easily acquired in Bengal and
the other British settlements in the East Indies, may satisfy us that,
as the wages of labour are very low, so the profits of stock are very
high in those ruined countries. The interest of money is propor-
tionably so. In Bengal, money is frequendy lent to the farmers at
forty, fifty, and sixty per cent, and the succeeding crop is mortgaged
for the payment. As the profits which can afford such an interest
must eat up almost the whole rent of the landlord, so such enormous
usury must in its turn eat up the greater part of those profits. Be-
fore the fall of the Roman republic, a usury of the same kind seems
to have been common in the provinces, under the ruinous administra-
tion of their proconsuls. The virtuous Brutus lent money in Cyprus
at eight-and-forty f)er cent, as we learn from the letters of Cicero.

In a country which had acquired that full complement of riches
which the nature of its soil and climate, and its situation with respect
to other countries, allowed it to acquire; which could, therefore,
advance no further, and which was not going backwards, both the
wages of labour and the profits of stock would probably be very low.
In a country fully peopled in proportion to what either its territory
could maintain or its stock employ, the competition for employment
would necessarily be so great as to reduce the wages of labour to what
was barely sufficient to keep up the number of labourers, and, the
country being already fully peopled, that number could never be
augmented. In a country fully stocked in proportion to all the busi-
ness it had to transact, as great a quantity of stock would be employed
in every particular branch as the nature and extent of the trade

PROFITS OF STOCK 97

would admit. The competition, therefore, would every-where be as
great, and consequently the ordinary profit as low as possible.

But perhaps no country has ever yet arrived at this degree of opu-
lence. China seems to have been long stationary, and had probably
long ago acquired that full complement of riches which is consistent
with the nature of its laws and institutions. But this complement
may be much inferior to what, with other laws and institutions, the
nature of its soil, climate, and situation might admit of. A country
which neglects or despises foreign commerce, and which admits the
vessels of foreign nations into one or two of its ports only, cannot
transact the same quantity of business which it might do with differ-
ent laws and institutions. In a country too, where, though the rich
or the owners of large capitals enjoy a good deal of security, the poor
or the owners of small capitals enjoy scarce any, but are liable, under
the pretence of justice, to be pillaged and plundered at any time by
the inferior mandarines, the quantity of stock employed in all the
different branches of business transacted within it, can never be equal
to what the nature and extent of that business might admit. In every
different branch, the oppression of the poor must establish the mo-
nopoly of the rich, who, by engrossing the whole trade to themselves,
will be able to make very large profits. Twelve per cent, accordingly
is said to be the common interest of money in China, and the ordi-
nary profits of stock must be sufficient to afford this large interest.

A defect in the law may sometimes raise the rate of interest con-
siderably above what the condition of the country, as to wealth or
poverty, would require. When the law does not enforce the per-
formance of contracts, it puts all borrowers nearly upon the same
footing with bankrupts or people of doubtful credit in better regu-
lated countries. The uncertainty of recovering his money makes the
lender exact the same usurious interest which is usually required
from bankrupts. Among the barbarous nations who over-run the
western provinces of the Roman empire, the performance of con-
tracts was left for many ages to the faith of the contracting parties.
The courts of justice of their kings seldom intermeddled in it. The
high rate of interest which took place in those ancient times may
perhaps be partly accounted for from this cause.

When the law prohibits interest altogether, it does not prevent it.

98 WEALTH OF NATIONS

Many people must borrow, and nobody will lend without such a
consideration for the use of their money as is suitable, not only to
what can be made by the use of it, but to the difficulty and danger
of evading the law. The high rate of interest among all Mahometan
nations is accounted for by Mr. Montesquieu, not from their poverty,
but pardy from this, and pardy from the difficulty of recovering the
money.

The lowest ordinary rate of profit must always be something
more than what is sufficient to compjensate the occasional losses to
which every employment of stock is exposed. It is this surplus only
which is neat or clear profit. What is called gross profit comprehends
frequently, not only this surplus, but what is retained for compen-
sating such extraordinary losses. The interest which the borrower
can afford to pay is in proportion to the clear profit only.

The lowest ordinary rate of interest must, in the same manner, be
something more than sufficient to compensate the occasional losses
to which lending, even with tolerable prudence, is exposed. Were it
not more, charity or friendship could be the only motives for lending.

In a country which had acquired its full complement of riches,
where in every particular branch of business there was the greatest
quantity of stock that could be employed in it, as the ordinary rate
of clear profit would be very small, so the usual market rate of inter-
est which could be afforded out of it, would be so low as to render
it impossible for any but the very wealthiest people to live upon the
interest of their money. All people of small or middling fortunes
would be obliged to superintend themselves the employment of their
own stocks. It would be necessary that almost every man should be
a man of business, or engage in some sort of trade. The province of
Holland seems to be approaching near to this state. It is there un-
fashionable not to be a man of business. Necessity makes it usual for
almost every man to be so, and custom every where regulates fashion.
As it is ridiculous not to dress, so is it, in some measure, not to be
employed, like other p)eople. As a man of a civil profession seems
awkward in a camp or a garrison, and is even in some danger of
being despised there, so does an idle man among men of business.

The highest ordinary rate of profit may be such as, in the price
of the greater part of commodities, eats up the whole of what should

PROFITS OF STOCK 99

go to the rent of the land, and leaves only what is sufficient to pay
the labour of preparing and bringing them to market, according to
the lowest rate at which labour can any-where be paid, the bare sub-
sistence of the labourer. The workman must always have been fed in
some way or other while he was about the work; but the landlord
may not always have been paid. The profits of the trade which the
servants of the East India Company carry on in Bengal may not
perhaps be very far from this rate.

The proportion which the usual market rate of interest ought to
bear to the ordinary rate of clear profit, necessarily varies as profit
rises or falls. Double interest is in Great Britain reckoned, what the
merchants call, a good, moderate, reasonable profit; terms which I
apprehend mean no more than a common and usual profit. In a
country where the ordinary rate of clear profit is eight or ten per
cent., it may be reasonable that one half of it should go to interest,
wherever business is carried on with borrowed money. The stock
is at the risk of the borrower, who, as it were, insures it to the lender;
and four or five p)er cent, may, in the greater part of trades, be both
a sufficient profit upon the risk of this insurance, and a sufficient
recompence for the trouble of employing the stock. But the propor-
tion between interest and clear profit might not be the same in coun-
tries where the ordinary rate of profit was either a good deal lower,
or a good deal higher. If it were a good deal lower, one half of it
perhaps could not be afforded for interest; and more might be
afforded if it were a good deal higher.

In countries which are fast advancing to riches, the low rate of
profit may, in the price of many commodities, compensate the high
wages of labour, and enable those countries to sell as cheap as their
less thriving neighbours, among whom the wages of labour may be
lower.

In reality high profits tend much more to raise the price of work
than high wages. If in the linen manufacture, for example, the wages
of the different working people, the flax-dressers, the spinners, the
weavers, &c. should, all of them, be advanced two pence a day; it
would be necessary to heighten the price of a piece of linen only by
a number of two pences equal to the number of p)eople that had
been employed about it, multiplied by the number of days during

lOO WEALTH OF NATIONS

which they had been so employed. That part of the price of the
commodity which resolved itself into wages would, through all the
different stages of the manufacture, rise only in arithmetical pro-
portion to this rise of wages. But if the profits of all the different
employers of those working people should be raised five per cent,
that part of the price of the commodity which resolved itself into
profit, would, through all the different stages of the manufacture, rise
in geometrical proportion to this rise of profit. The employer of the
flax-dressers would in selling his flax require an additional five per
cent, upon the whole value of the materials and wages would be
advanced to his workmen. The employer of the spinners would re-
quire an additional five per cent, both upon the advanced price of
the flax and upon the wages of the spinners. And the employer of
the weavers would require a like five per cent, both upon the ad-
vanced price of the linen yarn and upon the wages of the weavers.
In raising the price of commodities the rise of wages operates in the
same manner as simple interest does in the accumulation of debt.
The rise of profit operates like compound interest. Our merchants
and master-manufacturers complain much of the bad effects of high
wages in raising the price, and thereby lessening the sale of their
goods both at home and abroad. They say nothing concerning the
bad effects of high profits. They are silent with regard to the p)erni-
cious effects of their own gains. They complain only of those of
other people.

CHAPTER X

Of Wages and Profit in the Different Employments of
Labour and Stock

THE whole of the advantages and disadvantages of the dif-
ferent employments of labour and stock must, in the same
neighbourhood, be either perfectly equal or continually
tending to equality. If in the same neighbourhood, there was any
employment evidently either more or less advantageous than the rest,
so many people would crowd into it in the one case, and so many
would desert it in the other, that its advantages would soon return
to the level of other employments. This at least would be the case
in a society where things were left to follow their natural course,
where there was perfect liberty, and where every man was perfecdy
free both to chuse what occupation he thought proper, and to change
it as often as he thought proper. Every man's interest would prompt
him to seek the advantageous, and to shun the disadvantageous
employment.

Pecuniary wages and profit, indeed, are every-where in Europe
extremely different according to the different employments of labour
and stock. But this difference arises partly from certain circumstances
in the employments themselves, which, either really, or at least in
the imaginations of men, make up for a small pecuniary gain in some,
and counterbalance a great one in others; and pardy from the policy
of Europe, which no-where leaves things at perfect liberty.

The particular consideration of those circumstances and of that
policy will divide this chapter into two parts.

102 WEALTH OF NATIONS

PARTI

Inequalities arising from the Nature of the Employments
themselves

The five following are the principal circumstances which, so far
as I have been able to observe, make up for a small pecuniary gain
in some employments, and counter-balance a great one in others;
first, the agreeableness or disagreeableness of the employments them-
selves; secondly, the easiness and cheapness, or the difficulty and ex-
pence of learning them; thirdly, the constancy or inconstancy of
employment in them; fourthly, the small or great trust which must
be reposed in those who exercise them; and fifthly, the probability or
improbability of success in them.

First, The wages of labour vary with the ease or hardship, the
cleanliness or dirtiness, the honourableness or dishonourableness of
the employment. Thus in most places, take the year round, a jour-
neyman taylor earns less than a journeyman weaver. His work is
much easier. A journeyman weaver earns less than a journeyman
smith. His work is not always easier, but it is much cleanlier. A
journeyman blacksmith, though an artificer, seldom earns so much
in twelve hours as a collier, who is only a labourer, does in eight.
His work is not quite so dirty, is less dangerous, and is carried on in
day-light, and above ground. Honour makes a great part of the
reward of all honourable professions. In point of pecuniary gain,
all things considered, they are generally under-recompensed, as I
shall endeavour to show by and by. Disgrace has the contrary effea.
The trade of the butcher is a brutal and an odious business; but it
is in most places more profitable than the greater part of common
trades. The most detestable of all employments, that of public exe-
cutioner, is, in proportion to the quantity of work done, better paid
than any common trade whatever.

Hunting and fishing, the most important employments of man-
kind in the rude state of society, become in its advanced state their
most agreeable amusements, and they pursue for pleasure what they
once followed from necessity. In the advanced state of society, there-
fore, they are all very poor people who follow as a trade, what other

NATURAL INEQUALITIES IO3

people pursue as a pastime. Fishermen have been so since the time
of Theocritus. A poacher is every-where a very poor man in Great
Britain. In countries where the rigour of the law suffers no poachers,
the Ucensed hunter is not in a much better condition. The natural
taste for those employments makes more people follow them than can
live comfortably by them, and the produce of their labour, in pro-
jxjrtion to its quantity, comes always too cheap to market to afford
anything but the most scanty subsistence to the labourers.

Disagreeableness and disgrace afifect the profits of stock in the same
manner as the wages of labour. The keeper of an inn or tavern,
who is never master of his own house, and who is exposed to the bru-
tality of every drunkard, exercises neither a very agreeable nor a very
creditable business. But there is scarce any common trade in which
a small stock yields so great a profit.

Secondly, The wages of labour vary with the easiness and cheap-
ness, or the difficulty and expence of learning the business.

When any expensive machine is erected, the extraordinary work
to be performed by it before it is worn out, it must be expected, will
replace the capital laid out upon it, with at least the ordinary profits.
A man educated at the expence of much labour and time to any of
those employments which require extraordinary dexterity and skill,
may be compared to one of those expensive machines. The work
which he learns to perform, it must be expected, over and above the
usual wages of common labour, will replace to him the whole ex-
pence of his education, with at least the ordinary profits of an equally
valuable capital. It must do this too in a reasonable time, regard
being had to the very uncertain duration of human life, in the same
manner as to the more certain duration of the machine.

The difference between the wages of skilled labour and those of
common labour, is founded upon this principle.

The policy of Europe considers the labour of all mechanics, arti-
ficers, and manufacturers, as skilled labour; and that of all country
labourers as common labour. It seems to suppose that of the former
to be of a more nice and delicate nature than that of the latter. It
is so perhaps in some cases; but in the greater part it is quite other-
wise, as I shall endeavour to shew by and by. The laws and customs
of Europe, therefore, in order to qualify any person for exercising

104 WEALTH OF NATIONS

the one species of labour, impose the necessity of an apprenticeship,
though with different degrees of rigour in different places. They
leave the other free and open to every body. During the continuance
of the apprenticeship, the whole labour of the apprentice belongs to
his master. In the mean time he must, in many cases, be maintained
by his parents or relations, and in almost all cases must be doathed
by them. Some money too is commonly given to the master for teach-
ing him his trade. They who cannot give money, give time, or be-
come bound for more than the usual number of years; a consid-
eration which, though it is not always advantageous to the master,
on account of the usual idleness of apprentices, is always disadvan-
tageous to the apprentice. In country labour, on the contrary, the
labourer, while he is employed about the easier, learns the more diffi-
cult parts of his business, and his own labour maintains him through
all the different stages of his employment. It is reasonable, therefore,
that in Europe the wages of mechanics, artificers, and manufacturers,
should be somewhat higher than those of common labourers. They
are so accordingly, and their superior gains make them in most places
be considered as a superior rank of people. This superiority, how-
ever, is generally very small; the daily or weekly earnings of journey-
men in the more common sorts of manufactures, such as those of
plain linen and woollen cloth, computed at an average, are, in most
places, very litde more than the day wages of common labourers.
Their employment, indeed, is more steady and uniform, and the
superiority of their earnings, taking the whole year together, may be
somewhat greater. It seems evidently, however, to be no greater than
what is sufficient to compensate the superior expence of their edu-
cation.

Education in the ingenious arts and in the liberal professions, is
still more tedious and expensive. The pecuniary recompence, there-
fore, of painters and sculptors, of lawyers and physicians, ought to be
much more liberal: and it is so accordingly.

The profits of stock seem to be very litde affected by the easiness
or difficulty of learning the trade in which it is employed. All the
different ways in which stock is commonly employed in great towns
seem, in reality, to be almost equally easy and equally difficult to

NATURAL INEQUALITIES IO5

learn. One branch either of foreign or domestic trade, cannot well
be a much more intricate business than another.

Thirdly, The wages of labour in different occupations vary with
the constancy or inconstancy of employment.

Employment is much more constant in some trades than in others.
In the greater part of manufactures, a journeyman may be pretty sure
of employment almost every day in the year that he is able to work.
A mason or bricklayer, on the contrary, can work neither in hard
frost nor in foul weather, and his employment at all other times
dep)ends upon the occasional calls of his customers. He is liable, in
consequence, to be frequently without any. What he earns, there-
fore, while he is employed, must not only maintain him while he
is idle, but make him some compensation for those anxious and
despwnding moments which the thought of so precarious a situation
must sometimes occasion. Where the computed earnings of the
greater part of manufacturers, accordingly, are nearly upon a level
with the day wages of common labourers, those of masons and brick-
layers are generally from one half more to double those wages.
Where common labourers earn four and five shillings a week, ma-
sons and bricklayers frequendy earn seven and eight; where the
former earn six, the latter often earn nine and ten, and where the
former earn nine and ten, as in London, the latter commonly earn
fifteen and eighteen. No species of skilled labour, however, seems
more easy to learn than that of masons and bricklayers. Chairmen
in Lx)ndon, during the summer season, are said sometimes to be em-
ployed as bricklayers. The high wages of those workmen, therefore,
are not so much the recompence of their skill, as the compensation
for the inconstancy of their employment.

A house carpenter seems to exercise rather a nicer and more
ingenious trade than a mason. In most places however, for it is not
universally so, his day-wages are somewhat lower. His employment,
though it depends much, does not depend so entirely upon the occa-
sional calls of his customers; and it is not liable to be interrupted by
the weather.

When the trades which generally afford constant employment,
happen in a particular place not to do so, the wages of the workmen

I06 WEALTH OF NATIONS

always rise a good deal above their ordinary proportion to those of
common labour. In London almost all journeymen artificers are
liable to be called upon and dismissed by their masters from day to
day, and from week to week, in the same manner as day-labourers
in other places. The lowest order of artificers, journeymen taylors,
accordingly, earn there half a crown a day, though eighteen pence
may be reckoned the wages of common labour. In small towns and
country villages, the wages of journeymen taylors frequently scarce
equal those of common labour; but in London they are often many
weeks without employment, particularly during the summer.

When the inconstancy of employment is combined with the hard-
ship, disagreeableness, and dirtiness of the work, it sometimes raises
the wages of the most common labour above those of the most skil-
ful artificers. A collier working by the piece is supposed, at New-
castle, to earn commonly about double, and in many parts of Scot-
land about three times the wages of common labour. His high wages
arise altogether from the hardship, disagreeableness, and dirtiness
of his work. His employment may, upon most occasions, be as con-
stant as he pleases. The coal-heavers in London exercise a trade
which in hardship, dirtiness, and disagreeableness, almost equals that
of colliers; and from the unavoidable irregularity in the arrivals of
coal-ships, the employment of the greater part of them is necessarily
very inconstant. If colliers, therefore, commonly earn double and
triple the wages of common labour, it ought not to seem unreason-
able that coal-heavers should sometimes earn four and five times
those wages. In the enquiry made into their condition a few years
ago, it was found that at the rate at which they were then paid, they
could earn from six to ten shillings a day. Six shillings are about four
tiroes the wages of common labour in London, and in every par-
ticular trade, the lowest common earnings may always be considered
as those of the far greater number. How extravagant soever those
earnings may appear, if they were more than sufficient to compen-
sate all the disagreeable circumstances of the business, there would
soon be so great a number of competitors as, in a trade which has
no exclusive privilege, would quickly reduce them to a lower rate.

The constancy or inconstancy of employment cannot affect the
ordinary profits of stock in any particular trade. Whether the stock

NATURAL INEQUALITIES IO7

is or is not constantly employed depends, not upon the trade, but
the trader.

Fourthly, The wages of labour vary according to the small or great
trust which must be reposed in the workmen.

The wages of goldsmiths and jewellers are every-where superior
to those of many other workmen, not only of equal, but of much
superior ingenuity; on account of the precious materials with which
they are intrusted.

We trust our health to the physician; our fortune and sometimes
our life and reputation to the lawyer and attorney. Such confidence
could not safely be repxjsed in people of a very mean or low condition.
Their reward must be such, therefore, as may give them that rank
in the society which so important a trust requires. The long time and
the great exp)ence which must be laid out in their education, when
combined with this circumstance, necessarily enhance still further
the price of their labour.

When a person employs only his own stock in trade, there is no
trust; and the credit which he may get from other people, depends,
not upon the nature of his trade, but upon their opinion of his for-
tune, probity, and prudence. The different rates of profit, therefore,
in the different branches of trade, cannot arise from the different
degrees of trust repxjsed in the traders.

Fifthly, The wages of labour in different employments vary
according to the probability or improbability of success in them.

The probability that any particular person shall ever be qualified
for the employment to which he is educated, is very different in
different occupations. In the greater part of mechanic trades, suc-
cess is almost certain; but very uncertain in the liberal professions.
Put your son apprentice to a shoemaker, there is litde doubt of his
learning to make a pair of shoes: But send him to study law, it is
at least twenty to one if ever he makes such proficiency as will enable
him to live by the business. In a perfectly fair lottery, those who draw
the pri2^s ought to gain all that is lost by those who draw the blanks.
In a profession where twenty fail for one that succeeds, that one
ought to gain all that should have been gained by the unsuccessful
twenty. The counsellor at law who, perhaps, at near forty years of
age, begins to make something by his profession, ought to receive the

I08 WEALTH OF NATIONS

retribution, not only of his own so tedious and expensive education,
but of that of more than twenty others who are never likely to make
any thing by it. How extravagant soever the fees of counsellors at
law may sometimes appear, their real retribution is never equal to
this. Compute in any particular place, what is likely to be annually
gained, and what is likely to be annually spent, by all the different
workmen in any common trade, such as that of shoemakers or
weavers, and you will find that the former sum will generally exceed
the latter. But make the same computation with regard to all the
counsellors and students of law, in all the different inns of court, and
you will find that their annual gains bear but a very small propor-
tion to their annual expence, even though you rate the former as high,
and the latter as low, as can well be done. The lottery of the law,
therefore, is very far from being a perfectly fair lottery; and that,
as well as many other liberal and honorable professions, is, in point
of {jecuniary gain, evidently under-recomp)enced.

Those professions keep their level, however, with other occupa-
tions and, notwithstanding these discouragements, all the most gen-
erous and liberal spirits are eager to crowd into them. Two differ-
ent causes contribute to recommend them. First, the desire of the
reputation which attends upon sup)erior excellence in any of them;
and, secondly, the natural confidence which every man has more or
less, not only in his own abilities, but in his own good fortune.

To excel in any profession, in which but few arrive at mediocrity,
is the most decisive mark of what is called genius or superior talents.
The public admiration which attends upon such distinguished abil-
ities, makes always a part of their reward; a greater or smaller in
proportion as it is higher or lower in degree. It makes a considerable
part of that reward in the profession of physic; a still greater perhaps
in that of law; in poetry and philosophy it makes almost the whole.

There are some very agreeable and beautiful talents of which the
possession commands a certain sort of admiration; but of which the
exercise for the sake of gain is considered, whether from reason or
prejudice, as a sort of public prostitution. The pecuniary recompence,
therefore, of those who exercise them in this manner, must be suffi-
cient, not only to pay for the time, labour and expence of acquiring
the talents, but for the discredit which attends the employment of

NATURAL INEQUALITIES IO9

them as a means of subsistence. The exorbitant rewards of players,
opera-singers, opera-dancers, &c. are founded upon those two prin-
ciples; the rarity and beauty of the talents, and the discredit of em-
ploying them in this manner. It seems absurd at first sight that we
should despise their persons, and yet reward their talents with the
most profuse liberality. While we do the one, however, we must of
necessity do the other. Should the public opinion or prejudice ever
alter with regard to such occupations, their pecuniary recompence
would quickly diminish. More people would apply to them, and the
competition would quickly reduce the price of their labour. Such
talents, though far from being common, are by no means so rare as
is imagined. Many people possess them in great perfection, who
disdain to make use of them; and many more are capable of acquir-
ing them, if any thing could be made honourably by them.

The over-weening conceit which the greater part of men have of
their own abilities, is an ancient evil remarked by the philosophers
and moralists of all ages. Their absurd presumption in their own
good fortune, has been less taken notice of. It is, however, if possible,
still more universal. There is no man living who, when in tolerable
health and spirits, has not some share of it. The chance of gain is
by every man more or less over-valued, and the chance of loss is by
most men under-valued, and by scarce any man, who is in tolerable
health and spirits, valued more than it is worth.

That the chance of gain is naturally over-valued, we may learn
from the universal success of lotteries. The world neither ever saw,
nor ever will see, a perfectly fair lottery; or one in which the whole
gain compensated the whole loss; because the undertaker could make
nothing by it. In the state lotteries the tickets are really not worth
the price which is paid by the original subscribers, and yet commonly
sell in the market for twenty, thirty, and sometimes forty per cent,
advance. The vain hope of gaining some of the great prizes is the
sole cause of this demand. The soberest people scarce look upon it
as a folly to pay a small sum for the chance of gaining ten or twenty
thousand pounds; though they know that even that small sum is
perhaps twenty or thirty per cent, more than the chance is worth.
In a lottery in which no prize exceeded twenty pounds, though in
other respects it approached much nearer to a perfectly fair one than

no WEALTH OF NATIONS

the common state lotteries, there would not be the same demand for
tickets. In order to have a better chance for some of the great prizes,
some people purchase several tickets, and others, small shares in a
still greater number. There is not, however, a more certain proposi-
tion in mathematics, than that the more tickets you adventure upon,
the more likely you are to be a loser. Adventure upon all the tickets
in the lottery, and you lose for certain; and the greater the number
of your tickets the nearer you approach to this certainty.

That the chance of loss is frequently undervalued, and scarce ever
valued more than it is worth, we may learn from the very moderate
profit of insurers. In order to make insurance, either from fire or sea-
risk, a trade at all, the common premium must be sufficient to com-
pensate the common losses, to pay the expence of management, and
to afford such a profit as might have been drawn from an equal
capital employed in any common trade. The person who pays no
more than this, evidently pays no more than the real value of the
risk, or the lowest price at which he can reasonably expject to insure
it. But though many people have made a little money by insurance,
very few have made a great fortune; and from this consideration
alone, it seems evident enough, that the ordinary balance of profit
and loss is not more advantageous in this, than in other common
trades by which so many people make fortunes. Moderate, however,
as the premium of insurance commonly is, many people despise the
risk too much to care to pay it. Taking the whole kingdom at an
average, nineteen houses in twenty, or rather, perhaps, ninety-nine
in a hundred, are not insured from fire. Sea-risk is more alarming
to the greater part of people, and the prof)ortion of ships insured to
those not insured is much greater. Many sail, however, at all seasons,
and even in time of war, without any insurance. This may some-
times jjerhaps be done without any imprudence. When a great com-
pany, or even a great merchant, has twenty or thirty ships at sea, they
may, as it were, insure one another. The premium saved upon them
all, may more than compensate such losses as they are likely to meet
with in the common course of chances. The neglect of insurance
upon shipping, however, in the same manner as upon houses is, in
most cases, the effect of no such nice calculation, but of mere thought-
less rashness and presumptuous contempt of the risk.

NATURAL INEQUALITIES III

The contempt of risk and the presumptuous hope of success, are
in no period of life more active than at the age at which young people
chuse their professions. How little the fear of misfortune is then
capable of balancing the hojje of good luck, appears still more evi-
dently in the readiness of the common people to enlist as soldiers, or
to go to sea, than in the eagerness of those of better fashion to enter
into what are called the liberal professions.

What a common soldier may lose is obvious enough. Without
regarding the danger, however, young volunteers never enlist so
readily as at the beginning of a new war; and though they have
(carce any chance of preferment, they figure to themselves, in their
youthful fancies, a thousand occasions of acquiring honour and dis-
tinction which never occur. These romantic hopes make the whole
price of their blood. Their pay is less than that of common laborers,
and in actual service their fatigues are much greater.

The lottery of the sea is not altogether so disadvantageous as that
of the army. The son of a creditable labourer or artificer may fre-
quently go to sea with his father's consent; but if he enlists as a
soldier, it is always without it. Other people see some chance of his
making something by the one trade; nobody but himself sees any
of his making any thing by the other. The great admiral is less the
object of public admiration than the great general, and the highest
success in the sea service promises a less brilliant fortune and repu-
tation than equal success in the land. The same difference runs
through all the inferior degrees of preferment in both. By the rules
of precedency a captain in the navy ranks with a colonel in the army :
but he does not rank with him in the common estimation. As the
great prizes in the lottery are less, the smaller ones must be more
numerous. Common sailors, therefore, more frequently get some for-
tune and preferment than common soldiers; and the hope of those
prizes is what principally recommends the trade. Though their skill
and dexterity are much superior to that of almost any artificer's, and
though their whole life is one continual scene of hardship and
danger, yet for all this dexterity and skill, for all those hardships and
dangers, while they remain in the condition of common sailors, they
receive scarce any other recompence but the pleasure of exercising
the one and of surmounting the other. Their wages are not greater

112 WEALTH OF NATIONS

than those of common laborers at the port which regulates the rate of
seamen's wages. As they are continually going from port to port,
the monthly pay of those who sail irom aJJ the different ports ot Great
Britain, is more nearly upon a level than that of any other workmen
in those different places; and the rate of the port to and from which
the greatest number sail, that is the port of London, regulates that
of all the rest. At London the wages of the greater part of the differ-
ent classes of workmen are about double those of the same classes at
Edinburgh. But the sailors who sail from the port of London seldom
earn above three or four shillings a month more than those who sail
from the p)ort of Leith, and the difference is frequendy not so great.
In time of peace, and in the merchant service, the London price is
from a guinea to about seven-and-twenty shillings the calendar
month. A common labourer in London, at the rate of nine or ten
shillings a month, may earn in the calendar month from forty to
five-and-forty shillings. The sailor, indeed, over and above his pay,
is supplied with provisions. Their value, however, may not perhaps
always exceed the difference between his pay and that of the common
labourer; and though it sometimes should, the excess will not be clear
gain to the sailor, because he cannot share it with his wife and
family, whom he must maintain out of his wages at home.

The dangers and hair-breadth escapes of a life of adventures, in-
stead of disheartening young people, seem frequendy to recommend
a trade to them. A tender mother, among the inferior ranks of
people, is often afraid to send her son to school at a sea-port town,
lest the sight of the ships and the conversation and adventures of the
sailors should entice him to go to sea. The distant prospect of haz-
ards, from which we can hope to extricate ourselves by courage and
address, is not disagreeable to us, and does not raise the wages of
labour in any employment. It is otherwise with those in which cour-
age and address can be of no avail. In trades which are known to be
very unwholesome, the wages of labour are always remarkably high.
Unwholesomeness is a species of disagreeableness, and its effects upon
the wages of labour are to be ranked under that general head.

In all the different employments of stock, the ordinary rate of profit
varies more or less with the certainty or uncertainty of the returns.
These are in general less uncertain in the inland than in the foreign

NATURAL INEQUALITIES II3

trade, and in some branches of foreign trade than others; in the trade
to North America, for example, than in that to Jamaica. The ordi-
nary rate of profit always rises more or less with the risk. It does not,
however, seem to rise in proportion to it, or so as to compensate it
completely. Bankruptcies are most frequent in the most hazardous
trades. The most hazardous of all trades, that of a smuggler, though
when the adventure succeeds it is likewise the most profitable, is the
infallible road to bankruptcy. The presumptuous hof)e of success
seems to act here as upon all other occasions, and to entice so many
adventurers into those hazardous trades, that their competition re-
duces the profit below what is sufficient to compensate the risk. To
compensate it completely, the common returns ought, over and above
the ordinary profits of stock, not only to make up for all occasional
losses, but to afford a surplus profit to the adventurers of the same
nature with the profit of insurers. But if the common returns were
sufficient for all this, bankruptcies would not be more frequent in
these than in other trades.

Of the five circumstances, therefore, which vary the wages of
labour, two only affect the profits of stock; the agreeableness or dis-
agreeableness of the business, and the risk or security with which it
is attended. In point of agreeableness or disagreeableness, there is
little or no difference in the far greater part of the different employ-
ments of stock; but a great deal in those of labour; and the ordinary
profit of stock, though it rises with the risk, does not always seem
to rise in proportion to it. It should follow from all this, that, in the
same society or neighborhood, the average and ordinary rates of
profit in the different employments of stock should be more nearly
up)on a level than the pecuniary wages of the different sorts of labour.
They are so accordingly. The difference between the earnings of a
common labourer and those of a well employed lawyer or physician,
is evidently much greater than that between the ordinary profits in
any two different branches of trade. The apparent difference, besides,
in the profits of different trades, is generally a deception arising from
our not always distinguishing what ought to be considered as wages,
from what ought to be considered as profit.

Apothecaries' profit is become a bye-word, denoting something
uncommonly extravagant. This great apparent profit, however, is

114 WEALTH OF NATIONS

frequently no more than the reasonable wages of labour. The skill
of an apothecary is a much nicer and more delicate matter than that
of any artificer whatever; and the trust which is reposed in him is
of much greater importance. He is the physician of the poor in all
cases, and of the rich when the distress or danger is not very great.
His reward, therefore, ought to be suitable to his skill and his trust,
and it arises generally from the price at which he sells his drugs. But
the whole drugs which the best employed apothecary, in a large mar-
ket town, will sell in a year, may not perhaps cost him above thirty
or forty pounds. Though he should sell them, therefore, for three or
four hundred, or at a thousand per cent, profit, this may frequently
be no more than the reasonable wages of his labour charged, in the
only way in which he can charge them, upon the price of his drugs.
The greater part of the apparent profit is real wages disguised in
the garb of profit.

In a small sea-port town, a little grocer will make forty or fifty
per cent, upon a stock of a smgle hundred pounds, while a con-
siderable wholesale merchant in the same place will scarce make eight
or ten per cent, upon a stock of ten thousand. The trade of the grocer
may be necessary for the conveniency of the inhabitants, and the
narrowness of the market may not admit the employment of a larger
capital in the business. The man, however, must not only live by
his trade, but live by it suitably to the qualifications which it requires.
Besides possessing a little capital, he must be able to read, write, and
account, and must be a tolerable judge too of, perhaps, fifty or sixty
different sorts of goods, their prices, qualities, and the markets where
they are to be had cheapest. He must have all the knowledge, in
short, that is necessary for a great merchant, which nothing hinders
him from becoming but the want of sufficient capital. Thirty or forty
fxjunds a year cannot be considered as too great a recompence for
the labour of a person so accomplished. Deduct this from the seem-
ingly great profits of his capital, and little more will remain, perhaps,
than the ordinary profits of stock. The greater part of the apparent
profit is, in this case too, real wages.

The difference between the apparent profit of the retail and that
of the wholesale trade, is much less in the capital than in small towns
and country villages. Where ten thousand pounds can be employed

NATURAL INEQUALITIES II5

in the grocery trade, the wages of the grocer's labour make but a
very trifling addition to the real profits of so great a stock. The ap-
parent profits of the wealthy retailer, therefore, are there more nearly
upon a level with those of the wholesale merchant. It is upon this
account that goods sold by retail are generally as cheap and fre-
quently much cheaper in the capital than in small towns and country
villages. Grocery goods, for example, are generally much cheaper;
bread and butcher's meat frequently as cheap. It costs no more to
bring grocery goods to the great town than to the country village;
but it costs a great deal more to bring corn and catde, as the greater
part of them must be brought from a much greater distance. The
prime cost of grocery goods, therefore, being the same in both places,
they are cheapest where the least profit is charged upon them. The
prime cost of bread and butcher's meat is greater in the great town
than in the country village; and though the profit is less, therefore
they are not always cheaper there, but often equally cheap. In such
articles as bread and butcher's meat, the same cause, which dimin-
ishes apparent profit, increases prime cost. The extent of the market,
by giving employment to greater stocks, diminishes apparent profit;
but by requiring supplies from a greater distance, it increases prime
cost. This diminution of the one and increase of the other seem, in
most cases, nearly to counter-balance one another; which is probably
the reason that, though the prices of corn and cattle are commonly
very different in different parts of the kingdom, those of bread and
butcher's meat are generally very nearly the same through the greater
part of it.

Though the profits of stock both in the wholesale and retail trade
are generally less in the capital than in small towns and country vil-
lages, yet great fortunes are frequently acquired from small begin-
nings in the former, and scarce ever in the latter. In small towns
and country villages, on account of the narrowness of the market,
trade cannot always be extended as stock extends. In such places,
therefore, though the rate of a particular person's profits may be very
high, the sum or amount of them can never be very great, nor conse-
quently that of his annual accumulation. In great towns, on the con-
trary, trade can be extended as stock increases, and the credit of a
frugal and thriving man increases much faster than his stock. His

Il6 WEALTH OF NATIONS

trade is extended in proportion to the amount of both, and the sum
or amount of his profits is in proportion to the extent of his trade,
and his annual accumulation in proportion to the amount of his
profits. It seldom happens, however, that great fortunes are made
even in great towns by any one regular, established, and well-known
branch of business, but in consequence of a long life of industry, fru-
gality, and attention. Sudden fortunes, indeed, are sometimes made
in such places by what is called the trade of speculation. The specu-
lative merchant exercises no one regular, established, or well-known
branch of business. He is a corn merchant this year, and a wine mer-
chant the next, and a sugar, tobacco, or tea merchant the year after.
He enters into every trade when he foresees that it is likely to be
more than commonly profitable, and he quits it when he foresees
that its profits are likely to return to the level of other trades. His
profits and losses, therefore, can bear no regular proportion to those
of any one established and well-known branch of business. A bold
adventurer may sometimes acquire a considerable fortune by two
or three successful speculations; but is just as likely to lose one by two
or three unsuccessful ones. This trade can be carried on no where but
in great towns. It is only in places of the most extensive commerce
and correspondence that the intelligence requisite for it can be had.

The five circumstances above mentioned, though they occasion
considerable inequalities in the wages of labour and profits of stock,
occasion none in the whole of the advantages and disadvantages,
real or imaginary, of the different employments of either. The nature
of those circumstances is such, that they make up for a small pecuni-
ary gain in some, and counter-balance a great one in others.

In order, however, that this equality may take place in the whole
of their advantages or disadvantages, three things are requisite even
where there is the most perfect freedom. First, the employments
must be well known and long established in the neighborhood;
secondly, they must be in their ordinary, or what may be called their
natural state; and, thirdly, they must be the sole or principal employ-
ments of those who occupy them.

First, this equality can take place only in those employments which
are well known, and have been long established in the neighbour-
hood

NATURAL INEQUALITIES II7

Where all other circumstances are equal, wages are generally higher
in new than in old trades. When a projector attempts to establish
a new manufacture, he must at first entice his workmen from other
employments by higher wages than they can either earn in their own
trades, or than the nature of his work would otherwise require, and
a considerable time must pass away before he can venture to reduce
them to the common level. Manufactures for which the demand
arises altogether from fashion and fancy, are continually changing,
and seldom last long enough to be considered as old established
manufactures. Those, on the contrary, for which the demand arises
chiefly from use or necessity, are less liable to change, and the same
form or fabric may continue in demand for whole centuries together.
The wages of labour, therefore, are likely to be higher in manufac-
tures of the former, than in those of the latter kind. Birmingham
deals chiefly in manufactures of the former kind; Sheffield in
those of the latter; and the wages of labour in those two different
places, are said to be suitable to this difference in the nature of their
manufactures.

The establishment of any new manufacture, of any new branch
of commerce, or of any new practice in agriculture, is always a specu-
lation, from which the projector promises himself extraordinary
profits. These profits sometimes are very great, and sometimes, more
frequendy, perhaps, they are quite otherwise; but in general they
bear no regular proportion to those of other old trades in the neigh-
bourhood. If the project succeeds, they are commonly at first very
high. When the trade or practice becomes thoroughly established
and well known, the competition reduces them to the level of other
trades.

Secondly, This equality in the whole of the advantages and dis-
advantages of the different employments of labour and stock, can
take place only in the ordinary, or what may be called the natural
state of those employments.

The demand for almost every different species of labour is some-
times greater and sometimes less than usual. In the one case the
advantages of the employment rise above, in the other they fall below
the common level. The demand for country labour is greater at
hay-time and harvest, than during the greater part of the year; and

Il8 WEALTH OF NATIONS

wages rise with the demand. In time of war, when forty or fifty thou-
sand sailors are forced from the merchant service into that of the
king, the demand for sailors to merchant ships necessarily rises with
their scarcity, and their wages upon such occasions commonly rise
from a guinea and seven-and-twenty shillings, to forty shillings and
three pounds a month. In a decaying manufacture, on the contrary,
many workmen, rather than quit their old trade, are contented with
smaller wages than would otherwise be suitable to the nature of
their employment.

The profits of stock vary with the price of the commodities in
which it is employed. As the price of any commodity rises above the
ordinary or average rate, the profits of at least some part of the stock
that is employed in bringing it to market, rise above their projjer
level, and as it falls they sink below it. All commodities are more or
less liable to variations of price, but some are much more so than
others. In all commodities which are produced by human industry,
the quantity of industry annually employed is necessarily regulated
by the annual demand, in such a manner that the average annual
produce may, as nearly as possible, be equal to the average annual
consumption. In some employments, it has already been observed,
the same quantity of industry will always produce the same, or very
nearly the same quantity of commodities. In the linen or woollen
manufactures, for example, the same number of hands will annually
work up very nearly the same quantity of linen and woollen cloth.
The variations in the market price of such commodities, therefore,
can arise only from some accidental variation in the demand. A pub-
lic mourning raises the price of black cloth. But as the demand for
most sorts of plain linen and woollen cloth is pretty uniform, so is
likewise the price. But there are other employments in which the
same quality of industry will not always produce the same quantity
of commodities. The same quantity of industry, for example, will,
in different years, produce very different quantities of corn, wine,
hops, sugar, tobacco, &c. The price of such commodities, therefore,
varies not only with the variations of demand, but with the much
greater and more frequent variations of quantity, and is consequendy
extremely fluctuating. But the profit of some of the dealers must
necessarily fluctuate with the price of the commodities. The opera-

NATURAL INEQUALITIES IIQ

tions of the speculative merchant are principally employed about such
commodities. He endeavours to buy them up when he foresees diat
their price is likely to rise, and to sell them when it is likely to fall.

Thirdly, This equality in the whole of the advantages and dis-
advantages of the different employments of labour and stock, can
take place only in such as are the sole or principal employments of
those who occupy them.

When a person derives his subsistence from one employment,
which does not occupy the greater part of his time; in the intervals
of his leisure he is often willing to work at another for less wages
than would otherwise suit the nature of the employment.

There still subsists in many parts of Scotland a set of people called
Cotters or Cottagers, though they were more frequent some years
ago than they are now. They are a sort of out-servants of the land-
lords and farmers. The usual reward which they receive from their
masters is a house, a small garden for pot herbs, as much grass as
will feed a cow, and, perhaps, an acre or two of bad arable land.
When their master has occasion for their labour, he gives them, be-
sides, two pecks of oatmeal a week, worth about sixteen pence ster-
ling. During a great part of the year he has little or no occasion for
their labour, and the cultivation of their own little possession is not
sufficient to occupy the time which is left at their own disposal.
When such occupiers were more numerous than they are at present,
they are said to have been willing to give their spare time for a very
small recompence to any body, and to have wrought for less wages
than other labourers. In ancient times they seem to have been com-
mon all over Europe. In countries ill cultivated and worse inhabited,
the greater part of landlords and farmers could not otherwise pro-
vide themselves with the extraordinary number of hands, which
country labour requires at certain seasons. The daily or weekly rec-
ompence which such labourers occasionally received from their mas-
ters, was evidendy not the whole price of their labour. Their small
tenement made a considerable part of it. This daily or weekly recom-
pence, however, seems to have been considered as the whole of it,
by many writers who have collected the prices of labour and pro-
visions in ancient times, and who have taken pleasure in represent-
ing both as wonderfully low.

120 WEALTH OF NATIONS

The produce of such labour comes frequently cheaper to market
than would otherwise be suitable to its nature. Stockings in many
parts of Scotland are knit much cheaper than they can any-where be
wrought upon the loom. They are the work of servants and labour-
ers, who derive the principal part of their subsistence from some
other employment. More than a thousand pair of Shetland stockings
are annually imported into Leith, of which the price is from five
pence to seven pence a pair. At Learwick, the small capital of the
Shetland islands, ten pence a day, I have been assured, is a common
price of common labour. In the same islands they knit worsted stock-
ings to the value of a guinea a pair and upwards.

The spinning of linen yarn is carried on in Scotland nearly in the
same way as the knitting of stockings, by servants who are chiefly
hired for other purposes. They earn but a very scanty subsistence,
who endeavour to get their whole livelihood by either of those trades.
In most parts of Scotland she is a good spinner who can earn twenty
pence a week.

In opulent countries the market is generally so extensive, that any
one trade is sufficient to employ the whole labour and stock of those
who occupy it. Instances of people's living by one employment, and
at the same time deriving some little advantage from another, occur
chiefly in f)oor countries. The following instance, however, of some-
thing of the same kind is to be found in the capital of a very rich
one. There is no city in Europe, I believe, in which house-rent is
dearer than in London, and yet I know no capital in which a fur-
nished apartment can be hired so cheap. Lodging is not only much
cheaper in London than in Paris; it is much cheaper than in Edin-
burgh of the same degree of goodness; and what may seem extraor-
dinary, the dearness of house-rent is the cause of the cheapness of
lodging. The dearness of house-rent in London arises, not only from
those causes which render it dear in all great capitals, the dearness
of labour, the dearness of all the materials of building, which must
generally be brought from a great distance, and above all the dear-
ness of ground-rent, every landlord acting the part of a monopolist,
and frequently exacting a higher rent for a single acre of bad land
in a town, than can be had for a hundred of the best in the country;
but it arises in part from the peculiar manners and customs of the

POLITICAL INEQUALITIES 121

people which obUge every master of a family to hire a whole house
from top to bottom. A dwelling-house in England means every
thing that is contained under the same roof. In France, Scotland,
and many other parts of Europe, it frequently means no more than
a single story. A tradesman in London is obliged to hire a whole
house in that part of the town where his customers live. His shop
is upon the ground-floor, and he and his family sleep in the garret;
and he endeavours to pay a part of his house-rent by letting the two
middle stories to lodgers. He expects to maintain his family by his
trade, and not by his lodgers. Whereas, at Paris and Edinburgh, the
people who let lodgings have commonly no other means of sub-
sistence; and the price of the lodging must pay, not only the rent of
the house, but the whole expence of the family.

PART II

Inequalities occasioned by the Policy of Europe

Such are the inequalities in the whole of the advantages and dis-
advantages of the different employments of labour and stock, which
the defect of any of the three requisites above-mentioned must occa-
sion, even where there is the most {perfect liberty. But the policy of
Europe, by not leaving things at perfect liberty, occasions other
inequalities of much greater importance.

It does this chiefly in the three following ways. First, by restrain-
ing the competition in some employments to a smaller number than
would otherwise be disposed to enter into them ; secondly, by increas-
ing it in others beyond what it naturally would be; and, thirdly, by
obstructing the free circulation of labour and stock, both from
employment to employment and from place to place.

First, The Policy of Europe occasions a very important inequality
in the whole of the advantages and disadvantages of the different em-
ployments of labour and stock, by restraining the competition in
some employments to a smaller number than might otherwise be
disposed to enter into them.

The exclusive privileges of corporations are the principal means
it makes use of for this purpose.

122 WEALTH OF NATIONS

The exclusive privilege of an incorporated trade necessarily re-
strains the competition, in the town where it is established, to those
who are free of the trade. To have served an apprenticeship in the
town under a master properly qualified, is commonly the necessary
requisite for obtaining this freedom. The bye-laws of the corpora-
tion regulate sometimes the number of apprentices which any master
is allowed to have, and almost always the number of years which
each apprentice is obliged to serve. The intention of both regulations
is to restrain the competition to a much smaller number than might
otherwise be disposed to enter into the trade. The limitation of the
number of apprentices restrains it directly. A long term of appren-
ticeship restrains it more indirectly, but as effectually, by increasing
the expence of education.

In Sheffield no master cutler can have more than one apprentice
at a time, by a bye-law of the corporation. In Norfolk and Norwich
no master weaver can have more than two apprentices, under pain
of forfeiting five pounds a month to the king. No master hatter can
have more than two apprentices any-where in England, or in the
English plantations, under pain of forfeiting five pounds a month,
half to the king, and half to him who shall sue in any court of record.
Both these regulations, though they have been confirmed by a pub-
lic law of the kingdom, are evidently dictated by the same corpora-
tion spirit which enacted the bye-law of Sheffield. The silk weavers
in London had scarce been incorporated a year when they enacted a
bye-law restraining any master from having more than two appren-
tices at a time. It required a particular act of parliament to rescind
this bye-law.

Seven years seem anciently to have been, all over Europe, the usual
term established for the duration of apprenticeships in the greater
part of incorporated trades. All such incorporations were anciently
called universities; which indeed is the proper Latin name for any
incorporation whatever. The university of smiths, the university of
taylors, &c. are expressions which we commonly meet with in the
old charters of ancient towns. When those particular incorporations
which are now peculiarly called universities were first established,
the term of years which it was necessary to study, in order to obtain
the degree of master of arts, appears evidently to have been copied

POLITICAL INEQUALITIES 123

from the term of apprenticeship in common trades, of which the in-
corporations were much more ancient. As to have wrought seven
years under a master properly quaUHed, was necessary, in order to
entitle any {jerson to become a master, and to have himself appren-
tices in a common trade; so to have studied seven years under a
master properly qualified, was necessary to entitle him to become a
master, teacher, or doctor (words anciently synonimous) in the lib-
eral arts, and to have scholars or apprentices (words likewise origi-
nally synonimous) to study under him.

By the 5th of Elizabeth, commonly called the Statute of Appren-
ticeship, it was enacted, that no person should for the future exer-
cise any trade, craft, or mastery at that time exercised in England,
unless he had previously served to it an apprenticeship of seven years
at least; and what before had been the bye-law of many particular
corporations became in England the general and public law of all
trades carried on in market towns. For though the words of the stat-
ute are very general, and seem plainly to include the whole kingdom,
by interpretation its operation has been limited to market towns, it
having been held that in country villages a person may exercise sev-
eral different trades, though he has not served a seven years' appren-
ticeship to each, they being necessary for the conveniency of the
inhabitants, and the number of people frequently not being sufficient
to supply each with a particular set of hands.

By a strict interpretation of the words, too, the operation of this
statute has been limited to those trades which were established in Eng-
land before the 5th of Elizabeth, and has never been extended to
such as have been introduced since that time. This limitation has
given occasion to several distinctions which, considered as rules of
police, appear as foolish as can well be imagined. It has been ad-
judged, for example, that a coach-maker can neither himself make
nor employ journeymen to make his coach-wheels; but must buy
them of a master wheel-wright; this latter trade having been exer-
cised in England before the 5th of Elizabeth. But a wheel-wright,
though he has never served an apprenticeship to a coach-maker, may
either himself make or employ journeymen to make coaches; the
trade of a coach-maker not being within the statute, because not
exercised in England at the time when it was made. The manufac-

124 WEALTH OF NATIONS

tures of Manchester, Birmingham, and Wolverhampton, are many
of them, upon this account, not within the statute; not having been
exercised in England before the 5th of Elizabeth.

In France, the duration of apprenticeships is different in different
towns and in different trades. In Paris, five years is the term required
in a great number; but before any person can be qualified to exer-
cise the trade as a master, he must, in many of them, serve five years
more as a journeyman. During this latter term he is called the com-
panion of his master, and the term itself is called his companionship.

In Scotland there is no general law which regulates universally
the duration of apprenticeships. The term is different in different
corpwrations. Where it is long, a part of it may generally be redeemed
by paying a small fine. In most towns, too, a very small fine is suffi-
cient to purchase the freedom of any corporation. The weavers of
linen and hempen cloth, the principal manufactures of the country,
as well as all other artificers subservient to them, wheel-makers, reel-
makers, &c. may exercise their trades in any town corporate without
paying any fine. In all towns corporate all persons are free to sell
butcher's meat upon any lawful day of the week. Three years is in
Scotland a common term of apprenticeship, even in some very nice
trades; and in general I know of no country in Europe in which
corporation laws are so little oppressive.

The property which every man has in his own labour, as it is the
original foundation of all other property, so it is the most sacred and
inviolable. The patrimony of a poor man lies in the strength and
dexterity of his hands; and to hinder him from employing this
strength and dexterity in what manner he thinks proper without
injury to his neighbour, is a plain violation of this most sacred prop-
erty. It is a manifest encroachment upon the just liberty both of the
workman, and of those who might be disposed to employ him. As
it hinders the one from working at what he thinks proper, so it
hinders the others from employing whom they think proper. To
judge whether he is fit to be employed, may surely be trusted to
the discretion of the employers whose interest it so much concerns.
The affected anxiety of the law-giver lest they should employ an
improper person, is evidently as impertinent as it is oppressive.

The institution of long apprenticeships can give no security that

POLITICAL INEQUALITIES I25

insufficient workmanship shall not frequently be exposed to public
sale. When this is done it is generally the effect of fraud, and not of
inability, and the longest apprenticeship can give no security against
fraud. Quite different regulations are necessary to prevent this abuse.
The sterling mark upon plate, and the stamps upon linen and wool-
len cloth, give the purchaser much greater security than any statute
of apprenticeship. He generally looks at these, but never thinks it
worth while to enquire whether the workmen had served a seven
years' apprenticeship.

The institution of long apprenticeships has no tendency to form
young people to industry. A journeyman who works by the piece is
likely to be industrious, because he derives a benefit from exery exer-
tion of his industry. An apprentice is likely to be idle, and almost
always is so, because he has no immediate interest to be otherwise.
In the inferior employments, the sweets of labour consist altogether
in the recompence of labour. They who are soonest in a condition
to enjoy the sweets of it, are likely soonest to conceive a relish for
it, and to acquire the early habit of industry. A young man naturally
conceives an aversion to labour, when for a long time he receives no
benefit from it. The boys who are put out apprentices from public
charities are generally bound for more than the usual number of
years, and they generally turn out very idle and worthless.

Apprenticeships were altogether unknown to the ancients. The
reciprocal duties of master and apprentice make a considerable article
in every modern code. The Roman law is perfectly silent with regard
to them. I know no Greek or Latin word (I might venture, I be-
lieve, to assert that there is none) which expresses the idea we now
annex to the word Apprentice, a servant bound to work at a particu-
lar trade for the benefit of a master, during a term of years, upon
condition that the master shall teach him that trade.

Long apprenticeships are altogether unnecessary. The arts, which
are much superior to common trades, such as those of making clocks
and watches, contain no such mystery as to require a long course
of instruction. The first invention of such beautiful machines, in-
deed, and even that of some of the instruments employed in making
them, must, no doubt, have been the work of deep thought and
long time, and may jusdy be considered as among the happiest efforts

126 WEALTH OF NATIONS

of human ingenuity. But when both have been fairly invented and
are well understood, to explain to any young man, in the completest
manner, how to apply the instruments and how to construct the
machines, cannot well require more than the lessons of a few weeks:
perhaps those of a few days might be sufficient. In the common
mechanic trades, those of a few days might certainly be sufficient.
The dexterity of hand, indeed, even in common trades, cannot be
acquired without much practice and exf)erience. But a young man
would practise with much more diligence and attention, if from the
beginning he wrought as a journeyman, being paid in proportion to
the little work which he could execute, and paying in his turn for
the materials which he might sometimes spoil through awkwardness
and inexperience. His education would generally in this way be more
effectual, and always less tedious and expensive. The master, indeed,
would be a loser. He would lose all the wage of the apprentice,
which he now saves, for seven years together. In the end, perhaps,
the apprentice himself would be a loser. In a trade so easily learnt
he would have more competitors, and his wages, when he came to be
a complete workman, would be much less than at present. The same
increase of competition would reduce the profits of the masters as
well as the wages of the workmen. The trades, the crafts, the mys-
teries, would all be losers. But the public would be a gainer, the work
of all artificers coming in this way much cheaper to market.

It is to prevent this reduction of price, and consequently of wages
and profit, by restraining that free competition which would most
certainly occasion it, that all corporations, and the greater part of
corporation laws, have been established. In order to erect a corpora-
tion, no other authority in ancient times was requisite in many parts
of Europe, but that of the town corporate in which it was estab-
lished. In England, indeed, a charter from the king was likewise
necessary. But this prerogative of the crown seems to have been
reserved rather for extorting money from the subject, than for the
defence of the common liberty against such oppressive monopolies.
Upon paying a fine to the king, the charter seems generally to have
been readily granted; and when any particular class of artificers or
traders thought prof)er to act as a corpxiration without a charter,
such adulterine guilds, as they were called, were not always dis-

POLITICAL INEQUALITIES 1 27

franchisee! upon that account, but obUged to Bne annually to the
king for permission to exercise their usurped privileges. The imme-
diate inspection of all corporations, and of the bye-laws which they
might think proper to enact for their own government, belonged
to the town corporate in which they were established; and whatever
discipline was exercised over them, proceeded commonly, not from
the king, but from that greater incorporation of which those subor-
dinate ones were only parts or members.

The government of towns corporate was altogether in the hands
of traders and artificers; and it was the manifest interest of every
particular class of them, to prevent the market from being over-
stocked, as they commonly express it, with their own particular
species of industry; which is in reality to keep it always under-
stocked. Each class was eager to establish regulations proper for
this purpose, and, provided it was allowed to do so, was willing to
consent that every other class should do the same. In consequence of
such regulations, indeed, each class was obliged to buy the goods they
had occasion for from every other within the town, somewhat dearer
than they otherwise might have done. But in recompence, they were
enabled to sell their own just as much dearer; so that so far it was as
broad as long, as they say; and in the dealings of the different classes
within the town with one another, none of them were losers by
these regulations. But in their dealings with the country they were
all great gainers; and in these latter dealings consists the whole trade
which supports and enriches every town.

Every town draws its whole subsistence, and all the materials of its
industry, from the country. It pays for these chiefly in two ways:
first, by sending back to the country a part of those materials wrought
up and manufactured; in which case their price is augmented by the
wages of the workmen, and the profits of their masters or immediate
employers: secondly, by sending to it a part both of the rude and
manufactured produce, either of other countries, or of distant parts
of the same country, imported into the town; in which case too the
original price of those goods is augmented by the wages of the
carriers or sailors, and by the profits of the merchants who employ
them. In what is gained upon the first of those two branches of com-
merce, consists the advantage which the town makes by its manu-

128 WEALTH OF NATIONS

factures; in what is gained upon the second, the advantage of its
inland and foreign trade. The wages of the workmen, and the
profits of their different employers, make up the whole of what is
gained upon both. Whatever regulations, therefore, tend to increase
those wages and profits beyond what they otherwise would be, tend
to enable the town to purchase, with a smaller quantity of its labour,
the produce of a greater quantity of the labour of the country. They
give the traders and artificers in the town an advantage over the
landlords, farmers, and labourers in the country, and break down
that natural equality which would otherwise take place in the com-
merce which is carried on between them. The whole annual produce
of the labour of the society is annually divided between those two
different sets of people. By means of those regulations a greater
share of it is given to the inhabitants of the town than would other-
wise fall to them; and a less to those of the country.

The price which the town really pays for the provisions and mate-
rials annually imported into it, is the quantity of manufactures and
other goods annually exported from it. The dearer the latter are
sold, the cheaper the former are bought. The industry of the town
becomes more, and that of the country less advantageous.

That the industry which is carried on in towns is, everywhere in
Europe, more advantageous than that which is carried on in the
country, without entering into any very nice computations, we may
satisfy ourselves by one very simple and obvious observation. In
every country of Europe we find, at least, a hundred f)eople who have
acquired great fortunes from small beginnings by trade and manu-
factures, the industry which properly belongs to towns, for one who
has done so by that which proj^rly belongs to the country, the raising
of rude produce by the improvement and cultivation of land. Indus-
try, therefore, must be better rewarded, the wages of labour and the
profits of stock must evidently be greater in the one situation than
in the other. But stock and labour naturally seek the most advan-
tageous employment. They naturally, therefore, resort as much as
they can to the town, and desert the country.

The inhabitants of a town, being collected into one place, can
easily combine together. The most insignificant trades carried on in
towns have accordingly, in some place or other, been incorporated;

POLITICAL INEQUALITIES I29

and even where they have never been incorporated, yet the corpora-
tion spirit, the jealousy of strangers, the aversion to take apprentices,
or to communicate the secret of their trade, generally prevail in them,
and often teach them, by voluntary associations and agreements, to
prevent that free competition which they cannot prohibit by bye-laws.
The trades which employ but a small number of hands, run most
easily into such combinations. Half a dozen wool<ombers, perhaps,
are necessary to keep a thousand spinners and weavers at work. By
combining not to take apprentices they can not only engross the
employment, but reduce the whole manufacture into a sort of slavery
to themselves, and raise the price of their labour above what is due
to the nature of their work.

The inhabitants of the country, dispersed in distant places, cannot
easily combine together. They have not only never been incorpo-
rated, but the corporation spirit never has prevailed among them. No
apprenticeship has ever been thought necessary to qualify for hus-
bandry, the great trade of the country. After what are called the fine
arts, and the liberal professions, however, there is perhaps no trade
which requires so great a variety of knowledge and experience. The
innumerable volumes which have been written upon it in all lan-
guages, may satisfy us, that among the wisest and most learned na-
tions, it has never been regarded as a matter very easily understood.
And from all those volumes we shall in vain attempt to collect that
knowledge of its various and complicated operations, which is com-
monly possessed even by the common farmer; how contemptuously
soever the very contemptible authors of some of them may some-
times affect to speak of him. There is scarce any common mechanic
trade, on the contrary, of which all the operations may not be as
completely and distinctly explained in a pamphlet of a very few
pages, as it is possible for words illustrated by figures to explain
them. In the history of the arts, now publishing by the French acad-
emy of sciences, several of them are actually explained in this man-
ner. The direction of operations, besides, which must be varied with
every change of the weather, as well as with many other accidents,
requires much more judgment and discretion, than of those which
are always the same or very nearly the same.

Not only the art of the farmer, the general direction of the opera-

130 WEALTH OF NATIONS

tions of husbandry, but many inferior branches of country labour,
require much more skill and experience than the greater part of
mechanic trades. The man who works upon brass and iron, works
with instruments and upon materials of which the temper is always
the same, or very nearly the same. But the man who ploughs the
ground with a team of horses or oxen, works with instruments of
which the health, strength, and temper, are very different upon dif-
ferent occasions. The condition of the materials which he works
upon too is as variable as that of the instruments which he works
with, and both require to be managed with much judgment and dis-
cretion. The common ploughman, though generally regarded as the
pattern of stupidity and ignorance, is seldom defective in this judg-
ment and discretion. He is less accustomed, indeed, to social inter-
course than the mechanic who lives in a town. His voice and lan-
guage are more uncouth and more difficult to be understood by those
who are not used to them. His understanding, however, being accus-
tomed to consider a greater variety of objects, is generally much
superior to that of the other, whose whole attention from morning
till night is commonly occupied in performing one or two very simple
operations. How much the lower ranks of people in the country are
really supierior to those of the town, is well known to every man
whom either business or curiosity has led to converse with both. In
China and Indostan accordingly both the rank and the wages of
country labourers are said to be superior to those of the greater part
of artificers and manufacturers. They would probably be so every-
where, if corporation laws and the corporation spirit did not pre-
vent it.

The superiority which the industry of the towns has every-where
in Europ)e over that of the country, is not altogether owing to cor-
porations and corporation laws. It is suppxjrted by many other regu-
lations. The high duties upon foreign manufactures and upon all
goods imported by alien merchants, all tend to the same purpose.
Corporation laws enable the inhabitants of towns to raise their prices,
without fearing to be under-sold by the free competition of their own
countrymen. Those other regulations secure them equally against
that of foreigners. The enhancement of price occasioned by both is
every-where finally paid by the landlords, farmers, and labourers

POLITICAL INEQUALITIES I3I

of the country, who have seldom opposed the estabUshment of such
monopolies. They have commonly neither inclination nor fitness to
enter into combinations; and the clamour and sophistry of merchants
and manufacturers easily persuade them that the private interest of
a part, and of a subordinate part of the society, is the general interest
of the whole.

In Great Britain the superiority of the industry of the towns over
that of the country, seems to have been greater formerly than in the
present times. The wages of country labour approach nearer to those
of manufacturing labour, and the profits of stock employed in agri-
culture to those of trading and manufacturing stock, than they are
said to have done in the last century, or in the beginning of the pres-
ent. This change may be regarded as the necessary, though very late
consequence of the extraordinary encouragement given to the indus-
try of the towns. The stock accumulated in them comes in time to
be so great, that it can no longer be employed with the ancient profit
in that species of industry which is peculiar to them. That industry
has its limits like every other; and the increase of stock, by increasing
the competition, necessarily reduces the profit. The lowering of
profit in the town forces out stock to the country, where, by creating
a new demand for country labour, it necessarily raises its wages. It
then spreads itself, if I may say so, over the face of the land, and by
being employed in agriculture is in part restored to the country, at
the expence of which, in a great measure, it had originally been accu-
mulated in the town. That every-where in Europe the greatest im-
provements of the country have been owing to such overflowings of
the stock originally accumulated in the towns, I shall endeavour to
show hereafter; and at the same time to demonstrate, that though
some countries have by this course attained to a considerable degree
of opulence, it is in itself necessarily slow, uncertain, liable to be dis-
turbed and interrupted by innumerable accidents, and in every re-
spect contrary to the order of nature and of reason. The interests,
prejudices, laws and customs which have given occasion to it, I shall
endeavour to explain as fully and distincdy as I can in the third and
fourth books of this inquiry.

People of the same trade seldom meet together, even for merri-
ment and diversion, but the conversation ends in a conspiracy

132 WEALTH OF NATIONS

against the public, or in some contrivance to raise prices. It is impos-
sible indeed to prevent such meetings, by any law which either could
be executed, or would be consistent with liberty and justice. But
though the law cannot hinder people of the same trade from some-
times assembling together, it ought to do nothing to facilitate such
assemblies; much less to render them necessary.

A regulation which obliges all those of the same trade in a par-
ticular town to enter their names and places of abode in a public
register, facilitates such assemblies. It connects individuals who
might never otherwise be known to one another, and gives every
man of the trade a direction where to find every other man of it.

A regulation which enables those of the same trade to tax them-
selves in order to provide for their poor, their sick, their widows and
orphans, by giving them a common interest to manage, renders such
assemblies necessary.

An incorporation not only renders them necessary, but makes the
act of the majority binding upon the whole. In a free trade an effec-
tual combination cannot be established but by the unanimous consent
of every single trader, and it cannot last longer than every single
trader continues of the same mind. The majority of a corporation
can enact a bye-law with proper penalties, which will limit the com-
f)etition more effectually and more durably than any voluntary com-
bination whatever.

The pretence that corporations are necessary for the better gov-
ernment of the trade, is without any foundation. The real and effec-
tual discipline which is exercised over a workman is not that of his
corporation, but that of his customers. It is the fear of losing their
employment which restrains his frauds and corrects his negligence.
An exclusive corporation necessarily weakens the force of this dis-
cipline. A particular set of workmen must then be employed, let
them behave well or ill. It is upon this account that in many large
incorporated towns no tolerable workmen are to be found, even in
some of the most necessary trades. If you would have your work
tolerably executed, it must be done in the suburbs, where the work-
men, having no exclusive privilege, have nothing but their character
to depend upon, and you must then smuggle it into the town as well
as you can.

POLITICAL INEQUALITIES I33

It is in this manner that the poHcy of Europe, by restraining the
competition in some employments to a smaller number than would
otherwise be disposed to enter into them, occasions a very important
inequality in the whole of the advantages and disadvantages of the
different employments of labour and stock.

Secondly, The policy of Europe, by increasing the competition in
some employments beyond what it naturally would be, occasions
another inequality of an opposite kind in the whole of the advan-
tages and disadvantages of the different employments of labour and
stock.

It has been considered as of so much importance that a proper
number of young people should be educated for certain professions,
that, sometimes the public, and sometimes the piety of private found-
ers have established many pensions, scholarships, exhibitions, bur-
saries, &c., for this purpose, which draw many more f)eople into those
trades than could otherwise pretend to follow them. In all christian
countries, I believe, the education of the greater part of churchmen
is paid for in this manner. Very few of them are educated altogether
at their own expence. The long, tedious, and expensive education,
therefore, of those who are, will not always procure them a suitable
reward, the church being crowded with people who, in order to get
employment, are willing to accept of a much smaller recompence
than what such an education would otherwise have entitled them to;
and in this manner the competition of the poor takes away the re-
ward of the rich. It would be indecent, no doubt, to compare either
a curate or a chaplain with a journeyman in any common trade.
The pay of a curate or chaplain, however, may very properly be con-
sidered as of the same nature with the wages of a journeyman. They
are, all three, paid for their work according to the contract which
they may happen to make with their respective superiors. Till after
the middle of the fourteenth century, five merks, containing about as
much silver as ten pounds of our present money, was in England
the usual pay of a curate or stipendiary parish priest, as we find it
regulated by the decrees of several different national councils. At the
same period four pence a day, containing the same quantity of silver
as a shilling of our present money, was declared to be the pay of a
master mason, and three pence a day, equal to nine pence of our

134 WEALTH OF NATIONS

present money, that o£ a journeyman mason. The wages of both
these labourers, therefore, supposing them to have been constantly
employed, were much superior to those of the curate. The wages of
the master mason, supposing him to have been without employment
one third of the year, would have fully equalled them. By the 12th
of Queen Anne, c. 12, it is declared, "That whereas for want of
sufficient maintenance and encouragement to curates, the cures have
in several places been meanly supplied, the bishop is, therefore, em-
fKjwered to appoint by writing under his hand and seal a sufficient
certain stipend or allowance, not exceeding fifty and not less than
twenty pounds a year." Forty pounds a year is reckoned at present
very good pay for a curate, and notwithstanding this act of parlia-
ment, there are many curacies under twenty pounds a year. There
are journeymen shoemakers in London who can earn forty {XDunds
a year, and there is scarce an industrious workman of any kind in
that metrofxjlis who does not earn more than twenty. This last sum
indeed does not exceed what is frequendy earned by common la-
bourers in many country parishes. Whenever the law has attempted
to regulate the wages of workmen, it has always been rather to lower
them than to raise them. But the law has upon many occasions at-
tempted to raise the wages of curates, and for the dignity of the
church, to oblige the rectors of parishes to give them more than the
wretched maintenance which they themselves might be willing to
accept of. And in both cases the law seems to have been equally in-
effectual, and has never either been able to raise the wages of curates,
or to sink those of labourers to the degree that was intended : because
it has never been able to hinder either the one from being willing to
accept of less than the legal allowance, on account of the indigence
of their situation and the multitude of their competitors; or the other
from receiving more, on account of the contrary competition of those
who expected to derive either profit or pleasure from employing
them.

The great benefices and other ecclesiastical dignities support the
honour of the church, notwithstanding the mean circumstances of
some of its inferior members. The resf)ect paid to the profession too
makes some compensation even to them for the meanness of their
pecuniary recompence. In England, and in all Roman Catholic

POLITICAL INEQUALITIES I35

countries, the lottery of the church is in reaHty much more advan-
tageous than is necessary. The example of the churches of Scotland,
of Geneva, and of several other protestant churches, may satisfy us,
that in so creditable a profession, in which education is so easily
procured, the hopes of much more moderate benefices will draw a
sufficient number of learned, decent, and respectable men into holy
orders.

In professions in which there are no benefices, such as law and
physic, if an equal prof)ortion of p)eople were educated at the public
expence, the comp)etition would soon be so great, as to sink very
much their pecuniary reward. It might then not be worth any man's
while to educate his son to either of those professions at his own
expence. They would be entirely abandoned to such as had been
educated by those public charities, whose numbers and necessities
would oblige them in general to content themselves with a very mis-
erable recompence, to the entire degradation of the now respectable
professions of law and physic.

That unprosperous race of men commonly called men of letters,
are pretty much in the situation which lawyers and physicians prob-
ably would be in upon the foregoing supposition. In every part of
Europe the greater part of them have been educated for the church,
but have been hindered by different reasons from entering into holy
orders. They have generally, therefore, been educated at the public
expence, and their numbers are every-where so great as commonly
to reduce the price of their labour to a very paultry recompence.

Before the invention of the art of printing, the only employment
by which a man of letters could make any thing by his talents, was
that of a public or private teacher, or by communicating to other
(jeople the curious and useful knowledge which he had acquired him-
self: And this is still surely a more honourable, a more useful, and
in general even a more profitable employment than that other of
writing for a bookseller, to which the art of printing has given occa-
sion. The time and study, the genius, knowledge, and application
requisite to qualify an eminent teacher of the sciences, are at least
equal to what is necessary for the greatest practitioners in law and
physic. But the usual reward of the eminent teacher bears no pro-
portion to that of the lawyer or physician; because the trade of the

136 WEALTH OF NATIONS

one is crowded with indigent people who have been brought up to it
at the public expence; whereas those of the other two are incumbered
with very few who have not been educated at their own. The usual
recompence, however, of public and private teachers, small as it may
appear, would undoubtedly be less than it is, if the competition of
those yet more indigent men of letters who write for bread was not
taken out of the market. Before the invention of the art of printing,
a scholar and a beggar seem to have been terms very nearly synony-
mous. The different governors of the universities before that time
appear to have often granted licences to their scholars to beg.

In ancient times, before any charities of this kind had been estab-
lished for the education of indigent people to the learned profes-
sions, the rewards of eminent teachers appear to have been much
more considerable. Isocrates, in what is called his discourse against
the sophists, reproaches the teachers of his own times with incon-
sistency. "They make the most magnificent promises to their schol-
ars, says he, and undertake to teach them to be wise, to be happy, and
to be just, and in return for so important a service they stipulate
the paultry reward of four or five minae. They who teach wisdom,
continues he, ought certainly to be wise themselves; but if any man
were to sell such a bargain for such a price, he would be convicted
of the most evident folly." He certainly does not mean here to ex-
aggerate the reward, and we may be assured that it was not less than
he represents it. Four minae were equal to thirteen pounds six shill-
ings and eight pence: five mina: to sixteen pounds thirteen shillings
and four pence. Something not less than the largest of those two
sums, therefore, must at that time have been usually paid to the
most eminent teachers at Athens. Isocrates himself demanded ten
minae, or thirty-three pounds six shillings and eight pence, from each
scholar. When he taught at Athens, he is said to have had an hundred
scholars. I understand this to be the number whom he taught at one
time, or who attended what we would call one course of lectures, a
number which will not appear extraordinary from so great a city to
so famous a teacher, who taught too what was at that time the most
fashionable of all sciences, rhetoric. He must have made, therefore,
by each course of lectures, a thousand minac, or jjjj/. 6s. 8d. A
thousand minae, accordingly, is said by Plutarch in another place, to

POLITICAL INEQUALITIES I37

have been his Didactron, or usual price of teaching. Many other
eminent teachers in those times appear to have acquired great for-
tunes. Gorgias made a present to the temple of Delphi of his own
statue in solid gold. We must not, I presume, suppose that it was
as large as the life. His way of living, as well as that of Hippias and
Protagoras, two other eminent teachers of those times, is represented
by Plato as splendid even to ostentation. Plato himself is said to
have lived with a good deal of magnificence. Aristode, after having
been tutor to Alexander, and most munificently rewarded, as it is
universally agreed, both by him and his father Philip, thought it
worth while, notwithstanding, to return to Athens, in order to re-
sume the teaching of his school. Teachers of the sciences were prob-
ably in those times less common than they came to be in an age or
two afterwards, when the competition had probably somewhat re-
duced both the price of their labour and the admiration for their
persons. The most eminent of them, however, appear always to have
enjoyed a degree of consideration much superior to any of the like
profession in the present times. The Athenians sent Carneades the
academic, and Diogenes the stoic, upon a solemn embassy to Rome;
and though their city had then declined from its former grandeur, it
was still an independent and considerable republic. Carneades too
was a Babylonian by birth, and as there never was a people more
jealous of admitting foreigners to public offices than the Athenians,
their consideration for him must have been very great.

This inequality is upon the whole, perhaps, rather advantageous
than hurtful to the public. It may somewhat degrade the profession
of a public teacher; but the cheapness of literary education is surely
an advantage which gready over-balances this trifling inconveniency.
The public too might derive still greater benefit from it, if the con-
stitution of those schools and colleges, in which education is carried
on, was more reasonable than it is at present through the greater part
of Europe.

Thirdly, The policy of Europe, by obstructing the free circulation
of labour and stock both from employment to employment, and from
place to place, occasions in some cases a very inconvenient inequality
in the whole of the advantages and disadvantages of their different
employments.

138 WEALTH OF NATIONS

The statute of apprenticeship obstructs the free circulation of la-
bour from one employment to another, even in the same place. The
exclusive privileges of corporations obstruct it from one place to
another, even in the same employment.

It frequently happens that while high wages are given to the work-
men in one manufacture, those in another are obliged to content
themselves with bare subsistence. The one is in an advancing state,
and has, therefore, a continual demand for new hands: The other is
in a declining state, and the super-abundance of hands is continu-
ally increasing. Those two manufactures may sometimes be in the
same town, and sometimes in the same neighbourhood, without be-
ing able to lend the least assistance to one another. The statute of
apprenticeship may oppose it in the one case, and both that and an
exclusive corporation in the other. In many different manufactures,
however, the operations are so much alike, that the workmen could
easily change trades with one another, if those absurd laws did not
hinder them. The arts of weaving plain linen and plain silk, for ex-
ample, are almost entirely the same. That of weaving plain woollen
is somewhat different; but the difference is so insignificant, that
either a linen or a silk weaver might become a tolerable workman in
a very few days. If any of those three capital manufactures, there-
fore, were decaying, the workmen might find a resource in one of the
other two which was in a more prosperous condition; and their
wages would neither rise too high in the thriving, nor sink too low
in the decaying manufacture. The linen manufacture indeed is, in
England, by a particular statute, open to every body; but as it is not
much cultivated through the greater part of the country, it can afford
no general resource to the workmen of other decaying manufactures,
who, wherever the statute of apprenticeship takes place, have no
other choice but either to come upon the parish, or to work as com-
mon labourers, for which, by their habits, they are much worse quali-
fied than for any sort of manufacture that bears any resemblance
to their own. They generally, therefore, chuse to come upon the
parish.

Whatever obstructs the free circulation of labour from one em-
ployment to another, obstructs that of stock likewise; the quantity of
stock which can be employed in any branch of business depending

POLITICAL INEQUALITIES 139

very much upon that of the labour which can be employed in it.
Corporation laws, however, give less obstruction to the free circula-
tion of stock from one place to another than to that of laboiu*. It is
everywhere much easier for a wealthy merchant to obtain the privi-
lege of trading in a town corporate, than for a poor artificer to obtain
that of working in it.

The obstruction which corporation laws give to the free circulation
of labour is common, I believe, to every part of Europe. That which
is given to it by the poor laws is, so far as I know, peculiar to Eng-
land. It consists in the difficulty which a fxxjr man finds in obtain-
ing a setdement, or even in being allowed to exercise his industry
in any parish but that to which he belongs. It is the labour of arti-
ficers and manufacturers only of which the free circulation is ob-
structed by corporation laws. The difficulty of obtaining settlements
obstructs even that of common labour. It may be worth while to
give some account of the rise, progress, and present state of this dis-
order, the greatest perhaps of any in the police of England.

When by the destruction of monasteries the poor had been de-
prived of the charity of those religious houses, after some other in-
effectual attempts for their relief, it was enacted by the 43d of
Elizabeth, c. 2. that every parish should be bound to provide for its
own poor; and that overseers of the poor should be annually aj>-
pointed, who, with the churchwardens, should raise, by a parish
rate, competent sums for this purpose.

By this statute the necessity of providing for their own poor was
indispensably imposed upon every parish. Who were to be consid-
ered as the poor of each parish, became, therefore, a question of some
importance. This question, after some variation, was at last deter-
mined by the 13th and 14th of Charles II. when it was enacted, that
forty days undisturbed residence should gain any pjerson a setde-
ment in any parish; but that within that time it should be lawful for
two justices of the peace, upon complaint made by the churchwardens
or overseers of the f)oor, to remove any new inhabitant to the parish
where he was last legally settled; unless he either rented a tenement
of ten pounds a year, or could give such security for the discharge of
the parish where he was then living, as those justices should judge
sufficient.

140 WEALTH OF NATIONS

Some frauds, it is said, were committed in consequence of this
statute; parish officers sometimes bribing their own poor to go clan-
destinely to another parish, and by keeping themselves concealed for
forty days to gain a settlement there, to the discharge of that to which
they properly belonged. It was enacted, therefore, by the i st of James
II. that the forty days undisturbed residence of any person neces-
sary to gain a settlement, should be accounted only from the time of
his delivering notice in writing, of the place of his abode and the
number of his family, to one of the churchwardens or overseers of the
parish where he came to dwell.

But parish officers, it seems, were not always more honest with
regard to their own, than they had been with regard to other parishes,
and sometimes connived at such intrusions, receiving the notice, and
taking no proper steps in consequence of it. As every person in a
parish, therefore, was supposed to have an interest to prevent as
much as possible their being burdened by such intruders, it was
further enacted by the 3d of William III. that the forty days resi-
dence should be accounted only from the publication of such notice
in writing on Sunday in the church, immediately after divine service.

"After all," says Doctor Burn, "this kind of settlement, by con-
tinuing forty days after publication of notice in writing, is very sel-
dom obtained; and the design of the acts is not so much for gaining
of settlements, as for the avoiding of them by persons coming into a
parish clandestinely: for the giving of notice is only putting a force
upon the parish to remove. But if a person's situation is such, that
it is doubtful whether he is actually removeable or not, he shall by
giving of notice compel the parish either to allow him a settlement
uncontested, by suffering him to continue forty days; or, by removing
him, to try the right."

This statute, therefore, rendered it almost impracticable for a
poor man to gain a new settlement in the old way, by forty days in-
habitancy. But that it might not appear to preclude altogether the
common people of one parish from ever establishing themselves with
security in another, it appointed four other ways by which a settle-
ment might be gained without any notice delivered or published.
The first was, by being taxed to parish rates and paying them; the
second by being elected into an annual parish office, and serving in

POLITICAL INEQUALITIES I4I

it a year; the third, by serving an apprenticeship in the parish; the
fourth, by being hired into service there for a year, and continuing in
the same service during the whole of it.

Nobody can gain a settlement by either of the two first ways,
but by the public deed of the whole parish, who are too well aware
of the consequences to adopt any new-comer who has nothing but
his labour to support him, either by taxing him to parish rates, or by
electing him into a parish office.

No married man can well gain any settlement in either of the
two last ways. An apprentice is scarce ever married; and it is ex-
pressly enacted, that no married servant shall gain any settlement by
being hired for a year. The principal effect of introducing settlement
by service, has been to put out in a great measure the old fashion of
hiring for a year, which before had been so customary in England,
that even at this day, if no particular term is agreed upon, the law
intends that every servant is hired for a year. But masters are not
always willing to give their servants a settlement by hiring them in
this manner; and servants are not always willing to be so hired, be-
cause, as every last setdement discharges all the foregoing, they
might thereby lose their original settlement in the places of their
nativity, the habitation of their parents and relations.

No independent workman, it is evident, whether labourer or
artificer, is likely to gain any new settlement either by apprentice-
ship or by service. When such a person, therefore, carried his indus-
try to a new parish, he was liable to be removed, how healthy and
industrious soever, at the caprice of any churchwarden or overseer,
unless he either rented a tenement of ten pounds a year, a thing im-
possible for one who has nothing but his labour to live by; or could
give such security for the discharge of the parish as two justices of
the peace should judge sufficient. What security they shall require,
indeed, is left altogether to their discretion; but they cannot well
require less than thirty pounds, it having been enacted, that the pur-
chase even of a freehold estate of less than thirty pounds value,
shall not gain any person a settlement, as not being sufficient for the
discharge of the parish. But this is a security which scarce any man
who lives by labour can give; and much greater security is fre-
quently demanded.

142 WEALTH OF NATIONS

In order to restore in some measure that free circulation of labour
which those different statutes had almost entirely taken away, the
invention of certificates was fallen uf)on. By the 8th or 9th of
William III. it was enacted, that if any person should bring a certifi-
cate from the parish where he was at last legally settled, subscribed
by the churchwardens and overseers of the poor, and allowed by
two justices of the peace, that every other parish should be obliged
to receive him; that he should not be removeable merely uf)on ac-
count of his being likely to become chargeable, but only upon his
becoming actually chargeable, and that then the parish which granted
the certificate should be obliged to pay the expence both of his main-
tenance and of his removal. And in order to give the most jjerfect
security to the parish where such certificated man should come to
reside, it was further enacted by the same statute, that he should
gain no setdement there by any means whatever, except either by
renting a tenement of ten pounds a year, or by serving upon his
own account in an annual parish office for one whole year; and con-
sequendy neither by notice, nor by service, nor by apprenticeship,
nor by paying parish rates. By the 12th of Queen Anne too, stat. 1.
c. 18. it was further enacted, that neither the servants nor appren-
tices of such certificated man should gain any settlement in the
parish where he resided under such certificate.

How far this invention has restored that free circulation of labour
which the preceding statutes had almost entirely taken away, we
may learn from the following very judicious observation of Doctor
Burn. "It is obvious," says he, "that there are divers good reasons
for requiring certificates with persons coming to settle in any place;
namely, that persons residing under them can gain no settlement,
neither by apprenticeship, nor by service, nor by giving notice, nor
by paying parish rates; that they can settle neither apprentices nor
servants; that if they become chargeable, it is certainly known
whither to remove them, and the parish shall be paid for the re-
moval, and for their maintenance in the mean time; and that if they
fall sick, and cannot be removed, the parish which gave the certifi-
cate must maintain them: none of which can be without a cer-
tificate. Which reasons will hold proportionably for parishes not
granting certificates in ordinary cases; for it is far more than an

POLITICAL INEQUALITIES I43

equal chance, but that they will have the certificated persons again,
and in a worse condition." The moral of this observation seems to
be, that certificates ought always to be required by the parish where
any p)oor man comes to reside, and that they ought very seldom to
be granted by that which he proposes to leave. "There is somewhat
of hardship in this matter of certificates," says the same very in-
telligent Author, in his History of the Poor Laws, "by putting it in
the power of a parish officer, to imprison a man as it were for life;
however inconvenient it may be for him to continue at that place
where he has had the misfortune to acquire what is called a setde-
ment, or whatever advantage he may propose to himself by living
elsewhere."

Though a certificate carries along with it no testimonial of good
behaviour, and certifies nothing but that the person belongs to the
parish to which he really does belong, it is altogether discretionary
in the parish officers either to grant or to refuse it. A mandamus
was once moved for, says Doctor Burn, to compel the church-
wardens and overseers to sign a certificate; but the court of King's
Bench rejected the motion as a very strange attempt.

The very unequal price of labour which we frequendy find in
England in places at no great distance from one another, is prob-
ably owing to the obstruction which the law of settlements gives
to a poor man who would carry his industry from one parish to
another without a certificate. A single man, indeed, who is healthy
and industrious, may sometimes reside by sufferance without one;
but a man with a wife and family who should attempt to do so,
would in most parishes be sure of being removed, and if the single
man should afterwards marry, he would generally be removed like-
wise. The scarcity of hands in one parish, therefore, cannot always
be relieved by their super-abundance in another, as it is constantly
in Scotland, and, I believe, in all other countries where there is
no difficulty of settlement. In such countries, though wages may
sometimes rise a little in the neighbourhood of a great town, or
wherever else there is an extraordinary demand for labour, and sink
gradually as the distance from such places increases, till they fall
back to the common rate of the country; yet we never meet with
those sudden and unaccountable difTerences in the wages of neigh-

144 WEALTH OF NATIONS

bouring places which we sometimes find in England, where it is
often more difficult for a poor man to pass the artificial boundary of
a parish, than an arm of the sea or a ridge of high mountains, natu-
ral boundaries which sometimes separate very distincdy different
rates of wages in other countries.

To remove a man who has committed no misdemeanour from
the parish where he chuses to reside, is an evident violation of natu-
ral liberty and justice. The common people of England, however, so
jealous of their liberty, but like the common people of most other
countries never righdy understanding wherein it consists, have now
for more than a century together suffered themselves to be exposed
to this oppression without a remedy. Though men of reflection
too have sometimes complained of the law of settlements as a
public grievance; yet it has never been the object of any general
f)opular clamour, such as that against general warrants, an abusive
practice undoubtedly, but such a one as was not likely to occa-
sion any general oppression. There is scarce a poor man in Eng-
land of forty years of age, I will venture to say, who has not in some
part of his life felt himself most cruelly oppressed by this ill<ontrived
law of setdements.

I shall conclude this long chapter with observing, that though
anciently it was usual to rate wages, first by general laws extending
over the whole kingdom, and afterwards by particular orders of the
justices of peace in every particular county, both these practices
have now gone entirely into disuse. "By the experience of above
four hundred years," says Doctor Burn, "it seems time to lay aside
all endeavours to bring under strict regulations, what in its own
nature seems incapable of minute limitation: for if all persons in
the same kind of work were to receive equal wages, there would
be no emulation, and no room left for industry or ingenuity."

Particular acts of parliament, however, still attempt sometimes
to regulate wages in particular trades and in particular places. Thus
the 8th of George III. prohibits under heavy penalties all master
taylors in London, and five miles round it, from giving, and their
workmen from accepting, more than two shillings and sevenpence
halfpenny a day, except in the case of a general mourning. When-
ever the legislature attempts to regulate the differences between

POLITICAL INEQUALITIES I45

masters and their workmen, its counsellors are always the masters.
When the regulation, therefore, is in favour of the workmen, it is
always just and equitable; but it is sometimes otherwise when in
favour of the masters. Thus the law which obliges the masters in
several different trades to pay their workmen in money and not in
goods, is quite just and equitable. It imposes no real hardship upon
the masters. It only obliges them to pay that value in money, which
they pretended to pay, but did not always really pay, in goods. This
law is in favour of the workmen; but the 8th of George III. is in
favour of the masters. When masters combine together in order to
reduce the wages of their workmen, they commonly enter into a
private bond or agreement, not to give more than a certain wage
under a certain penalty. Were the workmen to enter into a con-
trary combination of the same kind, not to accept of a certain wage
under a certain penalty, the law would punish them very severely;
and if it dealt impartially, it would treat the masters in the same
manner. But the 8th of George III. enforces by law that very regula-
tion which masters sometimes attempt to establish by such com-
binations. The complaint of the workmen, that it puts the ablest and
most industrious upon the same footing with an ordinary workman,
seems perfectly well founded.

In ancient times too it was usual to attempt to regulate the profits
of merchants and other dealers, by rating the price both of provisions
and other goods. The assize of bread is, so far as I know, the only
remnant of this ancient usage. Where there is an exclusive corpora-
tion, it may perhaps be prof)er to regulate the price for the first
necessary of life. But where there is none, the competition will regu-
late it much better than any assize. The method of fixing the assize
of bread established by the 31st of George II. could not be put in
practice in Scodand, on account of a defect in the law; its execu-
tion depending upon the office of clerk of the market, which does
not exist there. This defect was not remedied till the 3d of George
III. The want of an assize occasioned no sensible inconveniency, and
the establishment of one in the few places where it has yet taken
place, has produced no sensible advantage. In the greater part of the
towns of Scotland, however, there is an incorporation of bakers who
claim exclusive privileges, though they are not very stricdy guarded.

146 WEALTH OF NATIONS

The proportion between the different rates both of wages and
profit in the different employments of labour and stock, seems not
to be much affected, as has already been observed, by the riches or
poverty, the advancing, stationary, or declining state of the society.
Such revolutions in the public welfare, though they affect the general
rates both of wages and profit, must in the end affect them equally
in all different employments. The proportion between them, there-
fore, must remain the same, and cannot well be altered, at least for
any considerable time, by any such revolutions.

CHAPTER XI
Of the Rent of Land

RENT, considered as the price paid for the use of land, is
naturally the highest which the tenant can afford to pay
>. in the actual circumstances of the land. In adjusting the
terms of the lease, the landlord endeavours to leave him no greater
share of the produce than what is sufficient to keep up the stock from
which he furnishes the seed, pays the labour, and purchases and
maintains the cattle and other instruments of husbandry, together
with the ordinary profits of farming stock in the neighbourhood.
This is evidendy the smallest share with which the tenant can con-
tent himself without being a loser, and the landlord seldom means
to leave him any more. Whatever part of the produce, or, what is
the same thing, whatever part of its price, is over and above this
share, he naturally endeavours to reserve to himself as the rent of
his land, which is evidently the highest the tenant can afford to
pay in the actual circumstances of the land. Sometimes, indeed, the
liberality, more frequendy the ignorance of the landlord, makes him
accept of somewhat less than this portion; and sometimes too,
though more rarely, the ignorance of the tenant makes him under-
take to pay somewhat more, or to content himself with somewhat
less, than the ordinary profits of farming stock in the neighbour-
hood. This portion, however, may still be considered as the natural
rent of land, or the rent for which it is naturally meant that land
should for the most part be let.

The rent of land, it may be thought, is frequently no more than
a reasonable profit or interest for the stock laid out by the landlord
upon its improvement. This, no doubt, may be pardy the case upon
some occasions; for it can scarce ever be more than partly the case.
The landlord demands a rent even for unimproved land, and the
supposed interest or profit upon the expence of improvement is
generally an addition to this original rent. Those improvements,

147

148 WEALTH OF NATIONS

besides, are not always made by the stock of the landlord, but some-
times by that of the tenant. When the lease comes to be renewed,
however, the landlord commonly demands the same augmentation
of rent, as if they had been all made by his own.

He sometimes demands rent for what is altogether incapable of
human improvement. Kelp is a species of sea-weed, which, when
burnt, yields an alkaline salt, useful for making glass, soap, and for
several other purposes. It grows in several parts of Great Britain,
particularly in Scotland, upon such rocks only as lie within the high
water mark, which are twice every day covered with the sea, and
of which the produce, therefore, was never augmented by human
industry. The landlord, however, whose estate is bounded by a kelp
shore of this kind, demands a rent for it as much as for his corn
fields.

The sea in the neighbourhood of the islands of Shetland is more
than commonly abundant in fish, which makes a great part of the
subsistence of their inhabitants. But in order to profit by the prod-
uce of the water, they must have a habitation upon the neighbour-
ing land. The rent of the landlord is in proportion, not to what
the farmer can make by the land, but to what he can make both
by the land and by the water. It is partly paid in sea-fish; and one
of the very few instances in which rent makes a part of the price,
of that commodity, is to be found in that country.

The rent of land, therefore, considered as the price paid for the use
of the land, is naturally a monopoly price. It is not at all propwr-
tioned to what the landlord may have laid out upon the improve-
ment of the land, or to what he can afford to take; but to what the
farmer can afford to give.

Such parts only of the produce of land can commonly be brought
to market of which the ordinary price is sufficient to replace the stock
which must be employed in bringing them thither, together with its
ordinary profits. If the ordinary price is more than this, the surplus
part of it will naturally go to the rent of the land. If it is not more,
though the commodity may be brought to market, it can afford no
rent to the landlord. Whether the price is, or is not more, depends
upon the demand.

There are some parts of the produce of land for which the demand

RENT OF LAND FROM HUMAN FOOD 1 49

must always be such as to afTord a greater price than what is sufH-
cient to bring them to market; and there are others for which it
either may or may not be such as to afford this greater price. The
former must always afford a rent to the landlord. The latter some-
times may, and sometimes may not, according to different circum-
stances.

Rent, it is to be observed, therefore, enters into the composition
of the price of commodities in a different way from wages and profit.
High or low wages and profit, are the causes of high or low price;
high or low rent is the effect of it. It is because high or low wages
and profit must be paid, in order to bring a particular commodity
to market, that its price is high or low. But it is because its price
is high or low; a great deal more, or very little more, or no more,
than what is sufficient to pay those wages and profit, that it affords
a high rent, or a low rent, or no rent at all.

The particular consideration, first, of those parts of the produce
of land which always afford some rent; secondly, of those which
sometimes may and sometimes may not afford rent; and, thirdly, of
the variations which, in the different periods of improvement, natu-
rally take place, in the relative value of those two different sorts of
rude produce, when compared both with one another and with
manufactured commodities, will divide this chapter into three parts.

PART I
Of the Produce of Land which Always Affords Rent

As men, like all other animals, naturally multiply in proportion
to the means of their subsistence, food is always, more or less, in
demand. It can always purchase or command a greater or smaller
quantity of labour, and somebody can always be found who is
willing to do something in order to obtain it. The quantity of labour,
indeed, which it can purchase, is not always equal to what it could
maintain, if managed in the most oeconomical manner, on account
of the high wages which are sometimes given to labour. But it can
always purchase such a quantity of labour as it can maintain, accord-
ing to the rate at which that sort of labour is commonly maintained
in the neighbourhood.

150 WEALTH OF NATIONS

But land, in almost any situation, produces a greater quantity of
food than what is sufficient to maintain all the labour necessary for
bringing it to market, in the most liberal way in which that labour
is ever maintained. The surplus too is always more than sufficient to
replace the stock which employed that labour, together with its
profits. Something, therefore, always remains for a rent to the
landlord.

The most desert moors in Norway and Scodand produce some
sort of pasture for cattle, of which the milk and the increase are
always more than sufficient, not only to maintain all the labour nec-
essary for tending them, and to pay the ordinary profit to the farmer
or owner of the herd or flock; but to afford some small rent to the
landlord. The rent increases in proportion to the goodness of the
pasture. The same extent of ground not only maintains a greater
number of catde, but as they are brought within a smaller compass,
less labour becomes requisite to tend them, and to collect their prod-
uce. The landlord gains both ways; by the increase of the produce,
and by the diminution of the labour which must be maintained
out of it.

The rent of land not only varies with its fertility, whatever be
its produce, but with its situation, whatever be its fertility. Land
in the neighbourhood of a town gives a greater rent than land
equally fertile in a distant part of the country. Though it may cost
no more labour to cultivate the one than the other, it must always
cost more to bring the produce of the distant land to market. A
greater quantity of labour, therefore, must be maintained out of it;
and the surplus, from which are drawn both the profit of the farmer
and the rent of the landlord, must be diminished. But in remote
parts of the country the rate of profits, as has already been shown,
is generally higher than in the neighbourhood of a large town. A
smaller proportion of this diminished surplus, therefore, must belong
to the landlord.

Good roads, canals, and navigable rivers, by diminishing the ex-
pence of carriage, put the remote parts of the country more nearly
upon a level with those in the neighbourhood of the town. They
are upon that account the greatest of all improvements. They en-
courage the cultivation of the remote, which must always be the most

RENT OF LAND FROM HUMAN FOOD 151

extensive circle of the country. They are advantageous to the town,
by breaking down the monopoly of the country in its neighbour-
hood. They are advantageous even to that part of the country.
Though they introduce some rival commodities into the old mar-
ket, they open many new markets to its produce. Monopoly,
besides, is a great enemy to good management, which can never be
universally established but in consequence of that free and universal
competition which forces everybody to have recourse to it for the
sake of self-defence. It is not more than fifty years ago, that some
of the counties in the neighbourhood of London petitioned the par-
liament against the extension of the turnpike roads into the remoter
counties. Those remote counties, they pretended, from the cheap-
ness of labour, would be able to sell their grass and corn cheap)er in
the London market than themselves, and would thereby reduce
their rents, and ruin their cultivation. Their rents, however, have
risen, and their cultivation has been improved since that time.

A corn field of moderate fertility produces a much greater quan-
tity of food for man, than the best pasture of equal extent. Though
its cultivation requires much more labour, yet the surplus which
remains after replacing the seed and maintaining all that labour,
is likewise much greater. If a f)ound of butcher's-meat, therefore,
was never supposed to be worth more than a pound of bread, this
greater surplus would every-where be of greater value, and consti-
tute a greater fund both for the profit of the farmer and the rent of
the landlord. It seems to have done so universally in the rude
beginnings of agriculture.

But the relative values of those two different species of food,
bread, and butcher's-meat, are very different in the different periods
of agriculture. In its rude beginnings, the unimproved wilds, which
then occupy the far greater part of the country, are all abandoned to
catde. There is more butcher's-meat than bread, and bread, therefore,
is the food for which there is the greatest competition, and which
consequently brings the greatest price. At Buenos Ayres, we are
told by Ulloa, four reals, one-and-twenty pence half-penny sterling,
was, forty or fifty years ago, the ordinary price of an ox, chosen from
a herd of two or three hundred. He says nothing of the price of
bread, probably because he found nothing remarkable about it. An

152 WEALTH OF NATIONS

OX there, he says, costs little more than the labour of catching him.
But corn can no-where be raised without a great deal of labour, and
in a country which lies upon the river Plate, at that time the direct
road from Europe to the silver mines of Potosi, the money price of
labour could not be very cheap. It is otherwise when cultivation
is extended over the greater part of the country. There is then
more bread than butcher's-meat. The competition changes its direc-
tion, and the price of butcher's-meat becomes greater than the price
of bread.

By the extension besides of cultivation the unimproved wilds be-
come insufficient to supply the demand for butcher's-meat. A great
part of the cultivated lands must be employed in rearing and fatten-
ing cattle, of which the price, therefore, must be sufficient to pay,
not only the labour necessary for tending them, but the rent which
the landlord and the profit which the farmer could have drawn from
such land employed in tillage. The cattle bred upon the most uncul-
tivated moors, when brought to the same market, are, in proportion
to their weight or goodness, sold at the same price as those which
are reared upon the most improved land. The proprietors of those
moors profit by it, and raise the rent of their land in proportion to
the price of their cattle. It is not more than a century ago that in
many parts of the highlands of Scotland, butcher's-meat was as cheap
or cheaper than even bread made of oat-meal. The union opened
the market of England to the highland cattle. Their ordinary price
is at present about three times greater than at the beginning of the
century, and the rents of many highland estates have been tripled
and quadrupled in the same time. In almost every part of Great
Britain a pound of the best butcher's-meat is, in the present times,
generally worth more than two pounds of the best white bread; and
in plentiful years it is sometimes worth three or four pounds.

It is thus that in the progress of improvement the rent and profit
of unimproved pasture come to be regulated in some measure by
the rent and profit of what is improved, and these again by the rent
and profit of corn. Corn is an annual crop. Butcher's-meat, a crop
which requires four or five years to grow. As an acre of land, there-
fore, will produce a much smaller quantity of the one species of food
than of the other, the inferiority of the quantity must be compen-

RENT OF LAND FROM HUMAN FOOD 1 53

sated by the superiority of the price. If it was more than compen-
sated, more corn land would be turned into pasture; and if it was
not compensated, part of what was in pasture would be brought back
into corn.

This equality, however, between the rent and profit of grass and
those of corn; of the land of which the immediate produce is food
for cattle, and of that of which the immediate produce is food for
men; must be understood to take place only through the greater
part of the improved lands of a great country. In some particular
local situations it is quite otherwise, and the rent and profit of grass
are much superior to what can be made by corn.

Thus in the neighbourhood of a great town, the demand for milk
and for forage to horses, frequently contribute, together with the
high price of butcher's-meat, to raise the value of grass above what
may be called its natural proportion to that of corn. This local ad-
vantage, it is evident, cannot be communicated to the lands at a
distance.

Particular circumstances have sometimes rendered some countries
so populous, that the whole territory, like the lands in the neigh-
bourhood of a great town, has not been sufficient to produce both the
grass and the corn necessary for the subsistence of their inhabitants.
Their lands, therefore, have been principally employed in the pro-
duction of grass, the more bulky commodity, and which cannot be
so easily brought from a great distance; and corn, the food of the
great body of the people, has been chiefly imported from foreign
countries. Holland is at present in this situation, and a considerable
part of ancient Italy seems to have been so during the prosperity
of the Romans. To feed well, old Cato said, as we are told by
Cicero, was the first and most profitable thing in the management
of a private estate; to feed tolerably well, the second; and to feed
ill, the third. To plough, he ranked only in the fourth place of
profit and advantage. Tillage, indeed, in that part of ancient Italy
which lay in the neighbourhood of Rome, must have been very
much discouraged by the distributions of corn which were fre-
quently made to the people, either gratuitously, or at a very low
price. This corn was brought from the conquered provinces, of
which several, instead of taxes, were obliged to furnish a tenth

154 WEALTH OF NATIONS

part of their produce at a stated price, about sixpence a peck, to
the republic. The low price at which this corn was distributed to
the people, must necessarily have sunk the price of what could be
brought to the Roman market from Latium, or the ancient territory
of Rome, and must have discouraged its cultivation in that country.

In an open country too, of which the principal produce is corn,
a well-enclosed piece of grass will frequently rent higher than any
corn field in its neighbourhood. It is convenient for the main-
tenance of the cattle employed in the cultivation of the corn, and
its high rent is, in this case, not so properly paid from the value of
its own produce, as from that of the corn lands which are cultivated
by means of it. It is likely to fall, if ever the neighbouring lands are
completely enclosed. The present high rent of enclosed land in
Scotland seems owing to the scarcity of enclosure, and will probably
last no longer than that scarcity. The advantage of enclosure is
greater for pasture than for corn. It saves the labour of guarding the
catde, which feed better too when they are not liable to be disturbed
by their keeper or his dog.

But where there is no local advantage of this kind, the rent and
profit of corn, or whatever else is the common vegetable food of the
people, must naturally regulate, upon the land which is fit for
producing it, the rent and profit of pasture.

The use of the artificial grasses, of turnips, carrots, cabbages, and
the other expedients which have been fallen ufxjn to make an equal
quantity of land feed a greater number of cattle than when in
natural grass, should somewhat reduce, it might be expected, the
superiority which, in an improved country, the price of butcher's-
meat naturally has over that of bread. It seems accordingly to have
done so; and there is some reason for believing that, at least in the
London market, the price of butcher's-meat in proportion to the
price of bread, is a good deal lower in the present times than it was
in the beginning of the last century.

In the appendix to the Life of Prince Henry, Doctor Birch has
given us an account of the prices of butcher's-meat as commonly paid
by that prince. It is there said that the four quarters of an ox weigh-
ing six hundred pounds usually cost him nine pounds ten shillings, or
thereabouts; that is, thirty-one shillings and eight pence per hundred

RENT OF LAND FROM HUMAN FOOD 1 55

pounds weight. Prince Henry died on the 6th of November 1612,
in the nineteenth year of his age.

In March 1764, there was a parliamentary inquiry into the causes
of the high price of provisions at that time. It was then, among other
proof to the same purpose, given in evidence by a Virginia mer-
chant, that in March 1763, he had victualled his ships for twenty-
four or twenty-five shillings the hundred weight of beef, which he
considered as the ordinary price; whereas, in that dear year, he had
paid twenty-seven shillings for the same weight and sort. This high
price in 1764 is, however, four shillings and eight pence cheaper than
the ordinary price paid by prince Henry; and it is the best beef
only, it must be observed, which is fit to be salted for those distant
voyages.

The price paid by prince Henry amounts to 3 4-^d. per pound
weight of the whole carcase, coarse and choice pieces taken together;
and at that rate the choice pieces could not have been sold by retail
for less than ^Vid. or ^d. the pound.

In the parliamentary inquiry in 1764, the witnesses stated the
price of the choice pieces of the best beef to be to the consumer 4^.
and /^y^d. the pound; and the coarse pieces in general to be from
seven farthings to z'/z'^- and 2y^d.; and this they said was in general
one half-penny dearer than the same sort of pieces had usually been
sold in the month of March. But even this high price is still a good
deal cheaper than what we can well suppose the ordinary retail price
to have been in the time of prince Henry,

During the twelve first years of the last century, the average price
of the best wheat at the Windsor market was i/. i8j. 3 i-6d. the
quarter of nine Winchester bushels.

But in the twelve years preceding 1764, including that year, the
average price of the same measure of the best wheat at the same
market was 2/. is. ^Yid.

In the twelve first years of the last century, therefore, wheat ap-
pears to have been a good deal cheaper, and butcher 's-meat a good
deal dearer, than in the twelve years preceding 1764, including
that year.

In all great countries the greater part of the cultivated lands are
employed in producing either food for men or food for cattle. The

156 WEALTH OF NATIONS

rent and profit of these regulate the rent and profit of all other cul-
tivated land. If any particular produce afforded less, the land would
soon be turned into corn or pasture; and if any afforded more, some
part of the lands in corn and pasture would soon be turned to that
produce.

Those productions, indeed, which require either a greater origi-
nal expence of improvement, or a greater annual expence of culti-
vation, in order to fit the land for them, appear commonly to afford,
the one a greater rent, the other a greater profit than corn or pas-
ture. This supjeriority, however, will seldom be found to amount to
more than a reasonable interest or compensation for this superior
exfjence.

In a hop garden, a fruit garden, a kitchen garden, both the rent
of the landlord, and the profit of the farmer, are generally greater
than in a corn or grass field. But to bring the ground into this con-
dition requires more exf)ence. Hence a greater rent becomes due to
the landlord. It requires too a more attentive and skilful manage-
ment. Hence a greater profit becomes due to the farmer. The crop
too, at least in the hop and fruit garden, is more precarious. Its
price, therefore, besides compensating all occasional losses, must
afford something like the profit of insurance. The circumstances of
gardeners, generally mean, and always moderate, may satisfy us
that their great ingenuity is not commonly over-recompenced. Their
delightful art is practised by so many rich people for amusement,
that little advantage is to be made by those who practise it for profit;
because the persons who should naturally be their best customers,
supply themselves with all their most precious productions.

The advantage which the landlord derives from such improve-
ments seems at no time to have been greater than what was sufficient
to compensate the original exf)ence of making them. In the ancient
husbandry, after the vineyard, a well-watered kitchen garden seems
to have been the part of the farm which was supposed to yield the
most valuable produce. But Democritus, who wrote upon husbandry
about two thousand years ago, and who was regarded by the ancients
as one of the fathers of art, thought they did not act wisely who
enclosed a kitchen garden. The profit, he said, would not compensate
the expence of a stone wall; and bricks (he meant, I suppose, bricks

RENT OF LAND FROM HUMAN FOOD 1 57

baked in the sun) mouldered with the rain, and the winter storm,
and required continual repairs. Columella, who reports this judg-
ment of Democritus, does not controvert it, but proposes a very frugal
method of enclosing with a hedge of brambles and briars, which, he
says, he had found by experience to be both a lasting and an impene-
trable fence; but which, it seems, was not commonly known in the
time of Democritus. Palladius adopts the opinion of Columella,
which had before been recommended by Varro. In the judgment of
those ancient improvers, the produce of a kitchen garden had, it
seems, been little more than sufficient to pay the extraordinary culture
and the expence of watering; for in countries so near the sun, it was
thought proper, in those times as in the present, to have the com-
mand of a stream of water, which could be conducted to every bed
in the garden. Through the greater part of Europe, a kitchen garden
is not at present supposed to deserve a better enclosure than that
recommended by Columella. In Great Britain, and some other
northern countries, the finer fruits cannot be brought to perfection
but by the assistance of a wall. Their price, therefore, in such coun-
tries, must be sufficient to pay the expence of building and maintain-
ing what they cannot be had without. The fruit-wall frequently sur-
rounds the kitchen garden, which thus enjoys the benefit of an
enclosure which its own produce could seldom pay for.

That the vineyard, when properly planted and brought to per-
fection, was the most valuable part of the farm, seems to have been
an undoubted maxim in the ancient agriculture, as it is in the modern
through all the wine countries. But whether it was advantageous to
plant a new vineyard, was a matter of dispute among the ancient
Italian husbandmen, as we learn from Columella. He decides, like
a true lover of all curious cultivation, in favour of the vineyard, and
endeavours to show, by a comparison of the profit and expense, that
it was a most advantageous improvement. Such comparisons, how-
ever, between the profit and expense of new projects, are commonly
very fallacious; and in nothing more so than in agriculture. Had
the gain actually made by such plantations been commonly as great
as he imagined it might have been, there could have been no dispute
about it. The same point is frequently at this day a matter of con-
troversy in the wine countries. Their writers on agriculture, indeed,

158 WEALTH OF NATIONS

the lovers and promoters of high cuhivation, seem generally dis-
posed to decide with Columella in favour of the vineyard. In France
the anxiety of the proprietors of the old vineyards to prevent the
planting of any new ones, seems to favour their opinion, and to
indicate a consciousness in those who must have the experience, that
this species of cultivation is at present in that country more profitable
than any other. It seems at the same time, however, to indicate
another opinion, that this superior profit can last no longer than the
laws which at present restrain the free cultivation of the vine. In
1731, they obtained an order of council, prohibiting both the plant-
ing of new vineyards, and the renewal of those old ones, of which
the cultivation had been interrupted for two years, without a par-
ticular permission from the king, to be granted only in consequence
of an information from the intendant of the province, certifying that
he had examined the land, and that it was incapable of any other
culture. The pretence of this order was the scarcity of corn and
pasture, and the super-abundance of wine. But had this super-abun-
dance been real, it would, without any order of council, have effectu-
ally prevented the plantation of new vineyards, by reducing the
profits of this species of cultivation below their natural proportion
to those of corn and pasture. With regard to the supposed scarcity
of corn occasioned by the multiplication of vineyards, corn is no-
where in France more carefully cultivated than in the wine prov-
inces, where the land is fit for producing it; as in Burgundy, Gui-
enne, and the Upper Languedoc. The numerous hands employed
in the one species of cultivation necessarily encourage the other, by
affording a ready market for its produce. To diminish the number
of those who are capable of paying for it, is surely a most unpromis-
ing expedient for encouraging the cultivation of corn. It is like
the policy which would promote agriculture by discouraging manu-
factures.

The rent and profit of those productions, therefore, which require
either a greater original annual expence of improvement in order to
fit the land for them, or a greater annual expence of cultivation,
though often much superior to those of corn and pasture, yet when
they do no more than compensate such extraordinary expence, are
in reality regulated by the rent and profit of those common crops.

RENT OF LAND FROM HUMAN FOOD 1 59

It sometimes happens, indeed, that the quantity of land which can
be fitted for some particular produce, is too small to supply the effec-
tual demand. The whole produce can be disposed of to those who
are willing to give somewhat more than what is sufficient to pay the
whole rent, wages and profit necessary for raising and bringing it to
market, according to their natural rates, or according to the rates at
which they are paid in the greater part of other cultivated land. The
surplus part of the price which remains after defraying the whole
expence of improvement and cultivation may commonly, in this case,
and in this case only, bear no regular proportion to the like surplus
in corn or pasture, but may exceed it in almost any degree; and the
greater part of this excess naturally goes to the rent of the landlord.

The usual and natural proportion, for example, between the rent
and profit of wine and those of corn and pasture, must be understood
to take place only with regard to those vineyards which produce
nothing but good common wine, such as can be raised almost any-
where, upon any light, gravelly, or sandy soil, and which has nothing
to recommend it but its strength and wholesomeness. It is with such
vineyards only that the common land of the country can be brought
into competition; for with those of a peculiar quality it is evident
that it cannot.

The vine is more affected by the difference of soils than any other
fruit tree. From some it derives a flavour which no culture or man-
agement can equal, it is supposed, upon any other. This flavour,
real or imaginary, is sometimes peculiar to the produce of a few vine-
yards; sometimes it extends through the greater part of a small dis-
trict, and sometimes through a considerable part of a large province.
The whole quantity of such wines that is brought to market falls
short of the effectual demand, or the demand of those who would be
willing to pay the whole rent, profit and wages necessary for prepar-
ing and bringing them thither, according to the ordinary rate, or
according to the rate at which they are paid in common vineyards.
The whole quantity, therefore, can be disposed of to those who are
willing to pay more, which necessarily raises the price above that of
common wine. The difference is greater or less, according as the
fashionableness and scarcity of the wine render the competition of
the buyers more or less eager. Whatever it be, the greater part of it

l6o WEALTH OF NATIONS

goes to the rent of the landlord. For though such vineyards are in
general more carefully cultivated than most others, the high price
of the wine seems to be, not so much the effect, as the cause of this
careful cultivation. In so valuable a produce the loss occasioned by
negligence is so great as to force even the most careless to attention.
A small part of this high price, therefore, is sufficient to pay the wages
of the extraordinary labour bestowed upon their cultivation, and the
profits of the extraordinary stock which puts that labour into motion.
The sugar colonies possessed by the Eurof)ean nations in the West
Indies, may be compared to those precious vineyards. Their whole
produce falls short of the effectual demand of Europe, and can be
disposed of to those who are willing to give more than what is suffi-
cient to pay the whole rent, profit and wages necessary for preparing
and bringing it to market, according to the rate at which they are
commonly paid by any other produce. In Cochin-china the finest
white sugar commonly sells for three piastres the quintal, about thir-
teen shillings and sixp)ence of our money, as we are told by Mr. Poivre,
a very careful observer of the agriculture of that country. What is
there called the quintal weighs from a hundred and fifty to two
hundred Paris pounds, or a hundred and seventy-five Paris pounds
at a medium, which reduces the price of the hundred weight English
to about eight shillings sterling, not a fourth part of what is com-
monly paid for the brown or muskavada sugars imported from our
colonies, and not a sixth part of what is paid for the finest white
sugar. The greater part of the cultivated lands in Cochin<hina are
employed in producing corn and rice, the food of the great body of
the people. The respective prices of corn, rice, and sugar, are there
probably in the natural proportion, or in that which naturally takes
place in the different crops of the greater part of cultivated land, and
which recompences the landlord and farmer, as nearly as can be com-
puted, according to what is usually the original expence of improve-
ment and the annual expence of cultivation. But in our sugar colonies
the price of sugar bears no such proportion to that of the produce of
a rice or corn field either in Europe or in America. It is commonly
said, that a sugar planter expects that the rum and the molasses should
defray the whole expence of his cultivation, and that his sugar should
be all clear profit. If this be true, for I pretend not to affirm it, it is as

RENT OF LAND FROM HUMAN FOOD l6l

if a corn farmer expected to defray the expence of his cultivation with
the chaff and the straw, and that the grain should be all clear profit.
We see frequently societies of merchants in London and other trading
towns, purchase waste lands in our sugar colonies, which they exjject
to improve and cultivate with profit by means of factors and agents;
notwithstanding the great distance and the uncertain returns, from
the defective administration of justice in those countries. Nobody
will attempt to improve and cultivate in the same manner the most
fertile lands of Scotland, Ireland, or the corn provinces of North
America, though from the more exact administration of justice in
these countries, more regular returns might be expected.

In Virginia and Maryland the cultivation of tobacco is preferred,
as more profitable, to that of corn. Tobacco might be cultivated with
advantage through the greater part of Europe; but in almost every
part of Europe it has become a principal subject of taxation, and to
collect a tax from every different farm in the country where this plant
might happen to be cultivated, would be more difficult, it has been
supposed, than to levy one upon its importation at the custom-house.
The cultivation of tobacco has upon this account been most absurdly
prohibited through the greater part of Europe, which necessarily gives
a sort of monopoly to the countries where it is allowed; and as Vir-
ginia and Maryland produce the greatest quantity of it, they share
largely, though with some competitors, in the advantage of this mo-
nof)oly. The cultivation of tobacco, however, seems not to be so
advantageous as that of sugar. I have never even heard of any tobacco
plantation that was improved and cultivated by the capital of mer-
chants who resided in Great Britain, and our tobacco colonies send
us home no such wealthy planters as we see frequently arrive from
our sugar islands. Though from the preference given in those colo-
nies to the cultivation of tobacco above that of corn, it would appear
that the effectual demand of Europe for tobacco is not completely
supplied, it probably is more nearly so than that for sugar: And
though the present price of tobacco is probably more than sufficient
to pay the whole rent, wages and profit necessary for preparing and
bringing it to market, according to the rate at which they are com-
monly paid in corn land; it must not be so much more as the present
price of sugar. Our tobacco planters, accordingly, have shewn the

l62 WEALTH OF NATIONS

same fear of the super-abundance of tobacco, which the proprietors
of the old vineyards in France have of the super-abundance of wine.
By act of assembly they have restrained its cultivation to six thousand
plants, supposed to yield a thousand weight of tobacco, for every
negro between sixteen and sixty years of age. Such a negro, over and
above this quantity of tobacco, can manage, they reckon, four acres
of Indian corn. To prevent the market from being overstocked too,
they have sometimes, in plentiful years, we are told by Dr. Douglas,
(I suspect he has been ill informed) burnt a certain quantity of
tobacco for every negro, in the same manner as the Dutch are said to
do of spices. If such violent methods are necessary to keep up the
present price of tobacco, the superior advantage of its culture over that
of corn, if it still has any, will not probably be of long continuance.

It is in this manner that the rent of the cultivated land, of which
the produce is human food, regulates the rent of the greater part of
other cultivated land. No particular produce can long afford less; be-
cause the land would immediately be turned to another use: And if
any particular produce commonly affords more, it is because the
quantity of land which can be fitted for it is too small to supply the
effectual demand.

In Eurof)e corn is the principal produce of land which serves
immediately for human food. Except in particular situations, there-
fore, the rent of corn land regulates in Europe that of all other culti-
vated land. Britain need envy neither the vineyards of France nor
the olive plantations of Italy. Except in particular situations, the value
of these is regulated by that of corn, in which the fertility of Britain
is not much inferior to that of either of those two countries.

If in any country the common and favorite vegetable food of the
people should be drawn from a plant of which the most common
land, with the same or nearly the same culture, produced a much
greater quantity than the most fertile does of corn, the rent of the
landlord, or the surplus quantity of food which would remain to him,
after paying the labour and replacing the stock of the farmer together
with its ordinary profits, would necessarily be much greater. What-
ever was the rate at which labour was commonly maintained in that
country, this greater surplus could always maintain a greater quantity
of it, and consequently enable the landlord to purchase or command

RENT OF LAND FROM HUMAN FOOD 163

a greater quantity of it. The real value of his rent, his real power and
authority, his command of the necessaries and conveniencies of life
with which the labor of other people could supply him, would neces-
sarily be much greater.

A rice field produces a much greater quantity of food than the most
fertile corn field. Two crops in the year from thirty to sixty bushels
each, are said to be the ordinary produce of an acre. Though its
cultivation, therefore, requires more labour, a much greater surplus
remains after maintaining all that labour. In those rice countries,
therefore, where rice is the common and favourite vegetable food of
the people, and where the cultivators are chiefly maintained with it,
a greater share of this greater surplus should belong to the landlord
than in corn countries. In Carolina, where the planters, as in other
British colonies, are generally both farmers and landlords, and where
rent consequently is confounded with profit, the cultivation of rice
is found to be more profitable than that of corn, though their fields
produce only one crop in the year, and though, from the prevalence
of the customs of Europe, rice is not there the common and favourite
vegetable food of the people.

A good rice field is a bog at all seasons, and at one season a bog
covered with water. It is unfit either for corn, or pasture, or vineyard,
or, indeed, for any other vegetable produce that is very useful to men:
And the lands which are fit for those purposes, are not fit for rice.
Even in the rice countries, therefore, the rent of rice lands cannot
regulate the rent of the other cultivated land which can never be
turned to that produce.

The food produced by a field of potatoes is not inferior in quantity
to that produced by a field of rice, and much superior to what is pro-
duced by a field of wheat. Twelve thousand weight of potatoes from
an acre of land is not a greater produce than two thousand weight of
wheat. The food or solid nourishment, indeed, which can be drawn
from each of those two plants, is not altogether in proportion to their
weight, on account of the watery nature of potatoes. Allowing, how-
ever, half the weight of this root to go to water, a very large allow-
ance, such an acre of potatoes will still produce six thousand weight
of solid nourishment, three times the quantity produced by the acre
of wheat. An acre of potatoes is cultivated with less expence than an

164 WEALTH OF NATIONS

acre of wheat; the fallow, which generally precedes the sowing of
wheat, more than compensating the hoeing and other extraordinary
culture which is always given to potatoes. Should this root ever be-
come in any part of Europe, like rice in some rice countries, the
common and favourite vegetable food of the people, so as to occupy
the same proportion of the land in tillage which wheat and other
sorts of grain for human food do at present, the same quantity of
cultivated land would maintain a much greater number of people,
and the labourers being generally fed with potatoes, a greater surplus
would remain after replacing all the stock and maintaining all the
labour employed in cultivation. A greater share of this surplus too
would belong to the landlord. Population would increase, and rents
would rise much beyond what they are at present.

The land which is fit for potatoes, is fit for almost every other useful
vegetable. If they occupied the same proportion of cultivated land
which corn does at present, they would regulate, in the same manner,
the rent of the greater part of other cultivated land.

In some parts of Lancashire it is pretended, I have been told, that
bread of oatmeal is a heartier food for labouring people than wheaten
bread, and I have frequently heard the same doctrine held in Scodand.
I am, however, somewhat doubtful of the truth of it. The common
people in Scotland, who are fed with oatmeal, are in general neither
so strong nor so handsome as the same rank of people in England,
who are fed with wheaten bread. They neither work so well, nor
look so well; and as there is not the same difference between the
people of fashion in the two countries, experience would seem to
show, that the food of the common people in Scotland is not so suit-
able to the human constitution as that of their neighbours of the same
rank in England. But it seems to be otherwise with potatoes. The
chairmen, porters, and coal-heavers in London, and those unfortunate
women who live by prostitution, the strongest men and the most
beautiful women perhaps in the British dominions, are said to be,
the greater part of them, from the lowest rank of (jeople in Ireland,
who are generally fed with this root. No food can afford a more
decisive proof of its nourishing quality, or of its being peculiarly
suitable to the health of the human constitution.

It is difficult to preserve potatoes through the year, and impossible

RENT OF LA^fD FROM HUMAN FOOD 1 65

to Store them like corn, for two or three years together. The fear of
not being able to sell them before they rot, discourages their cultiva-
tion, and is, perhaps, the chief obstacle to their ever becoming in any
great country, like bread, the principal vegetable food of all the differ-
ent ranks of the people.

PART II
Of the Produce of Land which sometimes does and sometimes

DOES NOT, afford ReNT

Human food seems to be the only produce of land which always
and necessarily affords some rent to the landlord. Other sorts of prod-
uce sometimes may and sometimes may not, according to different
circumstances.

After food, cloathing and lodging are the two great wants of
mankind.

Land in its original rude state can afford the materials of cloathing
and lodging to a much greater number of people than it can feed.
In its improved state it can sometimes feed a greater number of peo-
ple than it can supply with those materials; at least in the way in
which they require them, and are willing to pay for them. In the
one state, therefore, there is always a super-abundance of those ma-
terials, which are frequently, upon that account, of little or no value.
In the other there is often a scarcity, which necessarily augments their
value. In the one state a great part of them is thrown away as useless,
and the price of what is used is considered as equal only to the labour
and expence of fitting it for use, and can, therefore, afford no rent to
the landlord. In the other they are all made use of, and there is
frequently a demand for more than can be had. Somebody is always
willing to give more for every part of them than what is sufficient to
pay the expence of bringing them to market. Their price, therefore,
can always afford some rent to the landlord.

The skins of the larger animals were the original materials of
cloathing. Among nations of hunters and shepherds, therefore, whose
food consists chiefly in the flesh of those animals, every man, by pro-
viding himself with food, provides himself with the materials of
more cloathing than he can wear. If there was no foreign commerce,

l66 WEALTH OF NATIONS

the greater part of them would be thrown away as things of no
value. This was probably the case among the hunting nations of
North America, before their country was discovered by the Euro-
peans, with whom they now exchange their surplus peltry, for
blankets, fire-arms, and brandy, which gives it some value. In the
present commercial state of the known world, the most barbarous
nations, I believe, among whom land property is established, have
some foreign commerce of this kind, and find among their wealthier
neighbours such a demand for all the materials of cloathing, which
their land produces, and which can neither be wrought up nor con-
sumed at home, as raises their price above what it costs to send them
to those wealthier neighbours. It affords, therefore, some rent to the
landlord. When the greater part of the highland cattle were con-
sumed on their own hills, the exportation of their hides made the
most considerable article of the commerce of that country, and what
they were exchanged for afforded some addition to the rent of the
highland estates. The wool of England, which in old times could
neither be consumed nor wrought up at home, found a market in the
then wealthier and more industrious country of Flanders, and its
price afforded something to the rent of the land which produced it.
In countries not better cultivated than England was then, or than
the highlands of Scotland are now, and which had no foreign com-
merce, the materials of cloathing would evidently be so super-abun-
dant, that a great part of them would be thrown away as useless, and
no part could afford any rent to the landlord.

The materials of lodging cannot always be transported to so great
a distance as those of cloathing, and do not so readily become an
object of foreign commerce. When they are super-abundant in the
country which produces them, it frequently happens, even in the
present commercial state of the world, that they are of no value to
the landlord. A good stone quarry in the neighbourhood of London
would afford a considerable rent. In many parts of Scotland and
Wales it affords none. Barren timber for building is of great value
in a populous and well-cultivated country, and the land which pro-
duces it affords a considerable rent. But in many parts of North
America the landlord would be much obliged to any body who would
carry away the greater part of his large trees. In some parts of the

RENT OF LA^fD FROM MATERIALS 167

highlands of Scotland the bark is the only part of the wood which,
for want of roads and water-carriage, can be sent to market. The
timber is left to rot upon the ground. When the materials of lodging
are so suf)er-abundant, the part made use of is worth only the labour
and expence of fitting it for that use. It affords no rent to the land-
lord, who generally grants the use of it to whoever takes the trouble
of asking it. The demand of wealthier nations, however, sometimes
enables him to get a rent for it. The paving of the streets of London
has enabled the owners of some barren rocks on the coast of Scotland
to draw a rent from what never afforded any before. The woods of
Norway and of the coasts of the Baltic, find a market in many parts
of Great Britain which they could not find at home, and thereby
afford some rent to their proprietors.

Countries are populous, not in proportion to the number of people
whom their produce can cloath and lodge, but in proportion to that of
those whom it can feed. When food is provided, it is easy to find the
necessary cloathing and lodging. But though these are at hand, it
may often be difficult to find food. In some parts even of the British
dominions, what is called A House may be built by one day's labour
of one man. The simplest sf)ecies of cloathing, the skins of animals,
require somewhat more labour to dress and prepare them for use.
They do not, however, require a great deal. Among savages and
barbarous nations, a hundredth or little more than a hundredth part
of the labour of the whole year, will be sufficient to provide them
with such cloathing and lodging as satisfy the greater part of the
people. All the other ninety-nine parts are frequendy no more than
enough to provide them with food.

But when by the improvement and cultivation of land the labour
of one family can provide food for two, the labour of half the society
becomes sufficient to provide food for the whole. The other half,
therefore, or at least the greater part of them, can be employed in
providing other things, or in satisfying the other wants and fancies
of mankind. Cloathing and lodging, houshold furniture, and what
is called Equipage, are the principal objects of the greater part of
those wants and fancies. The rich man consumes no more food than
his p)oor neighbour. In quality it may be very different, and to select
and prepare it may require more labour and art; but in quantity

l68 WEALTH OF NATIONS

it is very nearly the same. But compare the spacious palace and great
wardrobe of the one, with the hovel and the few rags of the other,
and you will be sensible that the difference between their cloathing,
lodging, and houshold furniture, is almost as great in quantity as
it is in quality. The desire of food is limited in every man by the
narrow capacity of the human stomach; but the desire of the con-
veniencies and ornaments of building, dress, equipage, and houshold
furniture, seems to have no limit or certain boundary. Those, there-
fore, who have the command of more food than they themselves can
consume, are always willing to exchange the surplus, or, what is the
same thing, the price of it, for gratifications of this other kind. What
is over and above satisfying the limited desire, is given for the amuse-
ment of those desires which cannot be satisfied, but seem to be alto-
gether endless. The poor, in order to obtain food, exert themselves
to gratify those fancies of the rich, and to obtain it more certainly, they
vie with one another in the cheapness and perfection of their work.
The number of workmen increases with the increasing quantity of
food, or with the growing improvement and cultivation of the lands
and as the nature of their business admits of the utmost subdivisions
of labour, the quantity of materials which they can work up, increases
in a much greater proportion than their numbers. Hence arises a
demand for every sort of material which human invention can em-
ploy, either usefully or ornamentally, in building, dress, equipage, or
houshold furniture; for the fossils and minerals contained in the
bowels of the earth, the precious metals, and the precious stones.

Food is in this manner, not only the original source of rent, but
every other part of the produce of land which afterwards affords rent,
derives that part of its value from the improvement of the pwwers of
labour in producing food by means of the improvement and cultiva-
tion of land.

Those other parts of the produce of land, however, which after-
wards afford rent, do not afford it always. Even in improved and
cultivated countries, the demand for them is not always such as to
afford a greater price than what is sufficient to pay the labour, and
replace, together with its ordinary profits, the stock which must be
employed in bringing them to market. Whether it is or is not such,
depends upon different circumstances.

RENT OF LAND FROM MATERIALS 1 69

Whether a coal-mine, for example, can afford any rent, depends
partly upon its fertility, and partly upon its situation.

A mine of any kind may be said to be either fertile or barren,
according as the quantity of mineral which can be brought from it
by a certain quantity of labour, is greater or less than what can be
brought by an equal quantity from the greater part of other mines of
the same kind.

Some coal-mines advantageously situated, cannot be wrought on
account of their barrenness. The produce does not pay the expence.
They can afford neither profit nor rent.

There are some of which the produce is barely sufficient to pay the
labour, and replace, together with its ordinary profits, the stock em-
ployed in working them. They afford some profit to the undertaker
of the work, but no rent to the landlord. They can be wrought ad-
vantageously by nobody but the landlord, who being himself under-
taker of the work, gets the ordinary profit of the capital which he
employs in it. Many coal-mines in Scotland are wrought in this
manner, and can be wrought in no other. The landlord will allow
nobody else to work them without paying some rent, and nobody
can afford to pay any.

Other coal-mines in the same country sufficiendy fertile, cannot be
wrought on account of their situation. A quantity of mineral suffi-
cient to defray the expence of working, could be brought from the
mine by the ordinary, or even less than the ordinary quantity of
labour: But in an inland country, thinly inhabited, and without either
good roads or water<arriage, this quantity could not be sold.

Coals are a less agreeable fewel than wood: they are said too to be
less wholesome. The expence of coals, therefore, at the place where
they are consumed, must generally be somewhat less than that of
wood.

The price of wood again varies with the state of agriculture, nearly
in the same manner, and exactly for the same reason, as the price of
catde. In its rude beginnings the greater part of every country is
covered with wood, which is then a mere incumbrance of no value
to the landlord, who would gladly give it to any body for the cutting.
As agriculture advances, the woods are partly cleared by the progress
of tillage, and pardy go to decay in consequence of the increased

170 WEALTH OF NATIONS

number of cattle. These, though they do not increase in the same pro-
portion as corn, which is altogether the acquisition of human indus-
try, yet multiply under the care and protection of men; who store
up in the season of plenty what may maintain them in that of scarcity,
who through the whole year furnish them with a greater quantity
of food than uncultivated nature provides for them, and who by
destroying and extirpating their enemies, secure them in the free
enjoyment of all that she provides. Numerous herds of catde, when
allowed to wander through the woods, though they do not destroy
the old trees, hinder any young ones from coming up, so that in the
course of a century or two the whole forest goes to ruin. The scarcity
of wood then raises its price. It affords a good rent, and the landlord
sometimes finds that he can scarce employ his best lands more advan-
tageously than in growing barren timber, of which the greatness of
the profit often compensates the lateness of the returns. This seems
in the present times to be nearly the state of things in several parts
of Great Britain, where the profit of planting is found to be equal to
that of either corn or pasture. The advantage which the landlord
derives from planting, can no-where exceed, at least for any consid-
erable time, the rent which these could afford him; and in an inland
country which is highly cultivated, it will frequendy not fall much
short of this rent. Upon the sea-coast of a well-improved country,
indeed, if coals can conveniently be had for fewel, it may sometimes
be cheaper to bring barren timber for building from less cultivated
foreign countries, than to raise it at home. In the new town of Edin-
burgh, built within these few years, there is not, perhaps, a single
stick of Scotch timber.

Whatever may be the price of wood, if that of coals is such that
the expence of a coal-fire is nearly equal to that of a wood one, we
may be assured, that at that place, and in these circumstances, the
price of coals is as high as it can be. It seems to be so in some of the
inland parts of England, particularly in Oxfordshire, where it is
usual, even in the fires of the common people, to mix coals and wood
together, and where the difference in the expence of those two sorts
of fewel cannot, therefore, be very great.

Coals, in the coal countries, are every-where much below this
highest price. If they were not, they could not bear the expence of a

RENT OF LAND FROM MATERIALS I7I

distant carriage, either by land or by water. A smalt quantity only
could be sold, and the coal masters and coal proprietors find it more
for their interest to sell a great quantity at a price somewhat above the
lowest, than a small quantity at the highest. The most fertile coal-
mine too, regulates the price of coals at all the other mines in its
neighbourhood. Both the proprietor and the undertaker of the work
find, the one that he can get a greater rent, the other that he can get
a greater profit, by somewhat under-selling all their neighbours.
Their neighbours are soon obliged to sell at the same price, though
they cannot so well afford it, and though it always diminishes, and
sometimes takes away altogether both their rent and their profit.
Some works are abandoned altogether; others can afford no rent
and can be wrought only by the proprietor.

The lowest price at which coals can be sold for any considerable
time, is, like that of all other commodities, the price which is barely
sufficient to replace, together with its ordinary profits, the stock which
must be employed in bringing them to market. At a coal-mine for
which the landlord can get no rent, but which he must either work
himself or let it alone altogether, the price of coals must generally be
nearly about this price.

Rent, even where coals afford one, has generally a smaller share
in their price than in that of most other parts of the rude produce of
land. The rent of an estate above ground, commonly amounts to
what is supfxjsed to be a third of the gross produce; and it is gener-
ally a rent certain and independent of the occasional variations in the
crop. In coal-mines a fifth of the gross produce is a very great rent;
a tenth the common rent, and it is seldom a rent certain, but depends
upon the occasional variations in the produce. These are so great,
that in a country where thirty years purchase is considered as a mod-
erate price for the property for a landed estate, ten years purchase is
regarded as a good price for that of a coal-mine.

The value of a coal-mine to the proprietor frequently depends as
much upon its situation as upon its fertility. That of a metallic
mine depends more upon its fertility, and less upon its situation.
The coarse, and still more the precious metals, when separated
from the ore, are so valuable that they can generally bear the expence
of a very long land, and of the most distant sea carriage. Their

172 WEALTH OF NATIONS

market is not confined to the countries in the neighbourhood of the
mine, but extends to the whole world. The copper of Japan makes
an article of commerce in Europe; the iron of Spain in that of Chili
and Peru. The silver of Peru finds its way, not only to Europe, but
from Europe to China.

The price of coals in Westmorland or Shropshire can have litde
effect on their price at Newcasde; and their price in the Lionnois can
have none at all. The productions of such distant coal-mines can
never be brought into com{5etition with one another. But the produc-
tions of the most distant metallic mines frequently may, and in fact
commonly are. The price, therefore, of the coarse, and still more
that of the precious metals, at the most fertile mines in the world,
must necessarily more or less affect their price at every other in it.
The price of copf)er in Japan must have some influence upon its
price at the copper mines in Europe. The price of silver in Peru, or
the quantity either of labour or of other goods which it will purchase
there, must have some influence on its price, not only at the silver
mines of Europe, but at those of China. After the discovery of the
mines of Peru, the silver mines of Europe were, the greater part of
them, abandoned. The value of silver was so much reduced that their
produce could no longer pay the expence of working them, or replace
with a profit, the food, cloaths, lodging and other necessaries which
were consumed in that operation. This was the case too with the
mines of Cuba and St. Domingo, and even with the ancient mines
of Peru, after the discovery of those of Potosi.

The price of every metal at every mine, therefore, being regulated
in some measure by its price at the most fertile mine in the world
that is actually wrought, it can at the greater part of mines do very
litde more than pay the expence of working, and can seldom afford
a very high rent to the landlord. Rent, accordingly, seems at the
greater part of mines to have but a small share in the price of the
coarse, and a still smaller in that of the precious metals. Labour and
profit make up the greater part of both.

A sixth part of the gross produce may be reckoned the average rent
of the tin mines of Cornwall, the most fertile that are known in the
world, as we are told by the Rev. Mr. Borlace, vice-warden of the
stannaries. Some, he says, afford more, and some do not afford so

RENT OF LAND FROM MATERIALS 1 73

much. A sixth part of the gross produce is the rent too of several
very fertile lead mines in Scotland.

In the silver mines of Peru, we are told by Frezier and Ulloa, the
proprietor frequently exacts no other acknowledgment from the un-
dertaker of the mine, but that he will grind the ore at his mill, paying
him the ordinary multure or price of grinding. Till 1736, indeed,
the tax of the king of Spain amounted to one-fifth of the standard
silver, which till then might be considered as the real rent of the
greater part of the silver mines of Peru, the richest which have been
known in the world. If there had been no tax, this fifth would natur-
ally have belonged to the landlord, and many mines might have been
wrought which could not then be wrought, because they could not
afford this tax. The tax of the duke of Cornwall upon tin is supposed
to amount to more than five per cent, or one-twentieth part of the
value; and whatever may be his proportion, it would naturally too
belong to the proprietor of the mine, if tin was duty free. But if you
add one-twentieth to one-sixth, you will find that the whole average
rent of the tin mines of Cornwall, was to the whole average
rent of the silver mines of Peru, as thirteen to twelve. But the silver
mines of Peru are not now able to pay even this low rent, and the tax
upon silver was, in 1736, reduced from one-fifth to one-tenth. Even
this tax upon silver too gives more temptation to smuggling than
the tax of one-twentieth upon tin; and smuggling must be much
easier in the precious than in the bulky commodity. The tax of the
king of Spain accordingly is said to be very ill paid, and that of the
duke of Cornwall very well. Rent, therefore, it is probable, makes a
greater part of the price of tin at the most fertile tin mines, than it does
of silver at the most fertile silver mines in the world. After replacing
the stock employed in working those different mines, together with
its ordinary profits, the residue which remains to the proprietor, is
greater it seems in the coarse, than in the precious metal.

Neither are the profits of the undertakers of silver mines commonly
very great in Peru. The same most resp)ectable and well informed
authors acquaint us, that when any person undertakes to work a new
mine in Peru, he is universally looked up)on as a man destined to
bankruptcy and ruin, and is upon that account shunned and avoided
by every body. Mining, it seems, is considered there in the same light

174 WEALTH OF NATIONS

as here, as a lottery, in which the prizes do not compensate the blanks,
though the greatness of some tempts many adventurers to throw
away their fortunes in such unprosperous projects.

As the sovereign, however, derives a considerable part of his rev-
enue from the produce of silver mines, the law in Peru gives every
possible encouragement to the discovery and working of new ones.
Whoever discovers a new mine, is entitled to measure off two hun-
dred and forty-six feet in length, according to what he supposes to be
the direction of the vein, and half as much in breadth. He becomes
proprietor of this portion of the mine, and can work it without pay-
ing any acknowledgment to the landlord. The interest of the duke
of Cornwall has given occasion to a regulation nearly of the same
kind in that ancient duchy. In waste and uninclosed lands any person
who discovers a tin mine, may mark out its limits to a certain extent,
which is called bounding a mine. The bounder becomes the real
proprietor of the mine, and may either work it himself, or give it in
lease to another, without the consent of the owner of the land, to
whom, however, a very small acknowledgment must be paid upon
working it. In both regulations the sacred rights of private property
are sacrificed to the supposed interests of public revenue.

The same encouragement is given in Peru to the discovery and
working of new gold mines; and in gold the king's tax amounts only
to a twentieth part of the standard metal. It was once a fifth, and
afterwards a tenth, as in silver; but it was found that the work could
not bear even the lowest of these two taxes. If it is rare, however, say
the same authors, Frezier and UUoa, to find a person who has made
his fortune by a silver, it is still much rarer to find one who has done
so by a gold mine. This twentieth part seems to be the whole rent
which is paid by the greater part of the gold mines in Chili and Peru.
Gold too is much more liable to be smuggled than even silver; not
only on account of the superior value of the metal in proportion to its
bulk, but on account of the peculiar way in which nature prcxluces
it. Silver is very seldom found virgin, but, Uke most other metals, is
generally mineralized with some other body, from which it is im-
possible to separate it in such quantities as will pay for the expence,
but by a very laborious and tedious operation, which cannot well be
carried on but in work-houses erected for the purpose, and therefore

RENT OF LAND FROM MATERIALS 1 75

exposed to the inspection of the king's officers. Gold, on the contrary,
is ahnost always found virgin. It is sometimes found in pieces of
some bulk; and even when mixed in small and almost insensible
particles with sand, earth, and other extraneous bodies, it can be sep-
arated from them by a very short and simple operation, which can
be carried on in any private house by any body who is possessed of
a small quantity of mercury. If the king's tax, therefore, is but ill
paid upon silver, it is likely to be much worse paid upon gold; and
rent must make a much smaller part of the price of gold, than even
of that of silver.

The lowest price at which the precious metals can be sold, or the
smallest quantity of other goods for which they can be exchanged
during any considerable time, is regulated by the same principles
which fix the lowest ordinary price of all other goods. The stock
which must commonly be employed, the food, cloaths, and lodging
which must commonly be consumed in bringing them from the mine
to the market, determine it. It must at least be sufficient to replace
that stock, with the ordinary profits.

Their highest price, however, seems not to be necessarily deter-
mined by any thing but the actual scarcity or plenty of those metals
themselves. It is not determined by that of any other commodity,
in the same manner as the price of coals is by that of wood, beyond
which no scarcity can ever raise it. Increase the scarcity of gold to a
certain degree, and the smallest bit of it may become more precious
than a diamond, and exchange for a greater quantity of other goods.

The demand for those metals arises partly from their utility, and
pardy from their beauty. If you except iron, they are more useful,
f)erhaps, than any other metal. As they are less liable to rust and
impurity, they can more easily be kept clean; and the utensils either
of the table or the kitchen are often upon that account more agree-
able when made of them. A silver boiler is more cleanly than a lead,
copper, or tin one; and the same quality would render a gold boiler
still better than a silver one. Their principal merit, however, arises
from their beauty, which renders them peculiarly fit for the orna-
ments of dress and furniture. No paint or dye can give so splendid
a colour as gilding. The merit of their beauty is greatly enhanced by
their scarcity. With the greater part of rich people, the chief enjoy-

176 WEALTH OF NATIONS

ment of riches consists in the parade of riches, which in their eye
is never so complete as when they apf)ear to possess those decisive
marks of opulence which nobody can possess but themselves. In their
eyes the merit of an object which is in any degree either useful or
beautiful, is gready enhanced by its scarcity, or by the great labour
which it requires to collect any considerable quantity of it, a labour
which nobody can afford to pay but themselves. Such objects they
are willing to purchase at a higher price than things much more
beautiful and useful, but more common. These qualities of utility,
beauty, and scarcity, are the original foundation of the high price of
those metals, or of the great quantity of other goods for which they can
every-where be exchanged. This value was antecedent to and inde-
pendent of their being employed as coin, and was the quality which
fitted them for that employment. That employment, however, by
occasioning a new demand, and by diminishing the quantity which
could be employed in any other way, may have afterwards contrib-
uted to keep up or increase their value.

The demand for the precious stones arises altogether from their
beauty. They are of no use, but as ornaments; and the merit of their
beauty is gready enhanced by their scarcity, or by the difficulty and
expence of getting them from the mine. Wages and profit accord-
ingly make up, upon most occasions, almost the whole of their high
price. Rent comes in but for a very small share; frequently for no
share; and the most fertile mines only afford any considerable rent.
When Tavernier, a jeweller, visited the diamond mines of Golconda
and Visiapour, he was informed that the sovereign of the country,
for whose benefit they were wrought, had ordered all of them to be
shut up, except those which yielded the largest and finest stones. The
others, it seems, were to the proprietor not worth the working.

As the price both of the precious metals and of the precious stones
is regulated all over the world by their price at the most fertile mine
in it, the rent which a mine of either can afford to its proprietor is
in proportion, not to its absolute, but to what may be called its rela-
tive fertility, or to its superiority over other mines of the same kind.
If new mines were discovered as much superior to those of Potosi
as they were superior to those of Europe, the value of silver might
be so much degraded as to render even the mines of Potosi not worth

RENT OF LAND FROM MATERIALS 1 77

the working. Before the discovery of the Spanish West Indies, the
most fertile mines in Europe may have afforded as great a rent to
their proprietor as the richest mines in Peru do at present. Though
the quantity of silver was much less, it might have exchanged for an
equal quantity of other goods, and the proprietor's share might have
enabled him to purchase or command an equal quantity either of
labour or of commodities. The value both of the produce and of the
rent, the real revenue which they afforded both to the public and
to the proprietor, might have been the same.

The most abundant mines either of the precious metals or of the
precious stones could add little to the wealth of the world. A prod-
uce of which the value is principally derived from its scarcity, is
necessarily degraded by its abundance. A service of plate, and the
other frivolous ornaments of dress and furniture, could be purchased
for a smaller quantity of labour, or for a smaller quantity of com-
modities; and in this would consist the sole advantage which the
world could derive from that abundance.

It is otherwise in estates above ground. The value both of their
produce and of their rent is in proportion to their absolute, and not
to their relative fertility. The land which produces a certain quantity
of foods, doaths, and lodging, can always feed, cloath, and lodge a
certain number of people; and whatever may be the proportion of
the landlord, it will always give him a proportionable command of
the labour of those people, and of the commodities with which that
labour can supply him. The value of the most barren lands is not
diminished by the neighbourhood of the most fertile. On the con-
trary, it is generally increased by it. The great number of people
maintained by the fertile lands afford a market to many parts of the
produce of the barren, which they could never have found among
those whom their own produce could maintain.

Whatever increases the fertility of land in producing food, in-
creases not only the value of the lands upon which the improvement
is bestowed, but contributes likewise to increase that of many other
lands, by creating a new demand for their produce. That abundance
of food, of which, in consequence of the improvement of land, many
people have the disposal beyond what they themselves can consume,
is the great cause of the demand both for the precious metals and the

178 WEALTH OF NATIONS

precious stones, as well as for every other conveniency and orna-
ment of dress, lodging, household furniture, and equipage. Food not
only constitutes the principal part of the riches of the world, but it
is the abundance of food which gives the principal part of their value
to many other sorts of riches. The pwor inhabitants of Cuba and
St. Domingo, when they were first discovered by the Spaniards, used
to wear litde bits of gold as ornaments in their hair and other parts
of their dress. They seemed to value them as we would do any little
pebbles of somewhat more than ordinary beauty, and to consider
them as just worth the picking up, but not worth the refusing to any-
body who asked them. They gave them to their new guests at the
first request, without seeming to think that they had made them
any very valuable present. They were astonished to observe the rage
of the Spaniards to obtain them; and had no notion that there could
any-where be a country in which many people had the disposal of
so great a superfluity of food, so scanty always among themselves,
that for a very small quantity of those glittering baubles they would
willingly give as much as might maintain a whole family for many
years. Could they have been made to understand this, the passion
of the Spaniards would not have surprised them.

PART III

Of the Variations in the Pkoportion between the respective

Values of that Sort of Produce which always affords

Rent, and of that which sometimes does and

SOMETIMES does tJOT AFFORD ReNT

The increasing abundance of food, in consequence of increasing
improvement and cultivation, must necessarily increase the demand
for every part of the produce of land which is not food, and which
can be applied either to use or to ornament. In the whole progress
of improvement, it might therefore be expected, there should be only
one variation in the comparative values of those two different sorts
of produce. The value of that sort which sometimes does and some-
times does not afford rent, should constantly rise in proportion to
that which always affords some rent. As art and industry advance,
the materials of cloathing and lodging, the useful fossils and min-

FOOD AND MATERIALS COMPARED I79

erals of the earth, the precious metals and the precious stones should
gradually come to be more and more in demand, should gradually
exchange for a greater and a greater quantity of food, or in other
words, should gradually become dearer and dearer. This accord-
ingly has been the case with most of these things uf)on most occa-
sions, and would have been the case with all of them upon all occa-
sions, if particular accidents had not upon some occasions increased
the supply of some of them in a still greater proportion than the
demand.

The value of a free-stone quarry, ror example, will necessarily in-
crease with the increasing improvement and population of the coun-
try round about it; especially if it should be the only one in the
neighbourhood. But the value of a silver mine, even though there
should not be another within a thousand miles of it, will not neces-
sarily increase with the improvement of the country in which it is
situated. The market for the produce of a free-stone quarry can
seldom extend more than a few miles round about it, and the demand
must generally be in proportion to the improvement and {xjpulation
of that small district. But the market for the produce of a silver
mine may extend over the whole known world. Unless the world
in general, therefore, be advancing in improvement and population,
the demand for silver might not be at all increased by the improve-
ment even of a large country in the neighbourhood of the mine.
Even though the world in general were improving, yet, if, in the
course of its improvement, new mines should be discovered, much
more fertile than any which had been known before, though the de-
mand for silver would necessarily increase, yet the supply might
increase in so much a greater proportion, that the real price of that
metal might gradually fall; that is, any given quantity, a pound
weight of it, for example, might gradually purchase or command a
smaller and a smaller quantity of labour, or exchange for a smaller
and a smaller quantity of corn, the principal part of the subsistence
of the labourer.

The great market for silver is the contunercial and civilized part
of the world.

If by the general progress of improvement the demand of this
market should increase, while at the same time the supply did not

l80 WEALTH OF NATIONS

increase in the same proportion, the value of silver would gradually
rise in proportion to that of corn. Any given quantity of silver would
exchange for a greater and a greater quantity of corn; or, in other
words, the average money price of corn would gradually become
cheaper and cheaper.

If, on the contrary, the supply by some accident should increase for
many years together in a greater projxjrtion than the demand, that
metal would gradually become cheaper and cheaper; or, in other
words, the average money price of corn would, in spite of all
improvements, gradually become dearer and dearer.

But if, on the other hand, the supply of the metal should increase
nearly in the same proportion as the demand, it would continue to
purchase or exchange for nearly the same quantity of corn, and the
average money price of corn would, in spite of all improvements,
continue very nearly the same.

These three seem to exhaust all the possible combinations of events
which can happen in the progress of improvement; and during the
course of the four centuries preceding the present, if we may judge
by what has happened both in France and Great Britain, each of
those three different combinations seem to have taken place in the
European market, and nearly in the same order too in which I have
here set them down.

DIFFERENT EFFECTS OF THE PROGRESS OF IMPROVEMENT UPON
THREE DIFFERENT SORTS OF RUDE PRODUCE

These different sorts of rude produce may be divided into three
classes. The first comprehends those which it is scarce in the power
of human industry to multiply at all. The second, those which it can
multiply in proportion to the demand. The third, those in which the
efficacy of industry is either limited or uncertain. In the progress of
wealth and improvement, the real price of the first may rise to any
degree of extravagance, and seems not to be limited by any certain
boundary. That of the second, though it may rise greatly, has, how-
ever, a certain boundary beyond which it cannot well pass for any
considerable time together. That of the third, though its natural
tendency is to rise in the progress of improvement, yet in the same

PRICE OF RARE BIRDS AND FISH l8l

degree of improvement it may sometimes happen even to fall, some-
times to continue the same, and sometimes to rise more or less,
according as different accidents render the efforts of human industry,
in multiplying this sort of rude produce, more or less successful.

FIRST SORT

The first sort of rude produce of which the price rises in the prog-
ress of improvement, is that which it is scarce in the power of human
industry to multiply at all. It consists in those things which nature
produces only in certain quantities, and which being of a very [perish-
able nature, it is impossible to accumulate together the produce of
many different seasons. Such are the greater part of rare and singu-
lar birds and fishes, many different sorts of game, almost all wild-
fowl, all birds of passage in particular, as well as many other things.
When wealth and the luxury which accompanies it increase, the de-
mand for those is likely to increase with them, and no effort of
human industry may be able to increase the supply much beyond
what it was before this increase of the demand. The quantity of
such commodities, therefore, remaining the same, or nearly the same,
while the competition to purchase them is continually increasing,
their price may rise to any degree of extravagance, and seems not to
be limited by any certain boundary. If woodcocks should become so
fashionable as to sell for twenty guineas a-piece, no effort of human
industry could increase the number of those brought to market, much
beyond what it is at present. The high price paid by the Romans,
in the time of their greatest grandeur, for rare birds and fishes, may
in this manner easily be accounted for. These prices were not the
effects of the low value of silver in those times, but of the high value
of such rarities and curiosities as human industry could not multiply
at pleasure. The real value of silver was higher at Rome, for some
lime before and after the fall of the republic, than it is through the
great part of Europe at present. Three sestertii, equal to about six-
pence sterling, was the price which the republic paid for the modius
or peck of the tithe wheat of Sicily. This price, however, was prob-
ably below the average market price, the obligation to deliver their
wheat at this rate being considered as a tax upon the Sicilian farmers.

l82 WEALTH OF NATIONS

When the Romans, therefore, had occasion to order more corn than
the tithe of wheat amounted to, they were bound by capitulation to
fiay for the surplus at the rate of four sestertii, or eight-pence sterling,
the peck; and this had probably been reckoned the moderate and
reasonable, that is, the ordinary or average contract price of those
times; it is equal to about one-and-twenty shillings the quarter.
Eight-and-twenty shillings the quarter was, before the late years
of scarcity, the ordinary contract price of English wheat, which in
quality is inferior to the Sicilian, and generally sells for a lower price
in the European market. The value of silver, therefore, in those
ancient times, must have been to its value in the present, as three to
four inversely; that is, three ounces of silver would then have pur-
chased the same quantity of labour and commodities which four
ounces will do at present. When we read in Pliny, therefore, that
Seius bought a white nightingale, as a present for the empress Agrip-
pina, at the price of six thousand sestertii, equal to about fifty pounds
of our present money; and that Asinius Celer purchased a surmullet
at the price of eight thousand sestertii, equal to about sixty-six pounds
thirteen shillings and fourpence of our present money; the extrava-
gance of those prices, how much soever it may surprise us, is apt,
notwithstanding, to appear to us about one-third less than it really
was. Their real price, the quantity of labour and subsistence which
was given away for them, was about one-third more than their nomi-
nal price is apt to express to us in the present times. Seius gave for
the nightingale the command of a quantity of labour and subsistence
equal to what 66 /. 13 s, 4//. would purchase in the present times, and
Asinius Celer gave for the surmullet the command of a quantity
equal to what 88/. lys. gd. Yi would purchase. What occasioned the
extravagance of those high prices was, not so much the abundance
of silver, as the abundance of labour and subsistence, of which those
Romans had the disposal, beyond what was necessary for their own
use. The quantity of silver, of which they had the disposal was a
good deal less than what the command of the same quantity of
labour and subsistence would have procured to them in the present
times.

PRICE OF CATTLE, ETC. 1 83

SECOND SORT

The second sort of rude produce of which the price rises in the
progress of improvement, is that which human industry can multi-
ply in proportion to the demand. It consists in those useful plants
and animals, which, in uncultivated countries, natiu-e produces with
such profuse abundance, that they are of litde or no value, and which,
as cultivation advances, are therefore forced to give place to some
more profitable produce. During a long period in the progress of
improvement, the quantity of these is continually diminishing,
while at the same time the demand for them is continually increas-
ing. Their real value, therefore, the real quantity of labour which
they will purchase or command, gradually rises, till at last it gets
so high as to render them as profitable a produce as any thing else
which human industry can raise upon the most fertile and best
cultivated land. When it has got so high it cannot well go higher.
If it did, more land and more industry would soon be employed to
increase their quantity.

When the price of cattle, for example, rises so high that it is as
profitable to cultivate land in order to raise food for them, as in
order to raise food for man, it cannot well go higher. If it did, more
corn land would soon be turned into pasture. The extension of till-
age, by diminishing the quantity of wild pasture, diminishes the
quantity of butcher's-meat which the country naturally produces
without labour or cultivation, and by increasing the number of those
who have either corn, or, what comes to the same thing, the price
of corn, to give in exchange for it, increases the demand. The price
of butcher's-meat, therefore, and consequendy of cattle, must gradu-
ally rise till it gets so high, that it becomes as profitable to employ
the most fertile and best cultivated lands in raising food for them as
in raising corn. But it must always be late in the progress of im-
provement before tillage can be so far extended as to raise the price
of cattle to this height; and till it has got to this height, if the country
is advancing at all, their price must be continually rising. There are,
perhaps, some parts of Europe in which the price of cattle has not
yet got to this height. It had not got to this height in any part of
Scodand before the union. Had the Scotch catde been always con-

184 WEALTH OF NATIONS

fined to the market of Scotland, in a country in which the quantity
of land, which can be applied to no other purpose but the feeding of
catde, is so great in proportion to what can be applied to other pur-
poses, it is scarce possible, perhaps, that their price could ever have
risen so high as to render it profitable to cultivate land for the sake
of feeding them. In England, the price of cattle, it has already been
observed, seems, in the neighbourhood of London, to have got to
this height about the beginning of the last century; but it was much
later probably before it got to it through the greater part of the
remoter counties; in some of which, perhaps, it may scarce yet have
got to it. Of all the different substances, however, which compose
this second sort of rude produce, cattle is, perhaps, that of which the
price, in the progress of improvement, first rises to this height.

Till the price of cattle, indeed, has got to this height, it seems scarce
possible that the greater part, even of those lands which are capable
of the highest cultivation, can be completely cultivated. In all farms
too distant from any town to carry manure from it, that is, in the
far greater part of those of every extensive country, the quantity of
well<ultivated land must be in proportion to the quantity of manure
which the farm itself produces; and this again must be in proportion
.0 the stock of cattle which are maintained upon it. The land is
manured either by pasturing the cattle upon it, or by feeding them
in the stable, and from thence carrying out their dung to it. But
unless the price of the cattle be sufficient to pay both the rent and
profit of cultivated land, the farmer cannot afford to pasture them
upon it; and he can still less afford to feed them in the stable. It
is with the produce of improved and cultivated land only, that
cattle can be fed in the stable; because to collect the scanty and scat-
tered produce of waste and unimproved lands would require too
much labour and be too expensive. If the price of the cattle, therefore,
is not sufficient to pay for the produce of improved and cultivated
land, when they are allowed to pasture it, that price will be still less
sufficient to pay for that produce when it must be collected with
a good deal of additional labour, and brought into the stable to them.
In these circumstances, therefore, no more cattle can, with profit, be
fed in the stable than what are necessary for tillage. But these can
never afford manure enough for keeping constandy in good condi-

PRICE OF CATTLE, ETC. 1 85

tion, all the lands which they are capable of cultivating. What they
afford being insufficient for the whole farm, will naturally be reserved
for the lands to which it can be most advantageously or conveniently
applied; the most fertile, or those, perhaps, in the neighbourhood of
the farm-yard. These, therefore, will be kept constantly in good con-
dition and fit for tillage. The rest will, the greater part of them, be
allowed to lie waste, producing scarce any thing but some miserable
pasture, just sufficient to keep alive a few straggling, half-starved
cattle; the farm, though much under-stocked in proportion to what
would be necessary for its complete cultivation, being very frequendy
overstocked in proportion to its actual produce. A portion of this
waste land, however, after having been pastured in this wretched
manner for six or seven years together, may be ploughed up, when
it will yield, perhaps, a poor crop or two of bad oats, or of some other
coarse grain, and then, being entirely exhausted, it must be rested and
pastured again as before, and another portion ploughed up to be
in the same manner exhausted and rested again in its turn. Such
accordingly was the general system of management all over the low
country of Scotland before the union. The lands which were kept
constantly well manured and in good condition, seldom exceeded a
third or a fourth part of the whole farm, and sometimes did not
amount to a fifth or a sixth part of it. The rest were never manured,
but a certain portion of them was in its turn, notwithstanding, regu-
larly cultivated and exhausted. Under this system of management, it
is evident, even that part of the lands of Scodand which is capable of
good cultivation, could produce but litde in comparison of what it
may be capable of producing. But how disadvantageous soever this
system may appear, yet before the union the low price of catde seems
to have rendered it almost unavoidable. If, notwithstanding a great
rise in their price, it still continues to prevail through a considerable
part of the country, it is owing, in many places, no doubt, to ignor-
ance and attachment to old customs, but in most places to the un-
avoidable obstructions which the natural course of things opposes
to the immediate or speedy establishment of a better system: first,
to the poverty of the tenants, to their not having yet had time to
acquire a stock of cattle sufficient to cultivate their lands more com-
pletely, the same rise of price which would render it advantageous

1 86 WEALTH OF NATIONS

for them to maintain a greater stock, rendering it more difficult for
them to acquire it; and, secondly, to their not having yet had time
to put their lands in condition to maintain this greater stock properly,
supposing they were capable of acquiring it. The increase of stock
and the improvement of land are two events which must go hand
in hand, and of which the one can no-where much out-run the other.
Without some increase of stock, there can be scarce any improve-
ment of land, but there can be no considerable increase of stock but in
consequence of a considerable improvement of land; because other-
wise the land could not maintain it. These natural obstructions to
the establishment of a better system, cannot be removed but by a
long course of frugality and industry; and half a century or a cen-
tury more, perhaps, must pass away before the old system, which is
wearing out gradually, can be completely abolished through all the
different parts of the country. Of all the commercial advantages,
however, which Scotland has derived from the union with England,
this rise in the price of cattle is, perhaps, the greatest. It has not only
raised the value of all highland estates, but it has, perhaps, been the
principal cause of the improvement of the low country.

In all new colonies the great quantity of waste land, which can
for many years be applied to no other purpose but the feeding of
catde, soon renders them extremely abundant, and in every thing
great cheapness is the necessary consequence of great abundance.
Though all the cattle of the European colonies in America were
originally carried from Europe, they soon multiplied so much there,
and became of so little value, that even horses were allowed to run
wild in the woods without any owner thinking it worth while to
claim them. It must be a long time after the first establishment of
such colonies, before it can become profitable to feed catde upon the
produce of cultivated land. The same causes, therefore, the want of
manure, and the disproportion between the stock employed in cul-
tivation, and the land which it is destined to cultivate, are likely to
introduce there a system of husbandry not unlike that which still
continues to take place in so many parts of Scodand. Mr. Kalm,
the Swedish traveller, when he gives an account of the husbandry of
some of the English colonies in North America, as he found it in
1749, observes, accordingly, that he can with difficulty discover there

PRICE OF CATTLE, ETC. 1 87

the character of the English nation, so well skilled in all the differ-
ent branches of agriculture. They make scarce any manure for their
corn fields, he says; but when one piece of ground has been exhausted
by continual cropping, they clear and cultivate another piece of fresh
land; and when that is exhausted, proceed to a third. Their cattle
are allowed to wander through the woods and other uncultivated
grounds, where they are half-starved; having long ago extirpated
almost all the annual grasses by cropping them too early in the spring,
before they had time to form their flowers, or to shed their seeds.
The annual grasses were, it seems, the best natural grasses in that
part of North America; and when the Europeans first settled there,
they used to grow very thick, and to rise three or four feet high. A
piece of ground which, when he wrote, could not maintain one cow,
would in former times, he was assured, have maintained four, each
of which would have given four times the quantity of milk that one
was capable of giving. The poorness of the pasture had, in his
opinion, occasioned the degradation of their cattle, which degener-
ated sensibly from one generation to another. They were probably
not unlike that stunted breed which was common all over Scodand
thirty or forty years ago, and which is now so much mended through
the greater part of the low country, not so much by a change of the
breed, though that expedient has been employed in some places, as
by a more plentiful method of feeding them.

Though it is late, therefore, in the progress of improvement before
cattle can bring such a price as to render it profitable to cultivate land
for the sake of feeding them; yet of all the different parts which
compose this second sort of rude produce, they are perhaps the first
which bring this price; because till they bring it, it seems impossible
that improvement can be brought near even to that degree of perfec-
tion to which it has arrived in many parts of Europe.

As cattle are among the first, so perhaps venison is among the last
parts of this sort of rude produce which bring this price. The price of
venison in Great Britain, how extravagant soever it may appear, is not
near sufficient to compensate the expence of a deer park, as is well
known to all those who have had any experience in the feeding of
deer. If it was otherwise, the feeding of deer would soon become
an article of common farming; in the same manner as the feeding

1 88 WEALTH OF NATIONS

of those small birds called Turdi was among the ancient Romans.
Varro and Columella assure us that it was a most profitable article.
The fattening of ortolans, birds of passage which arrive lean in the
country, is said to be so in some parts of France. If venison continues
in fashion, and the wealth and luxury of Great Britain increase as
they have done for some time past, its price may very probably rise
still higher than it is at present.

Between that period in the progress of improvement which brings
to its height the price of so necessary an article as cattle, and that
which brings to it the price of such a suf)erfluity as venison, there is
a very long interval, in the course of which many other sorts of rude
produce gradually arrive at their highest price, some sooner and some
later, according to different circumstances.

Thus in every form the offals of the barn and stables will maintain
a certain number of poultry. These, as they are fed with what would
otherwise be lost, are a mere save-all; and as they cost the farmer
scarce any thing, so he can afford to sell them for very little. Almost
all that he gets is pure gain, and their price can scarce be so low as
to discourage him from feeding this number. But in countries ill
cultivated, and, therefore, but thinly inhabited, the poultry, which
are thus raised without expence, are often fully sufficient to supply
the whole demand. In this state of things, therefore, they are often
as cheap as butcher's-meat, or any other sort of animal food. But the
whole quantity of p)oultry, which the farm in this manner produces
without expence, must always be much smaller than the whole quan-
tity of butcher's-meat which is reared upon it; and in times of wealth
and luxury what is rare, with only nearly equal merit, is always pre-
ferred to what is common. As wealth and luxury increase, there-
fore, in consequence of improvement and cultivation, the price of
poultry gradually rises above that of butcher's-meat, till at last it gets
so high that it becomes profitable to cultivate land for the sake of feed-
ing them. When it has got to this height, it cannot well go higher.
If it did, more land would soon be turned to this purpose. In several
provinces of France, the feeding of poultry is considered as a very
important article in rural economy, and sufficiently profitable to en-
courage the farmer to raise a considerable quantity of Indian corn
and buck-wheat for this purpose. A middling farmer will there

PRICE OF CATTLE, ETC. 1 89

sometimes have four hundred fowls in his yard. The feeding of
poultry seems scarce yet to be generally considered as a matter of
so much importance in England. They are certainly, however, dearer
in England than in France, as England receives considerable supplies
from France. In the progress of improvement, the period at which
every particular sort of animal food is dearest, must naturally be that
which immediately precedes the general practice of cultivating land
for the sake of raising it. For some time before this practice becomes
general, the scarcity must necessarily raise the price. After it has
become general, new methods of feeding are commonly fallen upon,
which enable the farmer to raise upxin the same quantity of ground
a much greater quantity of that particular sort of animal food. The
plenty not only obliges him to sell cheaper, but in consequence of these
improvements he can afford to sell cheajjer; for if he could not afford
it, the plenty would not be of long continuance. It has been probably
in this manner that the introduction of clover, turnips, carrots, cab-
bages, &c., has contributed to sink the common price of butcher's-
meat in the London market somewhat below what it was about the
beginning of the last century.

The hog, that finds his food among ordure, and greedily devours
many things rejected by every other useful animal, is, like poultry,
originally kept as a save-all. As long as the number of such animals,
which can thus be reared at little or no expence, is fully sufficient to
supply the demand, this sort of butcher's-meat comes to market at a
much lower price than any other. But when the demand rises
beyond what this quantity can supply, when it becomes necessary to
raise food on purpose for feeding and fattening hogs, in the same
manner as for feeding and fattening other cattle, the price neces-
sarily rises, and becomes proportionably either higher or lower than
that of other butcher's-meat, according as the nature of the country,
and the state of its agriculture, happen to render the feeding of hogs
more or less expensive than that of other cattle. In France, according
to Mr. Buffon, the price of pork is nearly equal to that of beef. In
most parts of Great Britain it is at present somewhat higher.

The great rise in the price of both hogs and poultry has in Great
Britain been frequently imputed to the diminution of the number of
cottagers and other small occupiers of land; an event which has in

ipO WEALTH OF NATIONS

every part of Europe been the immediate forerunner of improvement
and better cultivation, but which at the same time may have con-
tributed to raise the price of those articles, both somewhat sooner and
somewhat faster than it would otherwise have risen. As the poorest
family can often maintain a cat or a dog, without any expence, so
the poorest occupiers of land can commonly maintain a few poultry,
or a sow and a few pigs, at very little. The little offals of their own
table, their whey, skimmed milk and butter-milk, supply those ani-
mals with a part of their food, and they find the rest in the neighbour-
ing fields without doing any sensible damage to any body. By dimin-
ishing the number of those small occupiers, therefore, the quantity
of this sort of provisions which is thus produced at little or no ex-
pence, must certainly have been a good deal diminished, and their
price must consequently have been raised both sooner and faster than
it would otherwise have risen. Sooner or later, however, in the prog-
ress of improvement, it must at any rate have risen to the utmost
height to which it is capable of rising; or to the price which pays the
labour and expence of cultivating the land which furnishes them
with food as well as these are paid upon the greater part of other
cultivated land.

The business of the dairy, like the feeding of hogs and poultry, is
originally carried on as a save-all. The cattle necessarily kept upon
the farm, produce more milk than either the rearing of their own
young, or the consumption of the farmer's family requires; and they
produce most at one particular season. But of all the productions of
land, milk is perhaps the most perishable. In the warm season, when
it is most abundant, it will scarce keep four-and-twenty hours. The
farmer, by making it into fresh butter, stores a small part of it for
a week: by making it into salt butter, for a year: and by making it
into cheese, he stores a much greater part of it for several years. Part
of all these is reserved for the use of his own family. The rest goes to
market, in order to find the best price which is to be had, and which
can scarce be so low as to discourage him from sending thither what-
ever is over and above the use of his own family. If it is very low,
indeed, he will be likely to manage his dairy in a very slovenly
and dirty manner, and will scarce perhaps think it worth while to
have a particular room or building on purpose for it, but will suffer

PRICE OF CATTLE, ETC. I9I

the business to be carried on amidst the smoke, fihh, and nastiness
of his own kitchen; as was the case of almost all the farmers dairies
in Scotland thirty or forty years ago, and as is the case of many of
them still. The same causes which gradually raise the price of
butcher's-meat, the increase of the demand, and, in consequence of
the improvement of the country, the diminution of the quantity
which can be fed at litde or no expence, raise, in the same manner,
that of the produce of the dairy, of which the price naturally con-
nects with that of butcher's-meat, or with the expence of feeding
cattle. The increase of price pays for more labour, care, and clean-
liness. The dairy becomes more worthy of the farmer's attention,
and the quality of its produce gradually improves. The price at last
gets so high that it becomes worth while to employ some of the most
fertile and best cultivated lands in feeding cattle merely for the pur-
pose of the dairy; and when it has got to this height, it cannot well
go higher. If it did, more land would soon be turned to this purpose.
It seems to have got to this height through the greater part of Eng-
land, where much good land is commonly employed in this manner.
If you except the neighbourhood of a few considerable towns, jt
seems not yet to have got to this height anywhere in Scodand, where
common farmers seldom employ much good land in raising food for
cattle merely for the purpose of the dairy. The price of the produce,
though it has risen very considerably within these few years, is prob-
ably still too low to admit of it. The inferiority of the quality, in-
deed, compared with that of the produce of English dairies, is fully
equal to that of the price. But this inferiority of quality is, perhaps,
rather the effect of this lowness of price than the cause of it. Though
the quality was much better, the greater part of what is brought to
market could not, I apprehend, in the present circumstances of the
country, be disposed of at a much better price; and the present price,
it is probable, would not pay the expence of the land and labour
necessary for producing a much better quality. Through the greater
part of England, notwithstanding the superiority of price, the dairy
is not reckoned a more profitable employment of land than the rais-
ing of corn, or the fattening of cattle, the two great objects of agri-
culture. Through the greater part of Scotland, therefore, it cannot
yet be even so profitable.

192 WEALTH OF NATIONS

The lands of no country, it is evident, can ever be completely cul-
tivated and improved, till once the price of every produce, which
human industry is obliged to raise up)on them, has got so high as to
pay for the expence of complete improvement and cultivation. In
order to do this, the price of each particular produce must be suffi-
cient, first, to pay the rent of good corn land, as it is that which regu-
lates the rent of the greater part of other cultivated land; and sec-
ondly, to pay the labour and expence of the farmer as well as they
are commonly paid upon good corn-land; or, in other words, to re-
place with the ordinary profits the stock which he employs about it.
This rise in the price of each particular produce, must evidently be
previous to the improvement and cultivation of the land which is
destined for raising it. Gain is the end of all improvement, and
nothing could deserve that name of which loss was to be the neces-
sary consequence. But loss must be the necessary consequence of im-
proving land for the sake of a produce of which the price could never
bring back the expence. If the complete improvement and cultivation
of the country be, as it most certainly is, the greatest of all public ad-
vantages, this rise in the price of all those different sorts of rude
produce, instead of being considered as a public calamity, ought to
be regarded as the necessary forerunner and attendant of the greatest
of all public advantages.

This rise too in the nominal or money-price of all those different
sorts of rude produce has been the effect, not of any degradation in
the value of silver, but of a rise in their real price. They have become
worth, not only a greater quantity of silver, but a greater quantity of
labour and subsistence than before. As it costs a greater quantity of
labour and subsistence to bring them to market, so when they are
brought thither, they represent or are equivalent to a greater quantity.

THIRD SORT

The third and last sort of rude produce, of which the price natu-
rally rises in the progress of improvement, is that in which the
efficacy of human industry, in augmenting the quantity, is either
limited or uncertain. Though the real price of this sort of rude
produce, therefore, naturally tends to rise in the progress of improve-

PRICE OF WOOL, HIDES, ETC. 1 93

ment, yet, according as different accidents happen to render the efforts
of human industry more or less successful in augmenting the quan-
tity, it may happen sometimes even to fall, sometimes to continue
the same in very different periods of improvement, and sometimes
to rise more or less in the same f)eriod.

There are some sorts of rude produce which nature has rendered a
kind of appendages to other sorts; so that the quantity of the one
which any country can afford, is necessarily limited by that of the
other. The quantity of wool or of raw hides, for example, which
any country can afford, is necessarily limited by the number of great
and small cattle that are kept in it. The state of its improvement,
and the nature of its agriculture, again necessarily determine this
number.

The same causes, which, in the progress of improvement, gradu-
ally raise the price of butcher's-meat, should have the same effect, it
may be thought, upon the prices of wool and raw hides, and raise
them too nearly in the same proportion. It probably would be so,
if in the rude beginnings of improvement the market for the latter
commodities was confined within as narrow bounds as that for the
former. But the extent of their respective markets is commonly
extremely different.

The market for butcher's-meat is almost every-where confined to
the country which produces it. Ireland, and some part of British
America indeed, carry on a considerable trade in salt provisions; but
they are, I believe, the only countries in the commercial world which
do so, or which export to other countries any considerable part of
their butcher's-meat.

The market for wool and raw hides, on the contrary, is in the
rude beginnings of improvement very seldom confined to the coun-
try which produces them. They can easily be transported to distant
countries, wool without any preparation, and raw hides with very
little: and as they are the materials of many manufactures, the indus-
try of other countries may occasion a demand for them, though that
of the country which produces them might not occasion any.

In countries ill cultivated, and therefore but thinly inhabited,
the price of the wool and the hide bears always a much greater pro-
portion to that of the whole beast, than in countries where, improve-

194 WEALTH OF NATIONS

ment and population being further advanced, there is more demand
for butcher's-meat. Mr. Hume observes, that in the Saxon times,
the fleece was estimated at two-fifths of the value of the whole sheep,
and that this was much above the proportion of its present estima-
tion. In some provinces of Spain, I have been assured, the sheep is
frequently killed merely for the sake of the fleece and the tallow.
The carcase is often left to rot upon the ground, or to be devoured
by beasts and birds of prey. If this sometimes happens even in Spain,
it happens almost constantly in Chili, at Buenos Ayres, and in many
other parts of Spanish America, where the horned catde are almost
constantly killed merely for the sake of the hide and the tallow. This
too used to happen almost constantly in Hispaniola, while it was
infested by the Buccaneers, and before the settlement, improvement,
and populousness of the French plantations (which now extend
round the coast of almost the whole western half of the island) had
given some value to the catde of the Spaniards, who still continue to
possess, not only the eastern part of the coast, but the whole inland
and mountainous part of the country.

Though in the progress of improvement and population, the price
of the whole beast necessarily rises, yet the price of the carcase is
likely to be much more affected by this rise than that of the wool and
the hide. The market for the carcase, being in the rude state of so-
ciety confined always to the country which produces it, must neces-
sarily be extended in propwrtion to the improvement and population
of that country. But the market for the wool and the hides even of
a barbarous country often extending to the whole commercial world,
it can very seldom be enlarged in the same proportion. The state
of the whole commercial world can seldom be much affected by the
improvement of any particular country; and the market for such
commodities may remain the same, or very nearly the same, after
such improvements, as before. It should, however, in the natural
course of things rather upon the whole be somewhat extended in
consequence of them. If the manufactures, especially, of which those
commodities are the materials, should ever come to flourish in the
country, the market, though it might not be much enlarged, would
at least be brought much nearer to the place of growth than before;
and the price of those materials might at least be increased by what

PRICE OF WOOL, HIDES, ETC. 1 95

had usually been the expence of transporting them to distant coun-
tries. Though it might not rise therefore in the same proportion as
that of butcher's-meat, it ought naturally to rise somewhat, and it
ought certainly not to fall.

In England, however, notwithstanding the flourishing state of its
woollen manufacture, the price of English wool has fallen very con-
siderably since the time of Edward III. There are many authentic
records which demonstrate that during the reign of that prince
(towards the middle of the fourteenth century, or about 1339) what
was reckoned the moderate and reasonable price of the tod or twenty-
eight pounds of English wool was not less than ten shillings of the
money of those times, containing, at the rate of twenty-pence the
ounce, six ounces of silver Tower-weight, equal to about thirty shil-
lings of our present money. In the present times, one-and-twenty
shillings the tod may be reckoned a good price for very good English
wool. The money-price of wool, therefore, in the time of Edward III,
was to its money-price in the present times as ten to seven. The supe-
riority of its real price was still greater. At the rate of six shillings
and eight-pence the quarter, ten shillings was in those ancient times
the price of twelve bushels of wheat. At the rate of twenty-eight
shillings the quarter, one-and-twenty shillings is in the present time
the price of six bushels only. The proportion between the real prices
of ancient and modern times, therefore, is as twelve to six, or as two
to one. In those ancient times a tod of wool would have purchased
twice the quantity of subsistence which it will purchase at present;
and consequently twice the quantity of labour, if the real recom-
pence of labour had been the same in both periods.

This degradation both in the real and nominal value of wool,
could never have happened in consequence of the natural course of
things. It has accordingly been the effect of violence and artifice:
First, of the absolute prohibition of exporting wool from England;
Secondly, of the permission of importing it from Spain duty free;
Thirdly, of the prohibition of exporting it from Ireland to any other
country but England. In consequence of these regulations, the mar-
ket for English wool, instead of being somewhat extended in con-
sequence of the improvement of England, has been confined to the
home market, where the wool of several other countries is allowed

196 WEALTH OF NATIONS

to come into competition with it, and where that of Ireland is forced
into competition with it. As the woollen manufactures too of Ire-
land are fully as much discouraged as is consistent with justice and
fair dealing, the Irish can work up but a small part of their own wool
at home, and are, therefore, obliged to send a greater proportion of it
to Great Britain, the only market they are allowed.

I have not been able to find any such authentic records concern-
ing the price of raw hides in ancient times. Wool was commonly
paid as a subsidy to the king, and its valuation in that subsidy ascer-
tains, at least in some degree, what was its ordinary price. But this
seems not to have been the case with raw hides. Fleetwood, how-
ever, from an account in 1425, between the prior of Burcester Ox-
ford and one of his canons, gives us their price, at least as it was
stated, upon that particular occasion; viz. five ox hides at twelve shil-
lings; five cow hides at seven shillings and three pence; thirty-six
sheep skins of two years old at nine shillings; sixteen calves skins
at two shillings. In 1425, twelve shillings contained about the same
quantity of silver as four-and-twenty shillings of our present money.
An ox hide, therefore, was in this account valued at the same quan-
tity of silver at 4s. 4-5ths of our present money. Its nominal price
was a good deal lower than at present. But at the rate of six shillings
and eight-pence the quarter, twelve shillings would in those times
have purchased fourteen bushels and four-fifths of a bushel of wheat,
which, at three and six-p)ence the bushel, would in the present times
cost 5U. 4^. An ox hide, therefore, would in those times have pur-
chased as much corn as ten shillings and three-pence would purchase
at present. Its real value was equal to ten shillings and three-pence of
our present money. In those ancient times, when the cattle were
half starved during the greater part of the winter, we cannot sup-
pose that they were of a very large size. An ox hide which weighs
four stone of sixteen pounds averdupois, is not in the present times
reckoned a bad one; and in those ancient times would probably have
been reckoned a very good one. But at half a crown the stone, which
at this moment (February 1773) I understand to be the common
price, such a hide would at present cost only ten shillings. Though its
nominal price, therefore, is higher in the present than it was in those
ancient times, its real price, the real quantity of subsistence which

PRICE OF WOOL, HIDES, ETC. 1 97

it will purchase or command, is rather somewhat lower. The price
of cow hides, as stated in the above account, is nearly in the com-
mon proportion to that of ox hides. That of sheep skins is a good
deal above it. They had probably been sold with the wool. That of
calves skins, on the contrary, is greatly below it. In countries where
the price of cattle is very low, the calves, which are not intended to
be reared in order to keep up the stock, are generally killed very
young; as was the case in Scotland twenty or thirty years ago. It
saves the milk, which their price would not pay for. Their skins,
therefore, are commonly good for little.

The price of raw hides is a good deal lower at present than it was
a few years ago; owing probably to the taking off the duty upon seal
skins, and to the allowing, for a limited time, the importation of raw
hides from Ireland and from the plantations duty free, which was
done in 1769. Take the whole of the present century at an average,
their real price has probably been somewhat higher than it was in
those ancient times. The nature of the commodity renders it not
quite so proper for being transported to distant markets as wool. It
suffers more by keeping. A salted hide is reckoned inferior to a fresh
one, and sells for a lower price. This circumstance must necessarily
have some tendency to sink the price of raw hides produced in a
country which does not manufacture them, but is obliged to export
them; and comparatively to raise that of those produced in a country
which does manufacture them. It must have some tendency to
sink their price in a barbarous, and to raise it in an improved and
manufacturing country. It must have had some tendency therefore
to sink it in ancient, and to raise it in modern times. Our tanners
besides have not been quite so successful as our clothiers, in con-
vincing the wisdom of the nation, that the safety of the common-
wealth depends upon the prosperity of their particular manufacture.
They have accordingly been much less favoured. The exportation of
raw hides has, indeed, been prohibited, and declared a nuisance: but
their importation from foreign countries has been subjected to a
duty; and though this duty has been taken off from those of Ireland
and the plantations (fer the limited time of five years only), yet Ire-
land has not been confined to the market of Great Britain for the
sale of its surplus hides, or of those which are not manufactured at

198 WEALTH OF NATIONS

home. The hides of common cattle have but within these few years
been put among the enumerated commodities which the plantations
can send no- where but to the mother country; neither has the com-
merce of Ireland been in this case oppressed hitherto, in order to
support the manufactures of Great Britain.

Whatever regulations tend to sink the price either of wool or of
raw hides below what it naturally would be, must, in an improved
and cultivated country, have some tendency to raise the price of
butcher's-meat. The price both of the great and small cattle, which
are fed on improved and cultivated land, must be sufficient to pay
the rent which the landlord, and the profit which the farmer has
reason to expect from improved and cultivated land. If it is not, they
will soon cease to feed them. Whatever part of this price, therefore,
is not paid by the wool and the hide, must be paid by the carcase.
The less there is paid for the one, the more must be paid for the
other. In what manner this price is to be divided upon the different
parts of the beast, is indifferent to the landlords and farmers, pro-
vided it is all paid to them. In an improved and cultivated country,
therefore, their interest as landlords and farmers cannot be much
affected by such regulations, though their interest as consumers may,
by the rise in the price of provisions. It would be quite otherwise,
however, in an unimproved and uncultivated country, where the
greater part of the lands could be applied to no other purpose but
the feeding of cattle, and where the wool and the hide made the
principal part of the value of those cattle. Their interest as landlords
and farmers would in this case be very deeply affected by such regu-
lations, and their interest as consumers very little. The fall in the
price of the wool and the hide, would not in this case raise the price
of the carcase; because the greater part of the lands of the country
being applicable to no other purpose but the feeding of catde, the
same number would still continue to be fed. The same quantity of
butcher's-meat would still come to market. The demand for it would
be no greater than before. Its price, therefore, would be the same as
before. The whole price of cattle would fall, and along with it both
the rent and the profit of all those lands of which cattle was the prin-
cipal produce, that is, of the greater part of the lands of the country.
The perpetiud prohibition of the exportation of wool, which is com-

PRICE OF WOOL, HIDES, ETC. 1 99

monly, but very falsely, ascribed to Edward III, would, in the then
circumstances of the country, have been the most destructive regula-
tion which could well have been thought of. It would not only have
reduced the actual value of the greater part of the lands of the king-
dom, but by reducing the price of the most important species of small
cattle, it would have retarded very much its subsequent improvement.

The wool of Scotland fell very considerably in its price in conse-
quence of the union with England, by which it was excluded from
the great market of Europe, and confined to the narrow one of Great
Britain. The value of the greater part of the lands in the southern
counties of Scotland, which are chiefly a sheep country, would have
been very deeply affected by this event, had not the rise in the price
of butcher's-meat fully compensated the fall in the price of wool.

As the efficacy of human industry, in increasing the quantity either
of wool or of raw hides, is limited, so far as it depends upwn the
produce of the country where it is exerted; so it is uncertain as far
as it depends upon the produce of other countries. It so far depends,
not so much upon the quantity which they produce, as upon that
which they do not manufacture; and upon the restraints which they
may or may not think proper to impose upon the exportation of this
sort of rude produce. These circumstances, as they are altogether
independent of domestic industry, so they necessarily render the
eflftcacy of its efforts more or less uncertain. In multiplying this sort
of rude produce, therefore, the efficacy of human industry is not only
limited, but uncertain.

In multiplying another very important sort of rude produce, the
quantity of fish that is brought to market, it is likewise both limited
and uncertain. It is limited by the local situation of the country, by
the proximity or distance of its different provinces from the sea, by
the number of its lakes and rivers, and by what may be called the
fertility or barrenness of those seas, lakes and rivers, as to this sort
of rude produce. As population increases, as the annual produce of
the land and labour of the country grows greater and greater, there
come to be more buyers of fish, and those buyers too have a greater
quantity and variety of other goods, or, what is the same thing, the
price of a greater quantity and variety of other goods, to buy with.
But it will generally be impossible to supply the great and extended

200 WEALTH OF NATIONS

market without employing a quantity of labour greater than in pro-
portion to what had been requisite for supplying the narrow and con-
fined one. A market which, from requiring only one thousand,
comes to require annually ten thousand ton of fish, can seldom be
supplied without employing more than ten times the quantity of
labour which had before been sufficient to supply it. The fish must
generally be sought for at a greater distance, larger vessels must be
employed, and more expensive machinery of every kind made use
of. The real price of this commodity, therefore, naturally rises in the
progress of improvement. It has accordingly done so, I believe, more
or less in every country.

Though the success of a particular day's fishing may be a very
uncertain matter, yet, the local situation of the country being sup-
posed, the general efficacy of industry in bringing a certain quantity
of fish to market, taking the course of a year, or of several years
together, it may perhaps be thought, is certain enough; and it, no
doubt, is so. As it depends more, however, upon the local situation
of the country, than upon the state of its wealth and industry; as
upon this account it may in difTerent countries be the same in very
different periods of improvement, and very difTerent in the same
period; its connection with the state of improvement is uncertain, and
it is of this sort of uncertainty that I am here speaking.

In increasing the quantity of the different minerals and metals
which are drawn from the bowels of the earth, that of the more
precious ones particularly, the efficacy of human industry seems not
to be limited, but to be altogether uncertain.

The quantity of the precious metals which is to be found in any
country is not limited by any thing in its local situation, such as the
fertility or barrenness of its own mines. Those metals frequently
abound in countries which possess no mines. Their quantity in every
particular country seems to dejiend uf)on two different circum-
stances; first, upon its power of purchasing, upon the state of its
industry, up)on the annual produce of its land and labour, in con-
sequence of which it can afford to employ a greater or a smaller
quantity of labour and subsistence in bringing or purchasing such
superfluities as gold and silver, either from its own mines or from
those of other countries; and, secondly, upon the fertility or barren-

PRICE OF WOOL, HIDES, ETC. 201

ness of the mines which may happen at any particular time to supply
the commercial world with those metals. The quantity of those
metals in the countries most remote from the mines, must be more
or less affected by this fertility or barrenness, on account of the easy
and cheap transportation of those metals, of their small bulk and
great value. Their quantity in China and Indostan must have been
more or less affected by the abundance of the mines of America.

So far as their quantity in any particular country depends upon
the former of those two circumstances (the power of purchasing),
their real price, like that of all other luxuries and superfluities, is
likely to rise with the wealth and improvement of the country, and
to fall with its poverty and depression. Countries which have a great
quantity of labour and subsistence to spare, can afford to purchase
any particular quantity of those metals at the expence of a greater
quantity of labour and subsistence, than countries which have less
to spare.

So far as their quantity in any particular country depends upon
the latter of those two circumstances (the fertility or barrenness of
the mines which happen to supply the commercial world), their real
price, the real quantity of labour and subsistence which they will
purchase or exchange for, will, no doubt, sink more or less in propor-
tion to the fertility, and rise in proportion to the barrenness, of those
mines.

The fertility or barrenness of the mines, however, which may
happen at any particular time to supply the commercial world, is a
circumstance which, it is evident, may have no sort of connection
with the state of industry in a particular country. It seems even to
have no very necessary connection with that of the world in general.
As arts and commerce, indeed, gradually spread themselves over a
greater and a greater part of the earth, the search for new mines,
being extended over a wider surface, may have somewhat a better
chance for being successful, than when confined within narrower
bounds. The discovery of new mines, however, as the old ones come
to be gradually exhausted, is a matter of the greatest uncertainty,
and such as no human skill or industry can ensure. All indications,
it is acknowledged, are doubtful, and the actual discovery and suc-
cessful working of a new mine can alone ascertain the reality of

202 WEALTH OF NATIONS

its value, or even of its existence. In this search there seem to be no
certain limits either to the possible success, or to the possible dis-
appointment of human industry. In the course of a century or two,
it is possible that new mines may be discovered more fertile than any
that have ever yet been known; and it is just equally possible that
the most fertile mine then known may be more barren than any that
was wrought before the discovery of the mines of America. Whether
the one or the other of those two events may happen to take place,
is of very little importance to the real wealth and prosperity of the
world, to the real value of the annual produce of the land and labour
of mankind. Its nominal value, the quantity of gold and silver by
which this annual produce could be expressed or represented, would,
no doubt, be very different; but its real value, the real quantity of
labour which it could purchase or command, would be precisely the
same. A shilling might in the one case represent no more labour than
a penny does at present; and a penny in the other might represent as
much asa shilling does now. But in the one case he who had a shilling
in his pocket, would be no richer than he who has a penny at present;
and in the other he who had a penny would be just as rich as he who
has a shilling now. The cheapness and abundance of gold and silver
plate, would be the sole advantage which the world could derive from
the one event, and the dearness and scarcity of those trifling super-
fluities the only inconveniency it could suffer from the other.

EFFECTS OF THE PROGRESS OF IMPROVEMENT UPON THE REAL
PRICE OF MANUFACTURES

It is the natural effect of improvement, however, to diminish
gradually the real price of almost all manufactures. That of the
manufacturing workmanship diminishes, perhaps, in all of them
without exception. In consequence of better machinery, of greater
dexterity, and of a more proper division and distribution of work,
all of which are the natural effects of improvement, a much smaller
quantity of labour becomes requisite for executing any particular
piece of work; and though, in consequence of the flourishing circum-
stances of the society, the real price of labour should rise very con-
siderably, yet the great diminution of the quantity will generally

RENT OF land: PRICE OF MANUFACTURES 203

much more than compensate the greatest rise which can happen
in the price.

There are, indeed, a few manufactures, in which the necessary
rise in the real price of the rude materials will more than compensate
all the advantages which improvement can introduce into the execu-
tion of the work. In carpenters and joiners work, and in the coarser
sort of cabinet work, the necessary rise in the real price of barren
timber, in consequence of the improvement of land, will more than
compensate all the advantages which can be derived from the best
machinery, the greatest dexterity, and the most proper division and
distribution of work.

But in all cases in which the real price of the rude materials either
does not rise at all, or does not rise very much, that of the manu-
factured commodity sinks very considerably.

This diminution of price has, in the course of the present and pre-
ceding century, been most remarkable in those manufactures of
which the materials are the coarser metals. A better movement of a
watch, than about the middle of the last century could have been
bought for twenty pounds, may now perhaps be had for twenty shil-
lings. In the work of cuders and locksmiths, in all the toys which are
made of the coarser metals, and in all those goods which are com-
monly known by the name of Birmingham and Sheffield ware, there
has been, during the same period, a very great reduction of price,
though not altogether so great as in watch-work. It has, however,
been sufficient to astonish the workmen of every other part of Europe,
who in many cases acknowledge that they can produce no work of
equal goodness for double, or even for triple the price. There are
perhaps no manufactures in which the division of labour can be
carried further, or in which the machinery employed admits of a
greater variety of improvements, than those of which the materials
are the coarser metals.

In the clothing manufacture there has, during the same period,
been no such sensible reduction of price. The price of superfine cloth,
I have been assured, on the contrary, has, within these five-and-
twenty or thirty years, risen somewhat in proportion to its quality;
owing, it was said, to a considerable rise in the price of the material,
which consists altogether of Spanish wool. That of the Yorkshire

204 WEALTH OF NATIONS

cloth, which is made altogether of English wool, is said indeed, dur-
ing the course of the present century, to have fallen a good deal in
proportion to its quality. Quality, however, is so very disputable a
matter, that I look upon all information of this kind as somewhat
uncertain. In the clothing manufacture, the division of labour is
nearly the same now as it was a century ago, and the machinery em-
ployed is not very different. There may, however, have been some
small improvement in both, which may have occasioned some reduc-
tion of price.

But the reduction will appear much more sensible and undeniable,
if we compare the price of this manufacture in the present times
with what it was in a much remoter period, towards the end of the
fifteenth century, when the labour was probably much less sub-
divided, and the machinery employed much more imperfect, than
it is at present.

In 1487, being the 4th of Henry VII. it was enacted, that "whoso-
ever shall sell by retail a broad yard of the finest scarlet grained, or
of other grained cloth of the finest making, above sixteen shillings,
shall forfeit forty shillings for every yard so sold." Sixteen shillings,
therefore, containing about the same quantity of silver as four-and-
twenty shillings of our present money, was, at that time, reckoned not
an unreasonable price for a yard of the finest cloth; and as this is a
sumptuary law, such cloth, it is probable, had usually been sold
somewhat dearer. A guinea may be reckoned the highest price in
the present times. Even though the quality of the cloths, therefore,
should be supposed equal, and that of the present times is most
probably much superior, yet, even upon this supposition, the money
price of the finest cloth appears to have been considerably reduced
since the end of the fifteenth century. But its real price has been
much more reduced. Six shillings and eight-pence was then, and long
afterwards, reckoned the average price of a quarter of wheat. Six-
teen shillings, therefore, was the price of two quarters and more
than three bushels of wheat. Valuing a quarter of wheat in the pres-
ent times at eight-and-twenty shillings, the real price of a yard of
fine cloth must, in those times, have been equal to at least three
f)ounds six shillings and sixpence of our present money. The man
who bought it must have parted with the command of a quantity of

RE^nr of land: price of manufactures 205

labour and subsistence equal to what that sum would purchase in the
present times.

The reduction in the real price of the coarse manufacture, though
considerable, has not been so great as in that of the fine.

In 1463, being the 3d of Edward IV., it was enacted, that "no
servant in husbandry, nor common labourer, nor servant to any
artificer inhabiting out of a city or burgh, shall use or wear in their
clothing any cloth above two shillings the broad yard." In the 3d
of Edward IV. two shillings contained very nearly the same quantity
of silver as four of our present money. But the Yorkshire cloth
which is now sold at four shillings the yard, is probably much supe-
rior to any that was then made for the wearing of the very poorest
order of common servants. Even the money price of their clothing,
therefore, may, in proportion to the quality, be somewhat cheaper in
the present than it was in those ancient times. The real price is cer-
tainly a good deal cheaper. Ten-pence was then reckoned what is
called the moderate and reasonable price of a bushel of wheat. Two
shillings, therefore, was the price of two bushels and near two pecks
of wheat, which in the present times, at three shillings and six-pence
the bushel, would be worth eight shillings and nine-pence. For a
yard of this cloth the f)oor servant must have parted with the power
of purchasing a quantity of subsistence equal to what eight shillings
and nine-pence would purchase in the present times. This is a sump-
tuary law too, restraining the luxury and extravagance of the poor.
Their clothing, therefore, had commonly been much more expensive.

The same order of people are, by the same law, prohibited from
wearing hose, of which the price should exceed fourteen-pence the
pair, equal to about eight-and-twenty pjence of our present money.
But fourteen-pence was in those times the price of a bushel and near
two pecks of wheat; which, in the present times, at three and sixpence
the bushel, would cost five shillings and three-pence. We should in
the present times consider this as a very high price for a pair of stock-
ings to a servant of the poorest and lowest order. He must, how-
ever, in those times have paid what was really equivalent to this
price for them.

In the time of Edward IV. the art of knitting stockings was
probably not known in any part of Europe. Their hose were made of

206 WEALTH OF NATIONS

common cloth, which may have been one of the causes of their deaf-
ness. The first person that wore stockings in England is said to have
been Queen Elizabeth. She received them as a present from the
Spanish ambassador.

Both in the coarse and in the fine woollen manufacture, the ma-
chinery employed was much more imperfect in those ancient, than
it is in the present times. It fias since received three very capital im-
provements, besides, probably, many smaller ones of which it may be
difficult to ascertain either the number or the importance. The three
capital improvements are: first. The exchange of the rock and spindle
for the spinning-wheel, which, with the same quantity of labour, will
perform more than double the quantity of work. Secondly, the use
of several very ingenious machines which facilitate and abridge in
a still greater proportion the winding of the worsted and woollen
yarn, or the prop)er arrangement of the warp and woof before they
are put into the loom; an operation which, previous to the inven-
tions of those machines, must have been extremely tedious and
troublesome. Thirdly, the employment of the fulling mill for thick-
ening the cloth, instead of treading it in water. Neither wind nor
water mills of any kind were known in England so early as the
beginning of the sixteenth century, nor, so far as I know, in any
other part of Europe north of the Alps. They had been introduced
into Italy some time before.

The consideration of these circumstances may, perhaps, in some
measure explain to us why the real price both of the coarse and of
the fine manufacture, was so much higher in those ancient than it
is in the present times. It cost a greater quantity of labour to bring
the goods to market. When they were brought thither, therefore,
they must have purchased or exchanged for the price of a greater
quantity.

The coarse manufacture probably was, in those ancient times,
carried on in England, in the same manner as it always has been in
countries where arts and manufaaures are in their infancy. It was
probably a houshold manufacture, in which every different part of
the work was occasionally performed by all the different members of
almost every private family; but so as to be their work only when
they had nothing else to do, and not to be the principal business

RENT OF land: CONCLUSION 20/

from which any of them derived the greater part of their subsistence.
The work which is performed in this manner, it has already been
observed, comes always much cheaper to market than that which is
the principal or sole fund of the workman's subsistence. The fine
manufacture, on the other hand, was not in those times carried on
in England, but in the rich and commercial country of Flanders;
and it was probably conducted then, in the same manner as now,
by people who derived the whole, or the principal part of their sub-
sistence from it. It was besides a foreign manufacture, and must
have paid some duty, the ancient custom of tonnage and poundage at
least, to the king. This duty, indeed, would not probably be very
great. It was not then the policy of Europe to restrain, by high duties,
the importation of foreign manufactures, but rather to encourage it,
in order that merchants might be enabled to supply, at as easy a rate
as possible, the great men with the conveniencies and luxuries which
they wanted, and which the industry of their own country could not
afford them.

The consideration of these circumstances may perhaps in some
measure explain to us why, in those ancient times, the real price of
the coarse manufacture was, in proportion to that of the fine, so
much lower than in the present times.

CONCLUSION OF THE CHAPTER

I shall conclude this very long chapter with observing that every
improvement in the circumstances of the society tends either directly
or indirecdy to raise the real rent of land, to increase the real wealth
of the landlord, his power of purchasing the labour, or the produce
of the labour of other people.

The extension of improvement and cultivation tends to raise it
directly. The landlord's share of the produce necessarily increases
with the increase of the produce.

That rise in the real price of those parts of the rude produce of
land, which is first the effect of extended improvement and cultiva-
tion, and afterwards the cause of their being still further extended,
the rise in the price of cattle, for example, tends too to raise the
rent of land direcdy, and in a still greater proportion. The real value

208 WEALTH OF NATIONS

of the landlord's share, his real command of the labour of other
people, not only rises with the real value of the produce, but the
proportion of his share to the whole produce rises with it. That
produce, after the rise in its real price, requires no more labour to
collect it than before. A smaller proportion of it will, therefore, be
sufficient to replace, with the ordinary profit, the stock which employs
that labour. A greater proportion of it must, consequently, belong
to the landlord.

All those improvements in the productive powers of labour, which
tend directly to reduce the real price of manufactures, tend indirecdy
to raise the real rent of land. The landlord exchanges that part of
his rude produce, which is over and above his own consumption, or
what comes to the same thing, the price of that part of it, for manu-
factured produce. Whatever reduces the real price of the latter, raises
that of the former. An equal quantity of the former becomes thereby
equivalent to a greater quantity of the latter; and the landlord is
enabled to purchase a greater quantity of the conveniencies, orna-
ments, or luxuries, which he has occasion for.

Every increase in the real wealth of the society, every increase in
the quantity of useful labour employed within it, tends indirectly
to raise the real rent of land. A certain proportion of this labour
naturally goes to the land. A greater number of men and cattle are
employed in its cultivation, the produce increases with the increase
of the stock which is thus employed in raising it, and the rent
increases with the produce.

The contrary circumstances, the neglect of cultivation and im-
provement, the fall in the real price of any part of the rude produce
of land; the rise in the real price of manufactures from the decay of
manufacturing art and industry, the declension of the real wealth
of the society, all tend, on the other hand, to lower the real rent of
land, to reduce the real wealth of the landlord, to diminish his power
of purchasing either the labour, or the produce of the labour of
other people.

The whole annual produce of the land and labour of every coun-
try, or what comes to the same thing, the whole price of that annual
produce, naturally divides itself, it has already been observed, into
three parts; the rent of land, the wages of labour, and the profits

RENT OF land: CONCLUSION 209

of Stock; and constitutes a revenue to three different orders of people;
to those who Hve by rent, to those who Hve by wages, and to those
who Hve by profit. These are the three great, original and constituent
orders of every civilized society, from whose revenue that of every
other order is ultimately derived.

The interest of the first of those three great orders, it appears from
what has been just now said, is stricdy and inseparably connected
with the general interest of the society. Whatever either promotes or
obstructs the one, necessarily promotes or obstructs the other. When
the public deliberates concerning any regulation of commerce or
police, the proprietor of land never can mislead it, with a view to pro-
mote the interest of their own particular order; at least, if they have
any tolerable knowledge of that interest. They are, indeed, too
often defective in this tolerable knowledge. They are the only one of
the three orders whose revenue costs them neither labour nor care,
but comes to them, as it were, of its own accord, and independent
of any plan or project of their own. That indolence, which is the
natural effect of the ease and security of their situation, renders them
too often, not only ignorant, but incapable of that application of mind
which is necessary in order to foresee and understand the conse-
quences of any public regulation.

The interest of the second order, that of those who live by wages,
is as strictly connected with the interest of the society as that of the
first. The wages of the labourer, it has already been shewn, are never
so high as when the demand for labour is continually rising, or when
the quantity employed is every year increasing considerably. When
this real wealth of the society becomes stationary, his wages are soon
reduced to what is barely enough to enable him to bring up a family,
or to continue the race of labourers. When the society declines, they
fall even below this. The order of proprietors may, perhaps, gain
more by the prosperity of the society, than that of labourers: but there
is no order that suffers so cruelly from its decline. But though the
interest of the labourer is strictly connected with that of the society,
he is incapable either of comprehending that interest, or of under-
standing its connexion with his own. His condition leaves him no
time to receive the necessary information, and his education and
habits are commonly such as to render him unfit to judge even

2IO WEALTH OF NATIONS

though he was fully informed. In the public deliberations, therefore,
his voice is little heard and less regarded, except upon some particu-
lar occasions, when his clamour is animated, set on, and supported
by his employers, not for his, but their own particular purposes.

His employers constitute the third order, that of those who live
by profit. It is the stock that is employed for the sake of profit, which
puts into motion the greater part of the useful labour of every society.
The plans and projects of the employers of stock regulate and direct
all the most important operations of labour, and profit is the end
proposed by all those plans and projects. But the rate of profit does
not, like rent and wages, rise with the prosperity, and fall with the
declension, of the society. On the contrary, it is naturally low in
rich, and high in poor countries, and it is always highest in the
countries which are going fastest to ruin. The interest of this third
order, therefore, has not the same connexion with the general inter-
est of the society as that of the other two. Merchants and master
manufacturers are, in this order, the two classes of people who com-
monly employ the largest capitals, and who by their wealth draw
to themselves the greatest share of the public consideration. As dur-
ing their whole lives they are engaged in plans and projects, they
have frequently more acuteness of understanding than the greater
part of country gentlemen. As their thoughts, however, are com-
monly exercised rather about the interest of their own particular
branch of business, than about that of the society, their judgment,
even when given with the greatest candour (which it has not been
upon every occasion), is much more to be depended upxin with
regard to the former of those two objects, than with regard to the
latter. Their superiority over the country gentleman is, not so much
in their knowledge of the public interest, as in their having a better
knowledge of their own interest than he has of his. It is by this
superior knowledge of their own interest that they have frequendy
imposed upon his generosity, and f>ersuaded him to give up both his
own interest and that of the public, from a very simple but honest
conviction, that their interest, and not his, was the interest of the
public. The interest of the dealers, however, in any particular branch
of trade or manufacture, is always in some respects different from,
and even opposite to, that of the public. To widen the market aad

RENT OF land: CONCLUSION 211

to narrow the competition, is always the interest of the dealers. To
widen the market may frequently be agreeable enough to the interest
of the public; but to narrow the competition must always be against
it, and can serve only to enable the dealers, by raising their profits
above what they naturally would be, to levy, for their own benefit,
an absurd tax upon the rest of their fellow<itizens. The proposal
of any new law or regulation of commerce which comes from this
order, ought always to be listened to with great precaution, and ought
never to be adopted till after having been long and carefully exam-
ined, not only with the most scrupulous, but with the most suspi-
cious attention. It comes from an order of men, whose interest is
never exacdy the same with that of the public, who have generally an
interest to deceive and even to oppress the public, and who accord-
ingly have, upon many occasions, both deceived and oppressed it.

BOOK II
Op the Nature, Accumulation, and Employment of Stock

introduction

IN that rude state of society in which there is no division of
labour, in which exchanges are seldom made, and in which
every man provides every thing for himself, it is not necessary
that any stock should be accumulated or stored up beforehand, in
order to carry on the business of the society. Every man endeavours
to supply by his own industry his own occasional wants as they occur.
When he is hungry, he goes to the forest to hunt; when his coat is
worn out, he clothes himself with the skin of the first large animal
he kills: and when his hut begins to go to ruin, he repairs it, as well
as he can, with the trees and the turf that are nearest it.

But when the division of labour has once been thoroughly intro-
duced, the produce of a man's own labour can supply but a very
small part of his occasional wants. The far greater part of them are
supplied by the produce of other men's labour, which he purchases
with the produce, or, what is the same thing, with the price of the
produce of his own. But this purchase cannot be made till such time
as the produce of his own labour has not only been completed, but
sold. A stock of goods of different kinds, therefore, must be stored
up somewhere sufficient to maintain him, and to supply him with the
materials and tools of his work, till such time, at least, as both these
events can be brought about. A weaver cannot apply himself en-
tirely to his {peculiar business, unless there is beforehand stored up
somewhere, either in his own possession or in that of some other
person, a stock sufficient to maintain him, and to supply him with the
materials and tools of his work, till he has not only completed but
sold his web. This accumulation must, evidently, be previous to his
applying his industry for so long a time to such a peculiar business.

As the accumulation of stock must, in the nature of things, be

INTRODUCTION 2I3

previous to the division of labour, so labour can be more and more
subdivided in proportion only as stock is previously more and more
accumulated. The quantity of materials which the same number of
people can work up, increases in a great proportion as labour comes
to be more and more subdivided; and as the operations of each
workman are gradually reduced to a greater degree of simplicity, a
variety of new machines come to be invented for facilitating and
abridging those operations. As the division of labour advances,
therefore, in order to give constant employment to an equal number
of workmen, an equal stock of provisions, and a greater stock of
materials and tools than what would have been necessary in a ruder
state of things, must be accumulated beforehand. But the number
of workmen in every branch of business generally increases with the
division of labour in that branch, or rather it is the increase of their
number which enables them to class and subdivide themselves in
this manner.

As the accumulation of stock is previously necessary for carrying
on this great improvement in the productive powers of labour, so
that accumulation naturally leads to this improvement. The person
who employs his stock in maintaining labour, necessarily wishes to
employ it in such a manner as to produce as great a quantity of work
as possible. He endeavours, therefore, both to make among his work-
men the most proper distribution of employment, and to furnish
them with the best machines which he can either invent or afford to
purchase. His abilities in both these respects are generally in propor-
tion to the extent of his stock, or to the number of people whom it
can employ. The quantity of industry, therefore, not only increases
in every country with the increase of the stock which employs it, but,
in consequence of that increase, the same quantity of industry pro-
duces a much greater quantity of work.

Such are in general the effects of the increase of stock upon indus-
try and its productive powers.

In the following book I have endeavoured to explain the nature of
stock, the effects of its accumulation into capitals of different kinds,
and the effects of the different employments of those capitals. This
book is divided into five chapters. In the first chapter, I have en-
deavoured to show what are the different parts or branches into

214 WEALTH OF NATIONS

which the stock, either of an individual, or of a great society, natu-
rally divides itself. In the second, I have endeavoured to explain the
nature and operation of money considered as a particular branch of
the general stock of the society. The stock which is accumulated into
a capital, may either be employed by the person to whom it belongs,
or it may be lent to some other person. In the third and fourth
chapters, I have endeavoured to examine the manner in which it
operates in both these situations. The fifth and last chapter treats
of the different effects which the different employments of capital
immediately produce upon the quantity both of national industry,
and of the annual produce of land and labour.

CHAPTER I
Of the Division of Stock

WHEN the stock which a man possesses is no more than
sufficient to maintain him for a few days or a few weeks,
he seldom thinks of deriving any revenue from it. He con-
sumes it as sparingly as he can, and endeavours by his labour to
acquire something which may supply its place before it be consumed
altogether. His revenue is, in this case, derived from his labour only.
This is the state of the greater part of the labouring poor in all
countries.

But when he possesses stock sufficient to maintain him for months
or years, he naturally endeavours to derive a revenue from the greater
part of it; reserving only so much for his immediate consumption as
may maintain him till this revenue begins to come in. His whole
stock, therefore, is distinguished into two parts. That part which, he
expects, is to afford him this revenue, is called his capital. The other
is that which supplies his immediate consumption; and which con-
sists either, first, in that portion of his whole stock which was origi-
nally reserved for this purpose; or, secondly, in his revenue, from
whatever source derived, as it gradually comes in; or, thirdly, in such
things as had been purchased by either of these in former years, and
which are not yet entirely consumed; such as a stock of clothes, house-
hold furniture, and the like. In one, or other, or all of these three
articles, consists the stock which men commonly reserve for their
own immediate consumption.

There are two different ways in which a capital may be employed
so as to yield a revenue or profit to its employer.

First, it may be employed in raising, manufacturing, or purchasing
goods, and selling them again with a profit. The capital employed
in this manner yields no revenue or profit to its employer, while it
either remains in his fxjssession, or continues in the same shap)e.
The goods of the merchant yield him no revenue or profit till he sells

215

2l6 WEALTH OF NATIONS

them for money, and the money yields him as little till it is again ex-
changed for goods. His capital is continually going from him in one
shape, and returning to him in another, and it is only by means of
such circulation, or successive exchanges, that it can yield him any
profit. Such capitals, therefore, may very properly be called circu-
lating capitals.

Secondly, it may be employed in the improvement of land, in the
purchase of useful machines and instruments of trade, or in such-
like things as yield a revenue or profit without changing masters,
or circulating any further. Such capitals, therefore, may very properly
be called fixed capitals.

Different occupations require very different proportions between
the fixed and circulating capitals employed in them.

The capital of a merchant, for example, is altogether a circulating
capital. He has occasion for no machines or instruments of trade,
unless his shop, or warehouse, be considered as such.

Some part of the capital of every master artificer or manufacturer
must be fixed in the instruments of his trade. This part, however, is
very small in some, and very great in others. A master taylor re-
quires no other instruments of trade but a parcel of needles. Those
of the master shoemaker are a little, though but a very litde, more
expensive. Those of the weaver rise a good deal above those of the
shoemaker. The far greater part of the capital of all such master
artificers, however, is circulated, either in the wages of their work-
men, or in the price of their materials, and repaid with a profit by
the price of the work.

In other works a much greater fixed capital is required. In a great
iron-work, for example, the furnace for melting the ore, the forge, the
slitt-mill, are instruments of trade which cannot be erected without
a very great expence. In coal-works, and mines of every kind, the
machinery necessary both for drawing out the water and for other
purp)oses, is frequently still more exf)ensive.

That part of the capital of the farmer which is employed in the
instruments of agriculture is a fixed; that which is employed in the
wages and maintenance of his labouring servants, is a circulating
capital. He makes a profit of the one by keeping it in his own pos-
session, and of the other by parting with it. The price or value of

DIVISION OF STOCK 21 7

his labouring cattle is a fixed capital in the same manner as that
of the instruments of husbandry: Their maintenance is a circulating
capital in the same manner as that of the labouring servants. The
farmer makes his profit by keeping the labouring cattle, and by part-
ing with their maintenance. Both the price and the maintenance of
the cattle which are bought in and fattened, not for labour, but for
sale, are a circulating capital. The farmer makes his profit by part-
ing with them. A flock of sheep or a herd of cattle that, in a breed-
ing country, is bought in, neither for labour, nor for sale, but in order
to make a profit by their wool, by their milk, and by their increase,
is a fixed capital. The profit is made by keeping them. Their main-
tenance is a circulating capital. The profit is made by parting with
it; and it comes back with both its own profit, and the profit upon
the whole price of the cattle, in the price of the wool, the milk, and
the increase. The whole value of the seed too is properly a fixed
capital. Though it goes backwards and forwards between the ground
and the granary, it never changes masters, and therefore does not
properly circulate. The farmer makes his profit, not by its sale, but
by its increase.

The general stock of any country or society is the same with that
of all its inhabitants or members, and therefore naturally divides
itself into the same three portions, each of which has a distinct func-
tion or office.

The First, is that portion which is reserved for immediate con-
sumption, and of which the characteristic is, that it affords no reve-
nue or profit. It consists in the stock of food, clothes, household
furniture, &c., which have been purchased by their proper consumers,
but which are not yet entirely consumed. The whole stock of mere
dwelling-houses too subsisting at any one time in the country, make
a part of this first portion. The stock that is laid out in a house, if
it is to be the dwelling-house of the proprietor, ceases from that
moment to serve in the function of a capital, or to afford any reve-
nue to its owner. A dwelling-house, as such, contributes nothing to
the revenue of its inhabitant; and though it is, no doubt, extremely
useful to him, it is as his clothes and household furniture are use-
ful to him, which, however, make a part of his expence, and not of
his revenue. If it is to be let to a tenant for rent, as the house itself

2l8 WEALTH OF NATIONS

can produce nothing, the tenant must always pay the rent out of
some other revenue which he derives either from labour, or stock,
or land. Though a house, therefore, may yield a revenue to its pro-
prietor, and thereby serve in the function of a capital to him, it can-
not yield any to the public, nor serve in the function of a capital to it,
and the revenue of the whole body of the people can never be in
the smallest degree increased by it. Clothes, and household furniture,
in the same manner, sometimes yield a revenue, and thereby serve
in the function of a capital to particular persons. In countries where
masquerades are common, it is a trade to let out masquerade dresses
for a night. Upholsterers frequently let furniture by the month or
by the year. Undertakers let the furniture of funerals by the day and
by the week. Many people let furnished houses, and get a rent, not
only for the use of the house, but for that of the furniture. The reve-
nue, however, which is derived from such things, must always be
ultimately drawn from some other source of revenue. Of all parts
of the stock, either of an individual, or of a society, reserved for im-
mediate consumption, what is laid out in houses is most slowly con-
sumed. A stock of clothes may last several years: a stock of furniture
half a century or a century: but a stock of houses, well built and proj>
erly taken care of, may last many centuries. Though the period of
their total consumption, however, is more distant, they are still as
really a stock reserved for immediate consumption as either clothes
or household furniture.

The Second of the three portions into which the general stock of
the society divides itself, is the fixed capital; of which the character-
istic is, that it affords a revenue or profit without circulating or
changing masters. It consists chiefly of the four following articles:

First, of all useful machines and instruments of trade which facili-
tate and abridge labour :

Secondly, of all those profitable buildings which are the means of
procuring a revenue, not only to their proprietor who lets them for
a rent, but to the person who possesses them and pays that rent for
them; such as shops, warehouses, workhouses, farmhouses, with all
their necessary buildings, stables, granaries, &c. These are very differ-
ent from mere dwelling houses. They are a sort of instruments of
trade, and may be considered in the same light:

DIVISION OF STOCK 219

Thirdly, of the improvements of land, of what has been profitably
laid out in clearing, draining, enclosing, manuring, and reducing it
into the condition most proper for tillage and culture. An improved
farm may very justly be regarded in the same light as those use-
ful machines which facilitate and abridge labour, and by means of
which, an equal circulating capital can afford a much greater revenue
to its employer. An improved farm is equally advantageous and more
durable than any of those machines, frequendy requiring no other
repairs than the most profitable application of the farmer's capital
employed in cultivating it:

Fourthly, of the acquired and useful abilities of all the inhabitants
or members of the society. The acquisition of such talents, by the
maintenance of the acquirer during his education, study, or appren-
ticeship, always costs a real expence, which is a capital fixed and
realized, as it were, in his person. Those talents, as they make a part
of his fortune, so do they likewise of that of the society to which he
belongs. The improved dexterity of a workman may be considered in
the same light as a machine or instrument of trade which faciUtates
and abridges labour, and which, though it costs a certain expence,
repays that expence with a profit.

The Third and bst of the three portions into which the general
stock of the society naturally divides itself, is the circulating capital;
of which the characteristic is, that it affords a revenue only by circu-
lating or changing masters. It is composed likewise of four parts:

First, of the money by means of which all the other three are
circulated and distributed to their proper consumers:

Secondly, of the stock of provisions which are in the possession
of the butcher, the grazier, the farmer, the corn-merchant, the
brewer, &c. and from the sale of which they expect to derive a profit :

Thirdly, of the materials, whether altogether rude, or more or less
manufactured, of clothes, furniture and building, which are not yet
made up into any of those three shapes,but which remain in the hands
of the growers, the manufacturers, the mercers, and drapers, the
timber-merchants, the carpenters and joiners, the brick-makers, &c.

Fourthly, and lastly, of the work which is made up and completed,
but which is still in the hands of the merchant or manufacturer, and
not yet disposed of or distributed to the proper consumers; such as

220 WEALTH OF NATIONS

the finished work which we frequently find ready-made in the shops
of the smith, the cabinet-maker, the goldsmith, the jeweller, the
china-merchant, &c. The circulating capital consists in this manner,
of the provisions, materials, and finished work of all kinds that
are in the hands of their respective dealers, and of the money that is
necessary for circulating and distributing them to those who are
finally to use, or to consume them.

Of these four parts three, provisions, materials, and finished work,
are, either annually, or in a longer or shorter period, regularly with-
drawn from it, and placed either in the fixed capital or in the stock
reserved for immediate consumption.

Every fixed capital is both originally derived from, and requires
to be continually supported by a circulating capital. All useful
machines and instruments of trade are originally derived from a cir-
culating capital, which furnishes the materials of which they are
made, and the maintenance of the workmen who make them. They
require too a capital of the same kind to keep them in constant repair.

No fixed capital can yield any revenue but by means of a circu-
lating capital. The most useful machines and instruments of trade
will produce nothing without the circulating capital which affords
the materials they are employed upon, and the maintenance of the
workmen who employ them. Land, however improved, will yield
no revenue without a circulating capital, which maintains the labour-
ers who cultivate and collect its produce.

To maintain and augment the stock which may be reserved for
immediate consumption, is the sole end and purpose both of the
fixed and circulating capitals. It is this stock which feeds, clothes,
and lodges the people. Their riches or poverty depends upon the
abundant or sparing supplies which those two capitals can afford to
the stock reserved for immediate consumption.

So great a part of the circulating capital being continually with-
drawn from it, in order to be placed in the other two branches of
the general stock of the society; it must in its turn require continual
supplies, without which it would soon cease to exist. These supplies
are principally drawn from three sources, the produce of land, of
mines, and of fisheries. These afford continual supplies of provisions
and materials, of which part is afterwards wrought up into finished

DIVISION OF STOCK 221

work, and by which are replaced the provisions, materials, and fin-
ished work continually withdrawn from the circulating capital.
From mines too is drawn what is necessary for maintaining and
augmenting that part of it which consists in money. For though, in
the ordinary course of business, this part is not, like the other three,
necessarily withdrawn from it, in order to be placed in the other two
branches of the general stock of the society, it must, however, like
all other things, be wasted and worn out at last, and sometimes too
be either lost or sent abroad, and must, therefore, require continual,
though, no doubt, much smaller supplies.

Land, mines, and fisheries, require all both a fixed and a circu-
lating capital to cultivate them: and their produce replaces with a
profit, not only those capitals, but all the others in the society. Thus
the farmer annually replaces to the manufacturer the provisions which
he had consumed and the materials which he had wrought up the
year before; and the manufacturer replaces to the farmer the finished
work which he had wasted and worn out in the same time. This is
the real exchange that is annually made between those two orders of
people, though it seldom happens that the rude produce of the one
and the manufactured produce of the other, are direcdy bartered
for one another; because it seldom hapf)ens that the farmer sells his
corn and his catde, his flax and his wool, to the very same person of
whom he chuses to purchase the clothes, furniture, and instruments
of trade which he wants. He sells, therefore, his rude produce for
money, with which he can purchase, wherever it is to be had, the
manufactured produce he has occasion for. Land even replaces, in
part at least, the capitals with which fisheries and mines are culti-
vated. It is the produce of land which draws the fish from the
waters; and it is the produce of the surface of the earth which extracts
the minerals from its bowels.

The produce of land, mines, and fisheries, when their natural fer-
tility is equal, is in proportion to the extent and proper application of
the capitals employed about them. When the capitals are equal and
equally well applied, it is in proportion to their natural fertility.

In all countries where there is tolerable security, every man o£
common understanding will endeavour to employ whatever stock he
can command, in procuring either present enjoyment or future profit.

222 WEALTH OF NATIONS

If it is employed in procuring present enjoyment, it is a stock reserved
for immediate consumption. If it is employed in procuring future
profit, it must procure this profit either by staying with him, or by
going from him. In the one case it is a fixed, in the other it is a cir-
culating capital. A man must be perfectly crazy who, where there is
tolerable security, does not employ all the stock which he commands,
whether it be his own or borrowed of other people, in some one or
other of those three ways.

In those unfortunate countries, indeed, where men are continually
afraid of the violence of their superiors, they frequently bury and
conceal a great part of their stock, in order to have it always at hand
to carry with them to some place of safety, in case of their being
threatened with any of these disasters to which they consider them-
selves as at all times exposed. This is said to be a common practice
in Turkey, in Indostan, and, I believe, in most other governments
of Asia. It seems to have been a common practice among our ances-
tors during the violence of the feudal government. Treasure-trove
was in those times considered as no contemptible part of the revenue
of the greatest sovereigns in Europe. It consisted in such treasure
as was found concealed in the earth, and to which no particular
fjerson could prove any right. This was regarded in those times as
so important an object, that it was always considered as belonging
to the sovereign, and neither to the finder nor to the proprietor of the
land, unless the right to it had been conveyed to the latter by an
express clause in his charter. It was put upon the same footing with
gold and silver mines, which, without a special clause in the charter,
were never supposed to be comprehended in the general grant of the
lands, though mines of lead, copper, tin, and coal were, as things of
smaller consequence.

CHAPTER II

Of Money Considered as a PARTicuu-iR Branch of the General

Stock of the Society, or of the Expence of

Maintaining the National Capital

IT has been shewn in the First Book, that the price of the greater
part of commodities resolves itself into three parts, of which
one pays the wages of the labour, another the profits of the
stock, and a third the rent of the land which had been employed in
producing and bringing them to market: that there are, indeed,
some commodities of which the price is made up of two of those
parts only, the wages of labour, and the profits of stock: and a very
few in which it consists altogether in one, the wages of labour: but
that the price of every commodity necessarily resolves itself into some
one, or other, or all of these three parts; every part of it which goes
neither to rent nor to wages, being necessarily profit to somebody.

Since this is the case, it has been observed, with regard to every
particular commodity, taken separately; it must be so with regard to
all the commodities which compose the whole annual produce of the
land and labour of every country, taken complexly. The whole price
or exchangeable value of that annual produce, must resolve itself
into the same three parts, and be parcelled out among the different
inhabitants of the country, either as the wages of their labour, the
profits of their stock, or the rent of their land.

But though the whole value of the annual produce of the land and
labour of every country is thus divided among and constitutes a reve-
nue to its different inhabitants; yet as in the rent of a private estate
we distinguish between the gross rent and the neat rent, so may we
likewise in the revenue of all the inhabitants of a great country.

The gross rent of a private estate comprehends whatever is paid
by the farmer; the neat rent, what remains free to the landlord, after
deducting the expence of management, of repairs, and all other neces-
sary charges; or what, without hurting his estate, he can afford to

223

224 WEALTH OF NATIONS

place in his stock reserved for immediate consumption, or to spend
upon his table, equipage, the ornaments of his house and furniture,
his private enjoyments and amusements. His real wealth is in pro-
portion, not to his gross, but to his neat rent.

The gross revenue of all the inhabitants of a great country, com-
prehends the whole annual produce of their land and labour; the
neat revenue, what remains free to them after deducting the ex-
pence of maintaining; first, their fixed; and, secondly, their circu-
lating capital; or what, without encroaching upon their capital, they
can place in their stock reserved for immediate consumption, or
spend upon their subsistence, conveniencies, and amusements. Their
real wealth too is in proportion, not to their gross, but to their neat
revenue.

The whole expence of maintaining the fixed capital, must evi-
dently be excluded from the neat revenue of the society. Neither the
materials necessary for supporting their useful machines and instru-
ments of trade, their profitable buildings, &c. nor the product of the
labour necessary for fashioning those materials into the proper form,
can ever make any part of it. The price of that labour may indeed
make a part of it; as the workmen so employed may place the whole
value of their wages in their stock reserved for immediate consump)-
tion. But in other sorts of labour, both the price and the produce
go to this stock, the price to that of the workmen, the produce to that
of other people, whose subsistence, conveniencies, and amusements,
are augmented by the labour of those workmen.

The intention of the fixed capital is to increase the productive
powers of labour, or to enable the same number of labourers to per-
form a much greater quantity of work. In a farm where all the neces-
sary buildings, fences, drains, communications, &c. are in the most
perfect good order, the same number of labourers and labouring
cattle will raise a much greater produce, than in one of equal extent
and equally good ground, but not furnished with equal conven-
iencies. In manufactures the same number of hands, assisted with
the best machinery, will work up a much greater quantity of goods
than with more imperfect instruments of trade. The expence which
is properly laid out upon a fixed capital of any kind, is always repaid
with great profit, and increases the annual produce by a much greater

MONEY 225

value than that of the support which such improvements require.
This support, however, still requires a certain portion of that prod-
uce. A certain quantity of materials, and the labour of a certain
number of ^workmen, both of which might have been immediately
employed to augment the food, clothing and lodging, the subsistence
and conveniencies of the society, are thus diverted to another employ-
ment, highly advantageous indeed, but still different from this one.
It is upon this account that all such improvements in mechanics, as
enable the same number of workmen to perform an equal quantity
of work with cheaper and simpler machinery than had been usual
before, are always regarded as advantageous to every society. A
certain quantity of materials, and the labour of a certain number of
workmen, which had before been employed in supporting a more
complex and expensive machinery, can afterwards be applied to
augment the quantity of work which that or any other machinery
is useful only for performing. The undertaker of some great manu-
factory who employs a thousand a-year in the maintenance of his
machinery, if he can reduce this expjence to five hundred, will natu-
rally employ the other five hundred in purchasing an additional
quantity of materials to be wrought up by an additional nimiber of
workmen. The quantity of that work, therefore, which his machinery
was useful only for performing, will naturally be augmented, and
with it all the advantage and conveniency which the society can
derive from that work.

The exf)ence of maintaining the fixed capital in a great country,
may very properly be compared to that of repairs in a private estate.
The exp)ence of repairs may frequently be necessary for supporting
the produce of the estate, and consequently both the gross and the
neat rent of the landlord. When by a more proper direction, how-
ever, it can be diminished without occasioning any diminution of
produce, the gross rent remains at least the same as before, and the
neat rent is necessarily augmented.

But though the whole expence of maintaining the fixed capital is
thus necessarily excluded from the neat revenue of the society, it is
not the same case with that of maintaining the circulating capital. Of
the four parts of which this latter capital is composed, money, pro-
visions, materials, and finished work, the three last, it has already

226 WEALTH OF NATIONS

been observed, are regularly withdrawn from it, and placed either
in the fixed capital of the society, or in their stock reserved for im-
mediate consumption. Whatever portion of those consumable goods
is not employed in maintaining the former, goes all to the latter, and
makes a part of the neat revenue of the society. The maintenance of
those three parts of the circulating capital, therefore, withdraws no
portion of the annual produce from the neat revenue of the society,
besides what is necessary for maintaining the fixed capital.

The circulating capital of a society is in this respect different from
that of an individual. That of an individual is totally excluded from
making any part of his neat revenue, which must consist altogether
in his profits. But though the circulating capital of every individual
makes a part of that of the society to which he belongs, it is not upon
that account totally excluded from making a part likewise of their
neat revenue. Though the whole goods in a merchant's shop must
by no means be placed in his own stock reserved for immediate con-
sumption, they may in that of other people, who, from a revenue
derived from other funds, may regularly replace their value to him,
together with its profits, without occasioning any diminution either
of his capital or of theirs.

Money, therefore, is the only part of the circulating capital of a
society, of which the maintenance can occasion any diminution in
their neat revenue.

The fixed capital, and that part of the circulating capital which
consists in money, so far as they affect the revenue of the society,
bear a very great resemblance to one another.

First, as those machines and instruments of trade, &c., require a
certain expence, first to erect them, and afterwards to support them,
both which expences, though they make a part of the gross, are
deductions from the neat revenue of the society; so the stock o£
money which circulates in any country must require a certain ex-
pence, first to collect it, and afterwards to support it, both which
expences, though they make a part of the gross, are, in the same
manner, deductions from the neat revenue of the society. jA certain
quantity of very valuable materials, gold and silver, and of very curi-
ous labour, instead of augmenting the stock reserved for immediate
consumption, the subsistence, conveniencies, and amusements of

MONEY 227

individuals, is employed in supporting that great but expensive
instrument of commerce, by means of which every individual in the
society has his subsistence, conveniencies, and amusements, regularly
distributed ito him in their proper proportion.

Secondly, as the machines and instruments of trade, &c. which
compose the fixed capital either of an individual or of a society, make
no part either of the gross or of the neat revenue of either; so
money, by means of which the whole revenue of the society is regu-
larly distributed among all its different members, makes itself no
part of that revenue. The great wheel of circulation is altogether
different from the goods which are circulated by means of it. The
revenue of the society consists altogether in those goods, and not in
the wheel which circulates them. In computing either the gross or
the neat revenue of any society, we must always, from their whole
annual circulation of money and goods, deduct the whole value of
the money, of which not a single farthing can ever make any part
of either.

It is the ambiguity of language only which can make this propo-
sition appear either doubtful or paradoxical. When projjerly ex-
plained and understood, it is almost self-evident.

When we talk of any particular sum of money, we sometimes
mean nothing but the metal pieces of which it is composed; and
sometimes we include in our meaning some obscure reference to
the goods which can be had in exchange for it, or to the power of
purchasing which the possession of it conveys. Thus when we say,
that the circulating money of England has been computed at eighteen
millions, we mean only to express the amount of the metal pieces,
which some writers have computed, or rather have supposed to
circulate in that country. But when we say that a man is worth
fifty or a hundred pounds a-year, we mean commonly to express
not only the amount of the metal pieces which are annually paid to
him, but the value of the goods which he can annually purchase or
consume. We mean commonly to ascertain what is or ought to be
his way of living, or the quantity and quality of the necessaries
and conveniencies of life in which he can with propriety indulge
himself.

When, by any particular sum of money, we mean not only to

228 WEALTH OF NATIONS

express the amount of the metal pieces of which it is composed, but
to include in its signification some obscure reference to the goods
which can be had in exchange for them, the wealth or revenue which
it in this case denotes, is equal only to one of the two values which
are thus intimated somewhat ambiguously by the same word, and
to the latter more properly than to the former, to the money's worth
more properly than to the money.

Thus if a guinea be the weekly pension of a particular person, he
can in the course of the week purchase with it a certain quantity of
subsistence, conveniencies, and amusements. In prop)ortion as this
quantity is great or small, so are his real riches, his real weekly reve-
nue. His weekly revenue is certainly not equal both to the guinea,
and to what can be purchased with it, but only to one or other of
those two equal values; and to the latter more properly than to the
former, to the guinea's worth rather than to the guinea.

If the pension of such a person was paid to him, not in gold, but
in a weekly bill for a guinea, his revenue surely would not so properly
consist in the piece of paper, as in what he could get for it. A guinea
may be considered as a bill for a certain quantity of necessaries and
conveniencies upon all the tradesmen in the neighbourhood. The
revenue of the person to whom it is paid, does not so properly consist
in the piece of gold, as in what he can get for it, or in what he can
exchange it for. If it could be exchanged for nothing, it would, like
a bill upon a bankrupt, be of no more value than the most useless
piece of paper.

Though the weekly or yearly revenue of all the different inhabi-
tants of any country, in the same manner, may be, and in reality fre-
quently is paid to them in money, their real riches, however, the
real weekly or yearly revenue of all of them taken together, must
always be great or small in proportion to the quantity of consumable
goods which they can all of them purchase with this money. The
whole revenue of all of them taken together is evidently not equal
to both the money and the consumable goods; but only to one or
other of those two values, and to the latter more properly than to
the former. '

Though we frequendy, therefore, express a person's revenue by
the metal pieces which are annually paid to him, it is because the
amount of those pieces regulates the extent of his power of pur-

MONEY 229

chasing, or the value of the goods which he can annually afford to
consume. We still consider his revenue as consisting in this power
of purchasing or consuming, and not in the pieces which convey it.

But if thi^ is sufficiently evident even with regard to an individual,
it is still more so with regard to a society. The amount of the metal
pieces which are annually paid to an individual, is often precisely
equal to his revenue, and is upon that account the shortest and best
expression of its value. But the amount of the metal pieces which
circulate in a society, can never be equal to the revenue of all its
members. As the same guinea which pays the weekly pension of
one man to-day, may pay that of another to-morrow, and that of a
third the day thereafter, the amount of the metal pieces which annu-
ally circulate in any country, must always be of much less value
than the whole money pensions annually paid with them. But the
power of purchasing, or the goods which can successively be bought
with the whole of those money pensions as they are successively paid,
must always be precisely of the same value with those pensions; as
must likewise be the revenue of the different persons to whom they
are paid. That revenue, therefore, cannot consist in those metal
pieces, of which the amount is so much inferior to its value, but in
the power of purchasing, in the goods which can successively be
bought with them as they circulate from hand to hand.

Money, therefore, the great wheel of circulation, the great instru-
ment of commerce, like all other instruments of trade, though it
makes a part and a very valuable part of the capital, makes no part
of the revenue of the society to which it belongs; and though the
metal pieces of which it is composed, in the course of their annual
circulation, distribute to every man the revenue which properly
belongs to him, they make themselves no part of that revenue.

Thirdly, and lasdy, the machines and instruments of trade, &c.
which compose the fixed capital, bear this further resemblance to
that part of the circulating capital which consists in money; that as
every saving in the expence of erecting and supporting those ma-
chines, which does not diminish the productive powers of labour,
is an improvement of the neat revenue of the society; so every saving
in the expence of collecting and supporting that part of the circulat-
ing capital which consists in money, is an improvement of exactly
the same kind.

230 WEALTH OF NATIONS

It is sufficiently obvious, and it has partly too been explained
already, in what manner every saving in the expence of supporting
the fixed capital is an improvement of the neat revenue of the society.
The whole capital of the undertaker of every work is necessarily
divided between his fixed and his circulating capital. While his
whole capital remains the same, the smaller the one part, the greater
must necessarily be the other. It is the circulating capital which fur-
nishes the materials and wages of labour, and puts industry into
motion. Every saving, therefore, in the expence of maintaining the
fixed capital, which does not diminish the productive {XJwers of
labour, must increase the fund which puts industry into motion,
and consequently the annual produce of land and labour, the real
revenue of every society.

The substitution of paper in the room of gold and silver money,
replaces a very expensive instrument of commerce with one much
less costly, and sometimes equally convenient. Circulation comes to
be carried on by a new wheel, which it costs less both to erect and
to maintain than the old one. But in what manner this operation
is performed, and in what manner it tends to increase either the
gross or the neat revenue of the society, is not altogether so obvious,
and may therefore require some further explication.

There are several different sorts of pap)er money; but the circu-
lating notes of banks and bankers are the species which is best
known, and which seems best adapted for this purpose. When the
people of any particular country have such confidence in the fortune,
probity, and prudence of a particular banker, as to believe that he
is always ready to pay upon demand such of his promissory notes
as are likely to be at any time presented to him; those notes come to
have the same currency as gold and silver money, from the confidence
that such money can at any time be had for them.

A particular banker lends among his customers his own promis-
sory notes, to the extent, we shall suppose, of a hundred thousand
pounds. As those notes serve all the purposes of money, his debtors
pay him the same interest as if he had lent them so much money.
This interest is the source of his gain. Though some of ythose notes
are continually coming back upon him for payment, part of them
continue to circulate for months and years together. Though he has

MONEY 231

generally in circulation, therefore, notes to the extent of a hundred
thousand pounds, twenty thousand pounds in gold and silver may,
frequendy, be a sufficient provision for answering occasional de-
mands. By this operation, therefore, twenty thousand pounds in
gold and silver perform all the functions which a hundred thousand
could otherwise have performed. The same exchanges may be made,
the same quantity of consumable goods may be circulated and dis-
tributed to their proper consumers, by means of his promissory notes,
to the value of a hundred thousand pounds, as by an equal value o£
gold and silver money. Eighty thousand pounds of gold and silver,
therefore, can, in this manner, be spared from the circulation of the
country; and if different operations of the same kind should, at the
same time, be carried on by many different banks and bankers, the
whole circulation may thus be conducted with a fifth part only of
the gold and silver which would otherwise have been requisite.

Let us suppose, for example, that the whole circulating money o£
some particular country amounted, at a particular time, to one million
sterling, that sum being then sufficient for circulating the whole
annual produce of their land and labour. Let us suppose too, that
some time thereafter, different banks and bankers issued promissory
notes, payable to the bearer, to the extent of one million, reserving
in their different coffers two hundred thousand pounds for answer-
ing occasional demands. There would remain, therefore, in circula-
tion, eight hundred thousand pounds in gold and silver, and a million
of bank notes, or eighteen hundred thousand pounds of paper and
money together. But the annual produce of the land and labour of
the country had before required only one million to circulate and
distribute it to its proper consumers, and that annual produce cannot
be immediately augmented by those operations of banking. One
million, therefore, will be sufficient to circulate it after them. The
goods to be bought and sold being precisely the same as before, the
same quantity of money will be sufficient for buying and selling
them. The channel of circulation, if I may be allowed such an expres-
sion, will remain precisely the same as before. One million we have
supposed sufficient to fill that channel. Whatever, therefore, is
poured into it beyond this sum, cannot run in it, but must overflow.
One million eight hundred thousand pounds are poured into it.

232 WEALTH OF NATIONS

Eight hundred thousand pounds, therefore, must overflow, that sum
being over and above what can be employed in the circulation of
the country. But though this sum cannot be employed at home, it
is too valuable to be allowed to lie idle. It will, therefore, be sent
abroad, in order to seek that profitable employment which it cannot
find at home. But the paper cannot go abroad; because at a distance
from the banks which issue it, and from the country in which pay-
ment of it can be exacted by law, it will not be received in common
payments. Gold and silver, therefore, to the amount of eight hundred
thousand pounds will be sent abroad, and the channel of home cir-
culation will remain filled with a million of paper, instead of the
million of those metals which filled it before.

But though so great a quantity of gold and silver is thus sent
abroad, we must not imagine that it is sent abroad for nothing, or
that its proprietors make a present of it to foreign nations. They will
exchange it for foreign goods of some kind or another, in order to
supply the consumption either of some other foreign country, or
of their own.

If they employ it in purchasing goods in one foreign country in
order to supply the consumption of another, or in what is called the
carrying trade, whatever profit they make will be an addition to
the neat revenue of their own country. It is like a new fund, created
for carrying on a new trade; domestic business being now trans-
acted by paper, and the gold and silver being converted into a fund
for this new trade.

If they employ it in purchasing foreign goods for home consump-
tion, they may either, first, purchase such goods as are likely to be
consumed by idle people who produce nothing, such as foreign wines,
foreign silks, &c.; or, secondly, they may purchase an additional
stock of materials, tools, and provisions, in order to maintain and
employ an additional number of industrious people, who re-produce,
with a profit, the value of their annual consumption.

So far as it is employed in the first way, it promotes prodigality,
increases expence and consumption without increasing production,
or establishing any permanent fund for supporting that expence, and
is in every respect hurtful to the society.

So far as it is employed in the second way, it promotes industry;

MONEY 233

and though it increases the consumption of the society, it provides
a permanent fund for supporting that consumption, the f)eople who
consume re-producing, with a profit, the whole value of their annual
consumption. The gross revenue of the society, the annual produce
of their land and labour, is increased by the whole value which the
labour of those workmen adds to the materials upon which they are
employed; and their neat revenue by what remains of this value, after
deducting what is necessary for supporting the tools and instruments
of their trade.

That the greater part of the gold and silver which, being forced
abroad by those operations of banking, is employed in purchasing
foreign goods for home consumption, is and must be employed in
purchasing those of this second kind, seems not only probable but
almost unavoidable. Though some particular men may sometimes in-
crease their exf)ence very considerably though their revenue does not
increase at all, we may be assured that no class or order of men ever
does so; because, though the principles of common prudence do not
always govern the conduct of every individual, they always influence
that of the majority of every class or order. But the revenue of idle
p)eople, considered as a class or order, cannot, in the smallest degree,
be increased by those op)erations of banking. Their exp)ence in gen-
eral, therefore, cannot be much increased by them, though that of a
few individuals among them may, and in reality sometimes is. The
demand of idle f)eople, therefore, for foreign goods, being the same,
or very nearly the same, as before, a very small part of the money,
which being forced abroad by those operations of banking, is em-
ployed in purchasing foreign goods for home consumption, is likely
to be employed in purchasing those for their use. The greater part
of it will naturally be destined for the employment of industry, and
not for the maintenance of idleness.

When we compute the quantity of industry which the circulating
capital of any society can employ, we must always have regard to
those parts of it only, which consist in provisions, materials, and
finished work: the other, which consists in money, and which serves
only to circulate those three, must always be deducted. In order to
put industry into motion, three things are requisite; materials to
work upon, tools to work with, and the wages or recompence for the

234 WEALTH OF NATIONS

sake of which the work is done. Money is neither a material to work
upon, nor a tool to work with; and though the wages of the work-
man are commonly paid to him in money, his real revenue, like
that of all other men, consists, not in the money, but in the money's
worth; not in the metal pieces, but in what can be got for them.

The quantity of industry which any capital can employ, must,
evidently, be equal to the number of workmen whom it can supply
with materials, tools, and a maintenance suitable to the nature of
the work. Money may be requisite for purchasing the materials and
tools of the work, as well as the maintenance of the workmen. But
the quantity of industry which the whole capital can employ, is
certainly not equal both to the money which purchases, and to the
materials, tools, and maintenance, which are purchased with it; but
only to one or other of those two values, and to the latter more
properly than to the former.

When paper is substituted in the room of gold and silver money,
the quantity of the materials, tools, and maintenance, which the
whole circulating capital can supply, may be increased by the whole
value of gold and silver which used to be employed in purchasing
them. The whole value of the great wheel of circulation and dis-
tribution, is added to the goods which are circulated and distributed
by means of it. The operation, in some measure, resembles that of
the undertaker of some great work, who, in consequence of some
improvement in mechanics, takes down his old machinery, and adds
the difference between its price and that of the new to his circulating
capital, to the fund from which he furnishes materials and wages
to his workmen.

What is the proportion which the circulating money of any country
bears to the whole value of the annual produce circulated by means
of it, it is, perhaps, impossible to determine. It has been computed
by different authors at a fifth, at a tenth, at a twentieth, and at a
thirtieth part of that value. But how small soever the proportion
which the circulating money may bear to the whole value of the
annual produce, as but a part, and frequently but a small part of that
produce, is ever destined for the maintenance of industry, it must
always bear a very considerable proportion to that part. When, there-
fore, by the substitution of paper, the gold and silver necessary for

MONEY 235

circulation is reduced to, perhaps, a fifth part of the former quantity,
if the value of only the greater part of the other four-fifths be added
to the funds which are destined for the maintenance of industry, it
must make a very considerable addition to the quantity of that indus-
try and, consequently, to the value of the annual produce of land
and labour.

An operation of this kind has, within these five-and-twenty or
thirty years, been performed in Scodand, by the erection of new
banking companies in almost every considerable town, and even in
some country villages. The effects of it have been precisely those
above described. The business of the country is almost entirely
carried on by means of the paper of those different banking com-
panies, with which purchases and payments of all kinds are com-
monly made. Silver very seldom appears except in the change of a
twenty shillings bank note, and gold still seldomer. But though the
conduct of all those different companies has not been unexception-
able, and has accordingly required an act of parliament to regulate
it; the country, notwithstanding, has evidently derived great benefit
from their trade. I have heard it asserted, that the trade of the city
of Glasgow, doubled in about fifteen years after the first erection
of the banks there; and that the trade of Scotland has more than
quadrupled since the first erection of the two public banks at Edin-
burgh, of which the one, called The Bank of Scotland, was estab-
lished by act of parliament in 1695; the other, called The Royal
Bank, by royal charter in 1727. Whether the trade, either of Scot-
land in general, or of the city of Glasgow in particular, has really
increased in so great a proportion, during so short a period, I do not
pretend to know. If either of them has increased in this proportion,
it seems to be an effect too great to be accounted for by the sole
operation of this cause. That the trade and industry of Scodand,
however, have increased very considerably during this period, and
that the banks have contributed a good deal to this increase, cannot
be doubted.

The value of the silver money which circulated in Scotland before
the union, in 1707, and which, immediately after it, was brought into
the bank of Scotland in order to be recoined, amounted to 411,117/.
JOS. gd. sterling. No account has been got of the gold coin; but it

236 WEALTH OF NATIONS

appears from the ancient accounts of the mint of Scotland, that the
value of the gold annually coined somewhat exceeded that of the
silver. There were a good many people too upon this occasion, who,
from a diffidence of repayment, did not bring their silver into the
bank of Scotland: and there was, besides, some English coin, which
was not called in. The whole value of the gold and silver, therefore,
which circulated in Scotland before the union, cannot be estimated
at less than a million sterling. It seems to have constituted almost
the whole circulation of that country; for though the circulation of
the bank of Scotland, which had then no rival, was considerable, it
seems to have made but a very small part of the whole. In the pres-
ent times the whole circulation of Scotland cannot be estimated at
less than two millions, of which that part which consists in gold and
silver, most probably, does not amount to half a million. But though
the circulating gold and silver of Scotland have suffered so great a
diminution during this period, its real riches and prosperity do not
appear to have suffered any. Its agriculture, manufactures, and trade,
on the contrary, the annual produce of its land and labour, have
evidendy been augmented.

It is chiefly by discounting bills of exchange, that is, by advancing
money upon them before they are due, that the greater part of
banks and bankers issue their promissory notes. They deduct always,
upon whatever sum they advance, the legal interest till the bill shall
become due. The payment of the bill, when it becomes due, replaces
to the bank the value of what had been advanced, together with a
clear profit of the interest. The banker who advances to the merchant
whose bill he discounts, not gold and silver, but his own promissory
notes, has the advantage of being able to discount to a greater amount
by the whole value of his promissory notes, which he finds by expe-
rience, are commonly in circulation. He is thereby enabled to make
his clear gain of interest on so much a larger sum.

The commerce of Scodand, which at present is not very great, was
still more inconsiderable when the two first banking companies were
established; and those companies would have had but litde trade,
had they confined their business to the discounting of bills of ex-
change. They invented, therefore, another method of issuing their
promissory notes; by granting, what they called, cash accounts, that

MONEY 237

is by giving credit to the extent of a certain sum (two or three thou-
sand pounds, for example), to any individual who could procure two
p)ersons of undoubted credit and good landed estate to become surety
for him, that whatever money should be advanced to him, within
the sum for which the credit had been given, should be repaid upon
demand, together with the legal interest. Credits of this kind are, I
believe, commonly granted by banks and bankers in all different parts
of the world. But the easy terms upon which the Scotch banking
companies accept of re-payment are, so far as I know, peculiar to
them, and have, perhaps, been the principal cause, both of the great
trade of those companies, and of the benefit which the country has
received from it.

Whoever has a credit of this kind with one of those companies,
and borrows a thousand pounds upon it, for example, may repay this
sum piece-meal, by twenty and thirty pounds at a time, the company
discounting a proportionable part of the interest of the great sum
from the day on which each of those small sums is paid in, till the
whole be in this manner repaid. All merchants, therefore, and almost
all men of business, find it convenient to keep such cash accounts
with them, and are thereby interested to promote the trade of those
companies, by readily receiving their notes in all payments, and by
encouraging all those with whom they have any influence to do the
same. The banks, when their customers apply to them for money,
generally advance it to them in their own promissory notes. These
the merchants pay away to the manufacturers for goods, the manu-
facturers to the farmers for materials and provisions, the farmers to
their landlords for rent, the landlords repay them to the merchants
for the conveniencies and luxuries with which they supply them, and
the merchants again return them to the banks in order to balance
their cash accounts, or to replace what they may have borrowed of
them; and thus almost the whole money business of the country
is transacted by means of them. Hence the great trade of those
companies.

By means of those cash accounts every merchant can, witliout
imprudence, carry on a greater trade than he otherwise could do. If
there are two merchants, one in London, and the other in Edinburgh,
who employ equal stocks in the same branch of trade, the Edin-

238 WEALTH OF NATIONS

burgh merchant can, without imprudence, carry on a greater trade,
and give employment to a greater number of people than the London
merchant. The London merchant must always keep by him a con-
siderable sum of money, either in his own coffers, or in those of his
banker, who gives him no interest for it, in order to answer the
demands continually coming upon him for payment of the goods
which he purchases upon credit. Let the ordinary amount of this
sum be supposed five hundred p)ounds. The value of the goods in his
warehouse must always be less by five hundred pounds than it
would have been, had he not been obliged to keep such a sum unem-
ployed. Let us suppose that he generally disposes of his whole stock
up)on hand, or of goods to the value of his whole stock upnan hand,
once in the year. By being obliged to keep so great a sum unem-
ployed, he must sell in a year five hundred pounds worth less goods
than he might otherwise have done. His annual profits must be
less by all that he could have made by the sale of five hundred
pounds worth more goods; and the number of people employed in
preparing his goods for the market, must be less by all those that five
hundred pounds more stock could have employed. The merchant in
Edinburgh, on the other hand, keeps no money unemployed for
answering such occasional demands. When they actually come upon
him, he satisfies them from his cash account with the bank, and
gradually replaces the sum borrowed with the money or paper which
comes in from the occasional sales of his goods. With the same stock,
therefore, he can, without imprudence, have at all times in his ware-
house a larger quantity of goods than the London merchant; and
can thereby both make a greater profit himself, and give constant
employment to a greater number of industrious people who prepare
those goods for the market. Hence the great benefit which the
country has derived from this trade.

The facility of discounting bills of exchange, it may be thought,
indeed, gives the English merchants a conveniency equivalent to the
cash accounts of the Scotch merchants. But the Scotch merchants,
it must be remembered, can discount their bills of exchange as easily
as the English merchants; and have, besides, the additional con-
veniency of their cash accounts.

The whole paper money of every kind which can easily circulate

MONEY 239

in any country never can exceed the value of the gold and silver,
of which it supplies the place, or which (the commerce being sup-
posed the same) would circulate there, if there was no paper money.
If twenty shilling notes, for example, are the lowest paper money
current in Scotland, the whole of that currency which can easily cir-
culate there cannot exceed the sum of gold and silver which would
be necessary for transacting the annual exchange of twenty shillings
value and upwards usually transacted within that country. Should
the circulating paper at any time exceed that sum, as the excess could
neither be sent abroad nor be employed in the circulation of the
country, it must immediately return upon the banks to be exchanged
for gold and silver. Many people would immediately perceive that
they had more of this paper than was necessary for transacting their
business at home, and as they could not send it abroad, they would
immediately demand payment of it from the banks. When this
superfluous paper was converted into gold and silver, they could
easily find a use for it by sending it abroad; but they could find none
while it remained in the shape of paper. There would immediately,
therefore, be a run upon the banks to the whole extent of this super-
fluous paper, and, if they shewed any diflSculty or backwardness in
payment, to a much greater extent; the alarm, which this would
occasion, necessarily increasing the run.

Over and above the expences which are common to every branch
of trade; such as the expence of house-rent, the wages of servants,
clerks, accountants, &c.; the expences peculiar to a bank consist
chiefly in two articles: First, in the expence of keeping at all times
in its coffers, for answering the occasional demands of the holders
of its notes, a large sum of money, of which it loses the interest: And,
secondly, in the expence of replenishing those coffers as fast as they
are emptied by answering such occasional demands.

A banking company, which issues more paper than can be em-
ployed in the circulation of the country, and of which the excess is
continually returning upon them for payment, ought to increase the
quantity of gold and silver, which they keep at all times in their
coffers, not only in proportion to this excessive increase of their cir-
culation, but in a much greater proportion; their notes returning
upon them much faster than in proportion to the excess of their

240 WEALTH OF NATIONS

quantity. Such a company, therefore, ought to increase the first
article of their expence, not only in proportion to this forced increase
of their business, but in a much greater proportion.

The coffers of such a company too, though they ought to be filled
much fuller, yet must empty themselves much faster than if their
business was confined within more reasonable bounds, and must
require, not only a more violent, but a more constant and uninter-
rupted exertion of expence in order to replenish them. The coin
too, which is thus continually drawn in such large quantities from
their coffers, cannot be employed in the circulation of the country.
It comes in place of a paper which is over and above what can be
employed in that circulation, and is therefore over and above what
can be employed in it too. But as that coin will not be allowed to
lie idle, it must, in one shaf)e or another, be sent abroad, in order to
find that profitable employment which it cannot find at home;
and this continual exp)ortation of gold and silver, by enhancing the
difficulty, must necessarily enhance still further the expence of the
bank, in finding new gold and silver in order to replenish those
coffers, which empty themselves so very rapidly. Such a company,
therefore, must, in proportion to this forced increase of their busi-
ness, increase the second article of their expence still more than the
first.

Let us suppose that all the paper of a particular bank, which the
circulation of the country can easily absorb and employ, amounts
exactly to forty thousand pounds; and that for answering occasional
demands, this bank is obliged to keep at all times in its coffers ten
thousand pounds in gold and silver. Should this bank attempt to
circulate forty-four thousand pounds, the four thousand pxiunds
which are over and above what the circulation can easily absorb and
employ, will return upon it almost as fast as they are issued. For an-
swering occasional demands, therefore, this bank ought to keep at
all times in its coffers, not eleven thousand pounds only, but four-
teen thousand pounds. It will thus gain nothing by the interest of
the four thousand pounds excessive circulation; and it will lose the
whole expence of continually collecting four thousand pounds in
gold and silver, which will be continually going out of its coffers
as fast as they are brought into them.

MONEY 241

Had every particular banking company always understood and
attended to its own particular interest, the circulation never could
have been overstocked with paper money. But every particular
banking company has not always understood or attended to its own
particular interest, and the circulation has frequendy been over-
stocked with paper money.

By issuing too great a quantity of pajjer, of which the excess was
continually returning, in order to be exchanged for gold and silver,
the bank of England was for many years together obliged to coin
gold to the extent of between eight hundred thousand pounds and
a million a year; or at an average, about eight hundred and fifty
thousand pounds. For this great coinage the bank (in consequence
of the worn and degraded state into which the gold coin had fallen
a few years ago) was frequently obliged to purchase gold bullion
at the high price of four pounds an ounce, which it soon after issued
in coin at 3/. lys. loVid. an ounce, losing in this manner between
two and a half and three per cent, upon the coinage of so very large
a sum. Though the bank therefore paid no seignorage, though the
government was properly at the expence of the coinage, this liberal-
ity of government did not prevent altogether the expence of the bank.

The Scotch banks, in consequence of an excess of the same kind,
were all obliged to employ constantly agents at London to collect
money for them, at an exjjence which was seldom below one and
a half or two per cent. This money was sent down by the waggon,
and insured by the carriers at an additional expence of three quarters
per cent, or fifteen shillings on the hundred pounds. Those agents
were not always able to replenish the coffers of their employers so
fast as they were emptied. In this case the resource of the banks
was, to draw upon their correspondents in London bills of exchange
to the extent of the sum which they wanted. When those corre-
spondents afterwards drew upon them for the payment of this sum,
together with the interest and a commission, some of those banks,
from the distress into which their excessive circulation had thrown
them, had sometimes no other means of satisfying this draught but
by drawing a second set of bills either upon the same, or upon some
other correspondents in London; and the same sum, or rather bills
for the same siun, would in this manner make sometimes more than

242 WEALTH OF NATIONS

two or three journies: the debtor bank, paying always the interest
and commission upon the whole accumulated sum. Even those
Scotch banks which never distinguished themselves by their extreme
imprudence, were sometimes obliged to employ this ruinous resource.
The gold coin which was paid out either by the bank of England,
or by the Scotch banks, in exchange for that part of their paper which
was over and above what could be employed in the circulation of
the country, being likewise over and above what could be employed
in that circulation, was sometimes sent abroad in the shape of coin,
sometimes melted down and sent abroad in the shape of bullion, and
sometimes melted down and sold to the bank of England at the
high price of four pounds an ounce. It was the newest, the heaviest,
and the best pieces only which were carefully picked out of the
whole coin, and either sent abroad or melted down. At home, and
while they remained in the shape of coin, those heavy pieces were
of no more value than the light: But they were of more value abroad,
or when melted down into bullion, at home. The bank of Eng-
land, notwithstanding their great annual coinage, found to their
astonishment, that there was every year the same scarcity of coin
as there had been the year before; and that notwithstanding the
great quantity of good and new coin which was every year issued
from the bank, the state of the coin, instead of growing better and
better, became every year worse and worse. Every year they found
themselves under the necessity of coining nearly the same quantity
of gold as they had coined the year before, and from the continual
rise in the price of gold bullion, in consequence of the continual
wearing and clipping of the com, the expence of this great annual
coinage became every year greater and greater. The bank of Eng-
land, it is to be observed, by supplying its own coffers with coin, is
indirectly obliged to supply the whole kingdom, into which coin is
continually flowing from those coffers in a great variety of ways.
Whatever coin therefore was wanted to support this excessive cir-
culation both of Scotch and English paper money, whatever vacuities
this excessive circulation occasioned in the necessary coin of the
kingdom, the bank of England was obliged to supply them. The
Scotch banks, no doubt, paid all of them very dearly for their own
imprudence and inattention. But the bank of England paid very

MONEY 243

dearly, not only for its own imprudence, but for the much greater
imprudence of almost all the Scotch banks.

The over-trading of some bold projectors in both parts of the
united kingdom, was the original cause of this excessive circulation
of pap>er money.

What a bank can with propriety advance to a merchant or under-
taker of any kind, is not either the whole capital with which he
trades, or even any considerable part of that capital; but that part
of it only, which he would otherwise be obliged to keep by him
unemployed, and in ready money for answering occasional demands.
If the pap)er money which the bank advances never exceeds this
value, it can never exceed the value of the gold and silver, which
would necessarily circulate in the country if there was no paper
money; it can never exceed the quantity which the circulation of
the country can easily absorb and employ.

When a bank discounts to a merchant a real bill of exchange
drawn by a real creditor upon a real debtor, and which, as soon as
it becomes due, is really paid by that debtor; it only advances to
him a part of the value which he would otherwise be obliged to
keep by him unemployed and in ready money for answering occa-
sional demands. The payment of the bill, when it becomes due,
replaces to the bank the value of what it had advanced, together
with the interest. The coffers of the bank, so far as its dealings are
confined to such customers, resemble a water pond, from which,
though a stream is continually running out, yet another is con-
tinually running in, fully equal to that which runs out; so that,
without any further care or attention, the pond keeps always equally,
or very near equally full. Little or no expence can ever be necessary
for replenishing the coffers of such a bank.

A merchant, without over-trading, may frequently have occasion
for a sum of ready money, even when he has no bills to discount.
When a bank, besides discounting his bills, advances him likewise
upon such occasions, such sums upon his cash account, and accepts
of a piece meal repayment as the money comes in from the occa-
sional sale of his goods, upon the easy terms of the banking com-
panies of Scotland; it dispenses him entirely from the necessity of
keeping any part of his stock by him unemployed and in ready

244 WEALTH OF NATIONS

money for answering occasional demands. When such demands
actually come upon him, he can answer them sufficiently from his
cash account. The bank, however, in dealing with such customers,
ought to observe with great attention, whether in the course of some
short period (of four, five, six, or eight months, for example) the
sum of the repayments which it commonly receives from them, is,
or is not, fully equal to that of the advances which it commonly
makes to them. If, within the course of such short periods, the sum
of the repayments from certain customers is, upon most occasions,
fully equal to that of the advances, it may safely continue to deal
with such customers. Though the stream which is in this case con-
tinually running out from its coffers may be very large, that which
is continually running into them must be at least equally large;
so that without any further care or attention those coffers are likely
to be always equally or very nearly equally full; and scarce ever to
require any extraordinary expence to replenish them. If, on the
contrary, the sum of the repayments from certain other customers
falls commonly very much short of the advances which it makes to
them, it cannot with any safety continue to deal with such cus-
tomers, at least if they continue to deal with it in this manner. The
stream which is in this case continually running out from its cof-
fers is necessarily much larger than that which is continually running
in; so that, unless they are replenished by some great and continual
effort of expence, those coffers must soon be exhausted altogether.

The banking companies of Scotland, accordingly, were for a long
time very careful to require frequent and regular repayments from
all their customers, and did not care to deal with any person, what-
ever might be his fortune or credit, who did not make, what they
called, frequent and regular operations with them. By this atten-
tion, besides saving almost entirely the extraordinary expence of re-
plenishing their coffers, they gained two other very considerable
advantages.

First, by this attention they were enabled to make some tolerable
judgment concerning the thriving or declining circumstances of
their debtors, without being obliged to look out for any other evi-
dence besides what their own books afforded them; men being for
the most part either regular or irregular in their repayments, accord-

MONEY 245

ing as their circumstances are either thriving or declining. A private
man who lends out his money to perhaps half a dozen or a dozen
of debtors, may, either by himself or his agents, observe and enquire
both constandy and carefully into the conduct and situation of each
of them. But a banking company, which lends money to perhaps
five hundred different people, and of which the attention is continu-
ally occupied by objects of a very different kind, can have no regular
information concerning the conduct and circumstances of the greater
part of its debtors beyond what its own books afford it. In requiring
frequent and regular repayments from all their customers, the bank-
ing companies of Scotland had probably this advantage in view.

Secondly, by this attention they secured themselves from the possi-
bility of issuing more paf)er money than what the circulation of the
country could easily absorb and employ. When they observed, that
within moderate periods of time the repayments of a particular cus-
tomer were upon most occasions fully equal to the advances which
they had made to him, they might be assured that the paper money
which they had advanced to him, had not at any time exceeded the
quantity of gold and silver which he would otherwise have been
obliged to keep by him for answering occasional demands; and that,
consequently, the paf)er money, which they had circulated by this
means, had not at any time exceeded the quantity of gold and silver
which would have circulated in the country, had there been no paper
money. The frequency, regularity and amounts of his repayments
would sufficiently demonstrate that the amount of their advances
had at no time exceeded that part of his capital which he would
otherwise have been obliged to keep by him unemployed and in
ready money for answering occasional demands; that is, for the
purpose of keeping the rest of his capital in constant employment.
It is this part of his capital only which, within moderate periods of
time, is continually returning to every dealer in the shape of money,
whether paper or coin, and continually going from him in the same
shape. If the advances of the bank had commonly exceeded this
part of his capital, the ordinary amount of his repayments could
not, within moderate periods of time, have equalled the ordinary
amount of its advances. The stream which, by means of his dealings,
was continually running into the coffers of the bank, could not have

246 WEALTH OF NATIONS

been equal to the stream which, by means of the same deaHngs, was
continually running out. The advances of the bank paper, by ex-
ceeding the quantity of gold and silver which, had there been no
such advances, he would have been obliged to keep by him for an-
swering occasional demands, might soon come to exceed the whole
quantity of gold and silver which (the commerce being supposed
the same) would have circulated in the country had there been no
paper money; and consequently to exceed the quantity which the
circulation of the country could easily absorb and employ; and the
excess of this paper money would immediately have returned upon
the bank in order to be exchanged for gold and silver. This second
advantage, though equally real, was not perhaps so well understood
by all the different banking companies of Scotland as the first.

When, partly by the conveniency of discounting bills, and partly
by that of cash accounts, the creditable traders of any country can
be dispensed from the necessity of keeping any part of their stock
by them unemployed and in ready money for answering occasional
demands, they can reasonably exfject no farther assistance from
banks and bankers, who, when they have gone thus far, cannot, con-
sistently with their own interest and safety, go farther. A bank
cannot, consistently with its own interest, advance to a trader the
whole or even the greater part of the circulating capital with which
he trades; because, though that capital is continually returning to
him in the shape of money, and going from him in the same shape,
yet the whole of the returns is too distant from the whole of the out-
goings, and the sum of his repayments could not equal the sum of
its advances within such moderate periods of time as suit the con-
veniency of a bank. Still less could a bank afford to advance him
any considerable part of his fixed capital; of the capital which the
undertaker of an iron forge, for example, employs in erecting his
forge and dwelling-house, his work-houses and ware-houses, the
dwelling-house of his workman, &c.; of the capital which the under-
taker of a mine employs in sinking his shafts, in erecting engines
for drawing out the water, in making roads and waggon-ways, &c.;
of the capital which the person who undertakes to improve land
employs in clearing, draining, enclosing, manuring and ploughing
waste and uncultivated fields, in building farm-houses, with all their

MONEY 247

necessary appendages of stables, granaries, 8ic. The returns of the
fixed capital are in almost all cases much slower than those of the
circulating capital; and such exp)ences, even when laid out with the
greatest prudence and judgment, very seldom return to the under-
taker till after a period of many years, a period by far too distant to
suit the conveniency of a bank. Traders and other undertakers may,
no doubt, with great propriety, carry on a very considerable part of
their projects with borrowed money. In justice to their creditors,
however, their own capital ought, in this case, to be sufficient to en-
sure, if I may say so, the capital of those creditors; or to render it
extremely improbable that those creditors should incur any loss, even
though the success of the project should fall very much short of the
expectation of the projectors. Even with this precaution too, the
money which is borrowed, and which it is meant should not be
repaid till after a period of several years, ought not to be borrowed
of a bank, but ought to be borrowed upon bond or mortgage, of
such private people as propose to live upon the interest of their
money, without taking the trouble themselves to employ the capital;
and who are upon that account willing to lend that capital to such
people of good credit as are likely to keep it for several years. A
bank, indeed, which lends its money without the expence of stampt
paper, or of attornies fees for drawing bonds and mortgages, and
which accepts of repayment upon the easy terms of the banking
companies of Scotland ; would, no doubt, be a very convenient credi-
tor to such traders and undertakers. But such traders and under-
takers would, surely, be most inconvenient debtors to such a bank.

It is not by augmenting the capital of the country, but by ren-
dering a greater part of that capital active and productive than
would otherwise be so, that the most judicious ojjerations of banking
can increase the industry of the country. That part of his capital
which a dealer is obliged to keep by him unemployed, and in ready
money for answering occasional demands, is so much dead stock,
which, so long as it remains in this situation, produces nothing
either to him or to his country. The judicious operations of bank-
ing enable him to convert this dead stock into active and productive

248 WEALTH OF NATIONS

Stock; into materials to work upon, into tools to work with, and
into provisions and subsistence to work for; into stock which pro-
duces something both to himself and to his country. The gold and
silver money which circulates in any country, and by means of which
the produce of its land and labour is annually circulated and dis-
tributed to the proper consumers, is, in the same manner as the
ready money of the dealer, all dead stock. It is a very valuable part
of the capital of the country, which produces nothing to the coun-
try. The judicious operations of banking, by substituting paper in
the room of a great part of this gold and silver, enables the country
to convert a great part of this dead stock into active and productive
stock; into stock which produces something to the country. The gold
and silver money which circulates in any country may very properly
be compared to a highway, which, while it circulates and carries to
market all the grass and corn of the country, produces itself not a
single pile of either. The judicious ojierations of banking, by pro-
viding, if I may be allowed so violent a metaphor, a sort of waggon-
way through the air: enable the country to convert, as it were, a
great part of its highways into good pastures and corn-fields, and
thereby to increase very considerably the annual produce of its land
and labour. The commerce and industry of the country, however, it
must be acknowledged, though they may be somewhat augmented,
cannot be altogether so secure, when they are thus, as it were, sus-
pended upon the Dardalian wings of paper money, as when they
travel about upon the solid ground of gold and silver. Over and
above the accidents to which they are exposed from the unskilful-
ness of the conductors of this paper money, they are liable to several
others, from which no prudence of will of those conductors can
guard them.

An unsuccessful war, for example, in which the enemy got pos-
session of the capital, and consequently of that treasure which sup-
ported the credit of the paper money, would occasion a much greater
confusion in a country where the whole circulation was carried on
by paper, than in one where the greater part of it was carried on by
gold and silver. The usual instrument of commerce having lost its
value, no exchanges could be made but either by barter or upon
credit. All taxes having been usually paid in paper money, the

MONEY 249

prince would not have wherewithal either to pay his troops, or to fur-
nish his magazines; and the state of the country would be much
more irretrievable than if the greater part of its circulation had con-
sisted in gold and silver. A prince, anxious to maintain his domin-
ions at all times in the state in which he can most easily defend them,
ought, upon this account, to guard, not only against that excessive
multiplication of paper money which ruins the very banks which
issue it; but even against that multiplication of it, which enables
them to fill the greater part of the circulation of the country with it.

The circulation of every country may be considered as divided into
two different branches; the circulation of the dealers with one an-
other, and the circulation between the dealers and the consumers.
Though the same pieces of money, whether paper or metal, may be
employed sometimes in the one circulation and sometimes in the
other; yet as both are constantly going on at the same time, each re-
quires a certain stock of money of one kind or another, to carry it on.
The value of the goods circulated between the different dealers, never
can exceed the value of those circulated between the dealers and the
consumers; whatever is bought by the dealers, being ultimately des-
tined to be sold to the consumers. The circulation between the
dealers, as it is carried on by wholesale, requires generally a pretty
large sum for every particular transaction. That between the dealers
and the consumers, on the contrary, as it is generally carried on by
retail, frequently requires but very small ones, a shilling, or even
a halfpenny, being often sufficient. But small sums circulate much
faster than large ones. A shilling changes masters more frequendy
than a guinea, and a half{Tenny more frequently than a shilling.
Though the annual purchases of all the consumers, therefore, are
at least equal in value to those of all the dealers, they can generally be
transacted with a much smaller quantity of money; the same pieces,
by a more rapid circulation, serving as the instrument of many more
purchases of the one kind than of the other.

Pap)er money may be so regulated, as either to confine itself very
much to the circulation between the different dealers, or to extend
itself likewise to a great part of that between the dealers and the
consumers. Where no bank notes are circulated under ten pounds
value, as in London, paper money confines itself very much to the

250 WEALTH OF NATIONS

circulation between the dealers. When a ten pound bank note comes
into the hands of a consumer, he is generally obliged to change it
at the first shop where he has occasion to purchase five shillings
worth of goods; so that it often returns into the hands of a dealer,
before the consumer has spent the fortieth part of the money. Where
bank notes are issued for so small sums as twenty shillings, as in
Scotland, paper money extends itself to a considerable part of the
circulation between dealers and consumers. Before the act of parlia-
ment, which put a stop to the circulation of ten and five shilling
notes, it filled a still greater part of that circulation. In the curren-
cies of North America, paper was commonly issued for so small a
sum as a shilling, and filled almost the whole of that circulation.
In some paper currencies of Yorkshire, it was issued even for so
small a sum as a sixpence.

Where the issuing of bank notes for such very small sums is al-
lowed and commonly practised, many mean people are both enabled
and encouraged to become bankers. A person whose promissory
note for five pounds, or even for twenty shillings, would be rejected
by every body, will get it to be received without scruple when it is
issued for so small a sum as a sixpence. But the frequent bank-
ruptcies to which such beggarly bankers must be liable, may occasion
a very considerable inconveniency, and sometimes even a very great
calamity, to many poor people who had received their notes in pay-
ment.

It were better, perhaps, that no bank notes were issued in any
part of the kingdom for a smaller sum than five pounds. Paper money
would then, probably, confine itself, in every part of the kingdom, to
the circulation between the different dealers, as much as it does at
present in London, where no bank notes are issued under ten pounds
value; five pounds being, in most parts of the kingdom, a sum which,
though it will purchase, perhaps, litde more than half the quantity
of goods, is as much considered, and is as seldom spent all at once,
as ten pounds are amidst the profuse expence of London.

Where paper money, it is to be observed, is pretty much confined
to the circulation between dealers and dealers, as at London, there
is always plenty of gold and silver. Where it extends itself to a con-
siderable part of the circulation between dealers and consumers,

MONEY 251

as in Scotland, and still more in North America, it banishes gold
and silver almost entirely from the country; almost all the ordinary
transactions of its interior commerce being thus carried on by paper.
The suppression of ten and five shilling bank notes, somewhat re-
lieved the scarcity of gold and silver in Scotland; and the suppres-
sion of twenty shilling notes, would probably relieve it still more.
Those metals are said to have become more abundant in America,
since the suppression of some of their papjer currencies. They are said,
likewise, to have been more abundant before the institution of those
currencies.

Though paper money should be pretty much confined to the cir-
culation between dealers and dealers, yet banks and bankers might
still be able to give nearly the same assistance to the industry and
commerce of the country, as they had done when paper money filled
almost the whole circulation. The ready money which a dealer is
obliged to keep by him, for answering occasional demands, is des-
tined altogether for the circulation between himself and other deal-
ers, of whom he buys goods. He has no occasion to keep any by him
for the circulation between himself and the consumers, who are
his customers, and who bring ready money to him, instead of taking
any from him. Though no pap)er money, therefore, was allowed
to be issued, for such sums as would confine it pretty much to the
circulation between dealers and dealers; yet, partly by discounting
real bills of exchange, and partly by lending upon cash accounts,
banks and bankers, might still be able to relieve the greater part of
those dealers from the necessity of keeping any considerable part of
their stock by them, unemployed and in ready money, for answering
occasional demands. They might still be able to give the utmost
assistance which banks and bankers can, with propriety, give to
traders of every kind.

To restrain private people, it may be said, from receiving in pay-
ment the promissory notes of a banker, for any sum whether great
or small, when they themselves are willing to receive them; or, to
restrain a banker from issuing such notes, when all his neighbours
are willing to accept of them, is a manifest violation of that natural
liberty which it is the proper business of law, not to infringe, but to
support. Such regulations may, no doubt, be considered as in some

252 WEALTH OF NATIONS

respect a violation of natural liberty. But those exertions of the
natural liberty of a few individuals, which might endanger the se-
curity of the whole society, are, and ought to be, restrained by the
laws of all governments; of the most free, as well as of the most
despotical. The obligation of building party walls, in order to pre-
vent the communication of fire, is a violation of natural liberty,
exacdy of the same kind with the regulations of the banking trade
which are here proposed.

A paper money consisting in bank notes, issued by people of un-
doubted credit, payable upon demand without any condition, and
in fact always readily paid as soon as presented, is, in every respect,
equal in value to gold and silver money; since gold and silver money
can at any time be had for it. Whatever is either bought or sold for
such paper, must necessarily be bought or sold as cheap as it could
have been for gold and silver.

The increase of paper money, it has been said, by augmenting the
quantity, and consequently diminishing the value of the whole cur-
rency, necessarily augments the money price of commodities. But
as the quantity of gold and silver, which is taken from the currency,
is always equal to the quantity of paper which is added to it, paper
money does not necessarily increase the quantity of the whole cur-
rency. From the beginning of the last century to the present time,
provisions never were cheaper in Scotland than in 1759, though,
from the circulation of ten and five shilling bank notes, there was
then more paper money in the country than at present. The propor-
tion between the prices of provisions in Scodand and that in Eng-
land, is the same now as before the great multiplication of banking
companies in Scodand. Corn is, upon most occasions, fully as cheap
in England as in France; though there is a great deal of pa^^er money
in England and scarce any in France. In 1751 and in 1752, when
Mr. Hume published his Political Discourses, and soon after the
great multiplication of paper money in Scotland, there was a very
sensible rise in the price of provisions, owing, probably to the bad-
ness of the seasons, and not to the multiplication of paper money.

It would be otherwise, indeed, with a paper money consisting in
promissory notes, of which the immediate payment depended, in
any respect, either upon the good will of those who issued them; or

MONEY 253

upon a condition which the holder of the notes might not always
have it in his power to fulfil; or of which the payment was not exi-
gible till after a certain number of years, and which in the mean-
time bore no interest. Such a paper money would, no doubt, fall
more or less below the value of gold and silver, according as the
difficulty or uncertainty of obtaining immediate payment was sup-
posed to be greater or less; or according to the greater or less dis-
tance of time at which payment was exigible.

Some years ago the different banking companies of Scotland were
in the praaice of inserting into their bank notes, what they called an
Optional Clause, by which they promised payment to the bearer,
either as soon as the note should be presented, or, in the option of the
directors, six months after such presentment, together with the legal
interest for the said six months. The directors of some of those banks
sometimes took advantage of this optional clause, and sometimes
threatened those who demanded gold and silver in exchange for a
considerable number of their notes, that they would take advantage
of it, unless such demanders would content themselves with a part
of what they demanded. The promissory notes of those banking
companies constituted at that time the far greater part of the cur-
rency of Scotland, which this uncertainty of payment necessarily
degraded below the value of gold and silver money. During the
continuance of this abuse (which prevailed chiefly in 1762, 1763 and
1764), while the exchange between London and Carlisle was at par,
that between London and Dumfries would sometimes be four per
cent, against Dumfries, though this town is not thirty miles distant
from Carlisle. But at Carlisle, bills were paid in gold and silver;
whereas at Dumfries they were paid in Scotch bank notes, and the
uncertainty of getting those bank notes exchanged for gold and silver
coin had thus degraded them four per cent, below the value of that
coin. The same act of parliament which suppressed ten and five
shilling bank notes, suppressed likewise this optional clause, and
thereby restored the exchange between England and Scodand to its
natural rate, or to what the course of trade and remittances might
happen to make it.

In the paper currencies of Yorkshire, the payment of so small a
sum as a sixpence sometimes depended upon the condition that the

254 WEALTH OF NATIONS

holder of the note should bring the change of a guinea to the person
who issued it; a condition, which the holders of such notes might
frequently find it very difficult to fulfil, and which must have de-
graded this currency below the value of gold and silver money. An
act of parliament, accordingly, declared all such clauses unlawful,
and suppressed, in the same manner as in Scotland, all promissory
notes, payable to the bearer, under twenty shillings value.

The paper currencies of North America consisted, not in bank
notes payable to the bearer on demand, but in a government paper,
of which the payment was not exigible till several years after it was
issued: And though the colony governments paid no interest to the
holders of this paper, they declared it to be, and in fact rendered it,
a legal tender of payment for the full value for which it was issued.
But allowing the colony security to be perfectly good, a hundred
pounds payable fifteen years hence, for example, in a country where
interest is at six per cent, is worth little more than forty pounds
ready money. To oblige a creditor, therefore, to accept of this as
full payment for a debt of a hundred pounds actually paid down
in ready money, was an act of such violent injustice, as has scarce,
perhaps, been attempted by the government of any other country
which pretended to be free. It bears the evident marks of having
originally been, what the honest and downright Doctor Douglas
assures us it was, a scheme of fraudulent debtors to cheat their credi-
tors. The government of Pensylvania, indeed, pretended, upon their
first emission of paper money, in 1722, to render their paper of equal
value with gold and silver, by enacting penalties against all those
who made any difference in the price of their goods when they sold
them for a colony paper, and when they sold them for gold and
silver; a regulation equally tyrannical, but much less effectual than
that which it was meant to support. A positive law may render a
shilling a legal tender for a guinea; because it may direct the
courts of justice to discharge the debtor who has made that tender.
But no positive law can oblige a person who sells goods, and who is
at liberty to sell or not to sell, as he pleases, to accept of a shilling as
equivalent to a guinea in the price of them. Notwithstanding any
regulation of this kind, it appeared by the course of exchange with
Great Britain, that a hundred pounds sterling was occasionally con-

MONEY 255

sidered as equivalent, in some of the colonies, to a hundred and thirty
pounds, and in others to so great a sum as eleven hundred pounds
currency; this difference in the value arising from the difference in
the quantity of paper emitted in the different colonies, and in the dis-
tance and probability of the term of its final discharge and redemp-
tion.

No law, therefore, could be more equitable than the act of parlia-
ment, so unjustly complained of in the colonies, which declared that
no paper currency to be emitted there in time coming should be a
legal tender of payment.

Pensylvania was always more moderate in its emissions of paper
money than any other of our colonies. Its paper currency accord-
ingly is said never to have sunk below the value of the gold and
silver which was current in the colony before the first emission of
its paper money. Before that emission, the colony had raised the
denomination of its coin, and had, by act of assembly, ordered five
shillings sterling to pass in the colony for six and three-pence, and
afterwards for six and eight-pence. A pound colony currency, there-
fore, even when that currency was gold and silver, was more than
thirty per cent, below the value of a pound sterling, and when that
currency was turned into paper, it was seldom much more than
thirty per cent, below that value. The pretence for raising the de-
nomination of the coin was to prevent the exportation of gold and
silver, by making equal quantities of those metals pass for greater
sums in the colony than they did in the mother country. It was
found, however, that the price of all goods from the mother country
rose exactly in proportion as they raised the denomination of their
coin, so that their gold and silver were exported as fast as ever.

The paper of each colony being received in the payment of the
provincial taxes, for the full value for which it had been issued, it
necessarily derived from this use some additional value, over and
above what it would have had, from the real or supposed distance of
the term of its final discharge and redemption. This additional value
was greater or less, according as the quantity of paper issued was
more or less above what could be employed in the payment of the
taxes of the particular colony which issued it. It was in all the
colonies very much above what could be employed in this manner.

256 WEALTH OF NATIONS

A prince, who should enact that a certain proportion of his taxes
should be paid in a paper money of a certain kind, might thereby
give a certain value to this paper money; even though the term of
its final discharge and redemption should depend altogether upon
the will of the prince. If the bank which issued this paper was care-
ful to keep the quantity of it always somewhat below what could
easily be employed in this manner, the demand for it might be such
as to make it even bear a premium, or sell for somewhat more in the
market than the quantity of gold or silver currency for which it
was issued.

Some people account in this manner for what is called the Agio of
the bank of Amsterdam, or for the superiority of bank money over
current money, though this bank money, as they pretend, cannot be
taken out of the bank at the will of the owner. The greater part of
foreign bills of exchange must be paid in bank money, that is, by a
transfer in the books of the bank; and the directors of the bank, they
allege, are careful to keep the whole quantity of bank money always
below what this use occasions a demand for. It is upon this account,
they say, that bank money sells for a premium, or bears an agio of
four or five per cent, above the same nominal sum of the gold and
silver currency of the country. This account of the bank of Amster-
dam, however, it will appear hereafter, is in a great measure chi-
merical.

A paper currency which falls below the value of gold and silver
coin, does not thereby sink the value of those metals, or occasion
equal quantities of them to exchange for a smaller quantity of goods
of any other kind. The proportion between the value of gold and
silver and that of goods of any other kind, depends in all cases, not
upon the nature or quantity of any particular paper money, which
may be current in any particular country, but upon the richness or
poverty of the mines, which happen at any particular time to supply
the great market of the commercial world with those metals. It
depends upon the proportion between the quantity of labour which
is necessary in order to bring a certain quantity of gold and silver
to market, and that which is necessary in order to bring thither a
certain quantity of any other sort of goods.

If bankers are restrained from issuing any circulating bank notes,

MONEY 257

or notes payable to the bearer, for less than a certain sum; and if
they are subjected to the obligation of an immediate and uncondi-
tional payment of such bank notes as soon as presented, their trade
may, with safety to the public, be rendered in all other respects per-
fecdy free. The late multiplication of banking companies in both
parts of the united kingdom, an event by which many people have
been much alarmed, instead of diminishing, increases the security of
the public. It obliges all of them to be more circumspect in their
conduct, and, by not extending their currency beyond its due propor-
tion to their cash, to guard themselves against those malicious runs,
which the rivalship of so many competitors is always ready to bring
upon them. It restrains the circulation of each particular company
within a narrower circle, and reduces their circulating notes to a
smaller number. By dividing the whole circulation into a greater
number of parts, the failure of any one company, an accident which,
in the course of things, must sometimes happen, becomes of less con-
sequence to the public. This free competition too obliges all bankers
to be more liberal in their dealings with their customers, lest their
rivals should carry them away. In general, if any branch of trade,
or any division of labour, be advantageous to the public, the freer
and more general the competition, it will always be the more so.

CHAPTER III

Of the Accumulation of Capital, or of Productive and
Unproductive Labour

THERE is one sort of labour which adds to the value of the
subject upon which it is bestowed: there is another which
has no such effect. The former, as it produces a value, may
be called productive; the latter, unproductive labour. Thus the
labour of a manufacturer adds, generally, to the value of the mate-
rials which he works upon, that of his own maintenance, and of his
master's profit. The labour of a menial servant, on the contrary,
adds to the value of nothing. Though the manufacturer has his
wages advanced to him by his master, he, in reality, costs him no
expense, the value of those wages being generally restored, together
with a profit, in the improved value of the subject upon which his
labour is bestowed. But the maintenance of a menial servant never
is restored. A man grows rich by employing a multitude of manu-
facturers: he grows poor, by maintaining a multitude of menial
servants. The labour of the latter, however, has its value, and de-
serves its reward as well as that of the former. But the labour of
the manufacturer fixes and realizes itself in some particular subject
or vendible commodity, which lasts for some time at least after that
labour is past. It is, as it were, a certain quantity of labour stocked
and stored up to be employed, if necessary, upon some other occa-
sion. That subject, or what is the same thing, the price of that sub-
ject, can afterwards, if necessary, put into motion a quantity of
labour equal to that which had originally produced it. The labour
of the menial servant, on the contrary, does not fix or realize itself
in any particular subject or vendible commodity. His services gen-
erally perish in the very instant of their performance, and seldom
leave any trace or value behind them, for which an equal quantity
of service could afterwards be procured.

The labour of some of the most respectable orders in the society

258

ACCUMULATION OF CAPITAL 259

is, like that of menial servants, unproductive of any value, and does
not fix or realize itself in any permanent subject, or vendible com-
modity, which endures after that labour is past and for which an
equal quantity of labour could afterwards be procured. The sov-
ereign, for example, with all the officers both of justice and war who
serve under him, the whole army and navy, are unproductive la-
bourers. They are the servants of the public, and are maintained
by a part of the annual produce of the industry of other people.
Their service, how honourable, how useful, or how necessary soever,
produces nothing for which an equal quantity of service can after-
wards be procured. The protection, security, and defence of the
commonwealth, the effect of their labour this year, will not purchase
its protection, security, and defence for the year to come. In the
same class must be ranked, some both of the gravest and most im-
portant, and some of the most frivolous professions: churchmen,
lawyers, physicians, men of letters of all kinds; players, buffoons,
musicians, opera-singers, opera-dancers, &c. The labour of the mean-
est of these has a certain value, regulated by the very same principles
which regulate that of every sort of labour; and that of the noblest
and most useful, produces nothing which could afterwards purchase
or procure an equal quantity of labour. Like the declamation of
the actor, the harangue of the orator, or the tune of the musician,
the work of all of them perishes in the very instant of its production.
Both productive and unproductive labourers, and those who do
not labour at all, are all equally maintained by the annual produce
of the land and labour of the country. This produce, how great
soever, can never be infinite, but must have certain limits. Accord-
ing, therefore, as a smaller or greater proportion of it is in any one
year employed in maintaining unproductive hands, the more in the
one case and the less in the other will remain for the productive,
and the next year's produce will be greater or smaller accordingly;
the whole annual produce, if we except the spontaneous productions
of the earth, being the effect of productive labour. Though the
whole annual produce of the land and labour of every country, is,
no doubt, ultimately destined for supplying the consumption of its
inhabitants, and for procuring a revenue to them; yet when it first
comes either from the ground, or from the hands of the productive

26o WEALTH OF NATIONS

labourers, it naturally divides itself into two parts. One of them, and
frequendy the largest, is, in the first place, destined for replacing a
capital, or for renewing the provisions, materials, and finished work,
which had been withdrawn from a capital; the other for constitut-
ing a revenue either to the owner of this capital, as the profit of
his stock; or to some other jierson, as the rent of his land. Thus, of
the produce of land, one part replaces the capital of the farmer; the
other pays his profit and the rent of the landlord; and thus consti-
tutes a revenue both to the owner of this capital, as the profits of his
stock; and to some other person, as the rent of his land. Of the
produce of a great manufactory, in the same manner, one part, and
that always the largest, replaces the capital of the undertaker of the
work; the other pays his profit, and thus constitutes a revenue to
the owner of this capital.

That part of the annual produce of the land and labour of any
country which replaces a capital, never is immediately employed to
maintain any but productive hands. It pays the wages of productive
labour only. That which is immediately destined for constituting a
revenue either as profit or as rent, may maintain indifferendy either
productive or unproductive hands.

Whatever part of his stock a man employs as a capital, he always
expects is to be replaced to him with a profit. He employs it, there-
fore, in maintaining productive hands only; and after having served
in the function of a capital to him, it constitutes a revenue to them.
Whenever he employs any part of it in maintaining unproductive
hands of any kind, that part is, from that moment, withdrawn from
his capital, and placed in his stock reserved for immediate con-
sumption.

Unproductive labourers, and those who do not labour at all, are
all maintained by revenue; either, first, by that part of the annual
produce which is originally destined for constituting a revenue to
some particular persons, either as the rent of land or as the profits of
jtock; or, secondly, by that part which, though originally destined
for replacing a capital and for maintaining productive labourers
only, yet when it comes into their hands, whatever part of it is over
and above their necessary subsistence, may be employed in maintain-
ing indifferently either productive or unproductive hands. Thus, not

ACCUMULATION OF CAPITAL 26 1

only the great landlord or the rich merchant, but even the common
workman, if his wages are considerable, may maintain a menial
servant; or he may sometimes go to a play or a puppet-show, and
so contribute his share towards maintaining one set of unproductive
labourers; or he may pay some taxes, and thus help to maintain
another set, more honourable and useful, indeed, but equally un-
productive. No part of the annual produce, however, which had
been originally destined to replace a capital, is ever directed towards
maintaining unproductive hands, till after it has put into motion
its full complement of productive labour, or all that it could put into
motion in the way in which it was employed. The workman must
have earned his wages by work done, before he can employ any part
of them in this manner. That part too is generally but a small one.
It is his spare revenue only, of which productive labourers have sel-
dom a great deal. They generally have some, however; and in the
payment of taxes the greatness of their number may compensate, in
some measure, the smallness of their contribution. The rent of land
and the profits of stock are everywhere, therefore, the principal
sources from which unproductive hands derive their subsistence.
These are the two sorts of revenue of which the owners have gen-
erally most to spare. They might both maintain indifferendy either
productive or unproductive hands. They seem, however, to have
some predilection for the latter. The expence of a great lord feeds
generally more idle than industrious people. The rich merchant,
though with his capital he maintains industrious jjeople only, yet
by his expence, that is, by the employment of his revenue, he feeds
commonly the very same sort as the great lord.

The proportion, therefore, between the productive and unproduc-
tive hands, depends very much in every country upon the proportion
between that part of the annual produce, which, as soon as it comes
either from the ground or from the hands of the productive la-
bourers, is destined for replacing a capital, and that which is destined
for constituting a revenue, either as rent, or as profit. This propor-
tion is very different in rich from what it is in poor countries.

Thus, at present, in the opulent countries of Europe, a very large,
frequently the largest portion of the produce of the land, is destined
for replacing the capital of the rich and independent farmer; the

262 WEALTH OF NATIONS

Other for paying his profits, and the rent o£ the landlord. But an-
ciently, during the prevalency of the feudal government, a very
small portion of the produce was sufficient to replace the capital em-
ployed in cultivation. It consisted commonly in a few wretched cat-
tle, maintained altogether by the spontaneous produce of unculti-
vated land, and which might, therefore, be considered as a part of
that spontaneous produce. It generally too belonged to the landlord,
and was by him advanced to the occupiers of the land. All the rest
of the produce properly belonged to him too, either as rent for his
land, or as profit ufxin this paultry capital. The occupiers of land
were generally bondmen, whose persons and effects were equally his
property. Those who were not bondmen were tenants at will, and
though the rent which they paid was often nominally little more than
a quit-rent, it really amounted to the whole produce of the land.
Their lord could at all times command their labour in fjeace, and
their service in war. Though they lived at a distance from his house,
they were equally dependent upon him as his retainers who lived
in it.

But the whole produce of the land undoubtedly belongs to him,
who can dispose of the labour and service of all those whom it main-
tains. In the present state of Europe, the share of the landlord seldom
exceeds a third, sometimes not a fourth part of the whole produce
of the land. The rent of land, however, in all the improved parts of
the country, has been tripled and quadrupled since those ancient
times; and this third or fourth part of the annual produce is, it
seems, three or four times greater than the whole had been be-
fore. In the progress of improvement, rent, though it increases
in profMDrtion to the extent, diminishes in propwrtion to the produce
of the land.

In the opulent countries of Europe, great capitals are at present
employed in trade and manufactures. In the ancient state, the litde
trade that was stirring, and the few homely and coarse manufactures
that were carried on, required but very small capitals. These, how-
ever, must have yielded very large profits. The rate of interest was
nowhere less than ten per cent, and their profits must have been
sufficient to afford this great interest. At present the rate of interest,
in the improved parts of Europe, is no-where higher than six per cent.

ACCUMULATION OF CAPITAL 263

and in some of the most improved it is so low as four, three, and
two per cent. Though that part of the revenue of the inhabitants
which is derived from the profits of stock is always much greater
in rich than in poor countries, it is because the stock is much greater:
in proportion to the stock the profits are generally much less.

That part of the annual produce, therefore, which, as soon as it
comes either from the ground, or from the hands of the productive
labourers, is destined for replacing a capital, is not only much greater
in rich than in poor countries, but bears a much greater proportion
to that which is immediately destined for constituting a revenue
either as rent or as profit. The funds destined for the maintenance of
productive labour, are not only much greater in the former than in
the latter, but bear a much greater proportion to those which, though
they may be employed to maintain either productive or unproductive
hands, have generally a predilection for the latter.

The proportion between those different funds necessarily deter-
mines in every country the general character of the inhabitants as to
industry or idleness. We are more industrious than our forefathers;
because in the present times the funds destined for the maintenance
of industry, are much greater in proportion to those which are likely
to be employed in the maintenance of idleness, than they were two
or three centuries ago. Our ancestors were idle for want of a suffi-
cient encouragement to industry. It is better, says the proverb, to
play for nothing, than to work for nothing. In mercantile and man-
ufacturing towns, where the inferior ranks of people are chiefly
maintained by the employment of capital, they are in general in-
dustrious, sober, and thriving; as in many English, and in most
Dutch towns. In those towns which are principally supported by
the constant or occasional residence of a court, and in which the
inferior ranks of people are chiefly maintained by the spending of
revenue, they are in general idle, dissolute, and poor; as at Rome,
Versailles, Compiegne, and Fontainbleau. If you except Rouen and
Bourdeaux, there is litde trade or industry in any of the parliament
towns of France; and the inferior ranks of f)eople, being chiefly
maintained by the expence of the members of the courts of justice,
and of those who come to plead before them, are in general idle and
poor. The great trade of Rouen and Bourdeaux seems to be alto-

264 WEALTH OF NATIONS

gether the effect of their situation. Rouen is necessarily the entre-
pot of almost all the goods which are brought either from foreign
countries, or from the maritime provinces of France, for the con-
sumption of the great city of Paris. Bourdeaux is in the same man-
ner the entrepot of the wines which grow upon the banks of the
Garonne, and of the rivers which run into it, one of the richest wine
countries in the world, and which seems to produce the wine fittest
for exportation, or best suited to the taste of foreign nations. Such
advantageous situations necessarily attract a great capital by the
great employment which they afford it; and the employment of
this capital is the cause of the industry of those two cities. In the
other parliament towns of France, very little more capital seems to
be employed than what is necessary for supplying their own con-
sumption; that is, little more than the smallest capital which can be
employed in them. The same thing may be said of Paris, Madrid,
and Vienna. Of those three cities, Paris is by far the most industrious:
but Paris itself is the principal market of all the manufactures estab-
lished at Paris, and its own consumption is the principal object of
all the trade which it carries on. London, Lisbon, and Copenhagen,
are, perhaps, the only three cities in Europe, which are both the
constant residence of a court, and can at the same time be considered
as trading cities, or as cities which trade not only for their own con-
sumption, but for that of other cities and countries. The situation of
all the three is extremely advantageous, and naturally fits them to
be the entrepots of a great part of the goods destined for the con-
sumption of distant places. In a city where a great revenue is spent,
to employ with advantage a capital for any other purpose than for
supplying the consumption of that city, is probably more difficult
than in one in which the inferior ranks of people have no other
maintenance but what they derive from the employment of such a
capital. The idleness of the greater part of the people who are main-
tained by the expence of revenue, corrupts, it is probable, the indus-
try of those who ought to be maintained by the employment of capi-
tal, and renders it less advantageous to employ a capital there than
in other places. There was little trade or industry in Edinburgh
before the Union. When the Scotch parliament was no longer to be
assembled in it, when it ceased to be the necessary residence of the

ACCUMULATION OF CAPITAL 265

principal nobility and gentry of Scotland, it became a city of some
trade and industry. It still continues, however, to be the residence
of the principal courts of justice in Scotland, of the boards of cus-
toms and excise, &c. A considerable revenue, therefore, still con-
tinues to be spent in it. In trade and industry it is much inferior
to Glasgow, of which the inhabitants are chiefly maintained by the
employment of capital. The inhabitants of a large village, it has
sometimes been observed, after having made considerable progress
in manufactures, have become idle and poor, in consequence of a
great lord's having taken up his residence in their neighbourhood.

The profxjrtion between capital and revenue, therefore, seems
everywhere to regulate the proportion between industry and idle-
ness. Wherever capital predominates, industry prevails; wherever
revenue, idleness. Every increase or diminution of capital, there-
fore, naturally tends to increase or diminish the real quantity of
industry, the number of productive hands, and consequently, the
exchangeable value of the annual produce of the land and labour of
the country, the real wealth and revenue of all its inhabitants.

Capitals are increased by parsimony, and diminished by prodigal-
ity and misconduct.

Whatever a person saves from his revenue he adds to his capital,
and either employs it himself in maintaining an additional number
of productive hands, or enables some other person to do so, by lend-
ing it to him for an interest, that is, for a share of the profits. As the
capital of an individual can be increased only by what he saves from
his annual revenue or his annual gains, so the capital of a society,
which is the same with that of all the individuals who compose it,
can be increased only in the same manner.

Parsimony, and not industry, is the immediate cause of the increase
of capital. Industry, indeed, provides the subject which parsimony
accumulates. But whatever industry might acquire, if parsimony
did not save and store up, the capital would never be the greater.

Parsimony, by increasing the fund which is destined for the main-
tenance of productive hands, tends to increase the number of those
hands whose labour adds to the value of the subject upon which it
is bestowed. It tends therefore to increase the exchangeable value
of the annual produce of the land and labour of the country. It puts

266 WEALTH OF NATIONS

into motion an additional quantity of industry, which gives an addi-
tional value to the annual produce.

What is annually saved is as regularly consumed as what is an-
nually spent, and nearly in the same time too; but it is consumed by
a different set of jjeople. That portion of his revenue which a rich
man annually spends, is in most cases consumed by idle guests, and
menial servants, who leave nothing behind them in return for their
consumption. That portion which he annually saves, as for the
sake of the profit it is immediately employed as a capital, is con-
sumed in the same manner, and nearly in the same time too, but by
a different set of people, by labourers, manufacturers, and artificers,
who re-produce with a profit the value of their annual consumption.
His revenue, we shall suppose, is paid him in money. Had he
spent the whole, the food, clothing, and lodging, which the whole
could have purchased, would have been distributed among the for-
mer set of people. By saving a part of it, as that part is for the
sake of the profit immediately employed as a capital either by him-
self or by some other person, the food, clothing, and lodging, which
may be purchased with it, are necessarily reserved for the latter. The
consumption is the same, but the consumers are different.

By what a frugal man annually saves, he not only affords main-
tenance to an additional number of productive hands, for that or
the ensuing year, but, like the founder of a public workhouse, he
establishes as it were a f)erp)etual fund for the maintenance of an
equal number in all times to come. The perpetual allotment and
destination of this fund, indeed, is not always guarded by any {X)si-
tive law, by any trust-right or deed of mortmain. It is always
guarded, however, by a very p)owerful principle, the plain and evi-
dent interest of every individual to whom any share of it shall ever
belong. No part of it can ever afterwards be employed to main-
tain any but productive hands, without an evident loss to the person
who thus perverts it from its projjer destination.

The prodigal perverts it in this manner. By not confining his
expence within his income, he encroaches u|X>n his capital. Like
him who perverts the revenues of some pious foundation to profane
purposes, he pays the wages of idleness with those funds which the
frugality of his forefathers had, as it were, consecrated to the main-

ACCUMULATION OF CAPITAL 267

tenance of industry. By diminishing the funds destined for the em-
ployment of productive labour, he necessarily diminishes, so far as
it depends upon him, the quantity of that labour which adds a
value to the subject upon which it is bestowed, and, consequendy,
the value of the annual produce of the land and labour of the whole
country, the real wealth and revenue of its inhabitants. If the prodi-
gality of some was not compensated by the frugality of others,
the conduct of every prodigal, by feeding the idle with the bread
of the industrious, tends not only to beggar himself, but to impov-
erish his country.

Though the expence of the prodigal should be altogether in home-
made, and no part of it in foreign commodities, its effect upon the
productive funds of the society would still be the same. Every year
there would still be a certain quantity of food and clothing, which
ought to have maintained productive, employed in maintaining un-
productive hands. Every year, therefore, there would still be some
diminution in what would otherwise have been the value of the
annual produce of the land and labour of the country.

This expence, it may be said indeed, not being in foreign goods,
and not occasioning any exportation of gold and silver, the same
quantity of money would remain in the country as before. But if
the quantity of food and clothing, which were thus consumed by un-
productive, had been distributed among productive hands, they
would have re-produced, together with a profit, the full value of
their consumption. The same quantity of money would in this case
equally have remained in the country, and there would besides have
been a reproduction of an equal value of consumable goods. There
would have been two values instead of one.

The same quantity of money, besides, cannot long remain in any
country in which the value of the annual produce diminishes. The
sole use of money is to circulate consumable goods. By means of
it, provisions, materials, and finished work, are bought and sold, and
distributed to their proper consumers. The quantity of money, there-
fore, which can be annually employed in any country, must be de-
termined by the value of the consumable goods annually circulated
within it. These must consist either in the immediate produce of the
land and labour of the country itself, or in something which had

268 WEALTH OF NATIONS

been purchased with some part of that produce. Their value, there-
fore, must diminish as the value of that produce diminishes, and
along with it the quantity of money which can be employed in cir-
culating them. But the money which by this annual diminution
of produce is annually thrown out of domestic circulation, will not
be allowed to lie idle. The interest of whoever pxjssesses it, requires
that it should be employed. But having no employment at home,
it will, in spite of all laws and prohibitions, be sent abroad, and em-
ployed in purchasing consumable goods which may be of some use
at home. Its annual exportation will in this manner continue for
some time to add something to the annual consumption of the coun-
try beyond the value of its own annual produce. What in the days
of its prosperity had been saved from that annual produce, and em-
ployed in purchasing gold and silver, will contribute for some litde
time to support its consumption in adversity. The exportation of
gold and silver is, in this case, not the cause, but the effect of its
declension, and may even, for some litde time, alleviate the misery of
that declension.

The quantity of money, on the contrary, must in every country
naturally increase as the value of the annual produce increases. The
value of the consumable goods annually circulated within the so-
ciety being greater, will require a greater quantity of money to cir-
culate them. A part of the increased produce, therefore, will naturally
be employed in purchasing, wherever it is to be had, the additional
quantity of gold and silver necessary for circulating the rest. The
increase of those metals will in this case be the effect, not the
cause, of the public prosperity. Gold and silver are purchased every-
where in the same manner. The food, clothing, and lodging, the
revenue and maintenance of all those whose labour or stock is em-
ployed in bringing them from the mine to the market, is the price
paid for them in Peru as well as in England. The country which
has this price to pay, will never be long without the quantity of those
metals which it has occasion for; and no country will ever long
retain a quantity which it has no occasion for.

Whatever, therefore, we may imagine the real wealth and revenue
of a country to consist in, whether in the value of the annual produce
of its land and labour, as plain reason seems to dictate; or in the

ACCUMULATION OF CAPITAL 269

quantity of the precious metals which circulate within it, as vulgar
prejudices suppose; in either view of the matter, every prodigal ap)-
pears to be a public enemy, and every frugal man a public benefactor.

The effects of misconduct are often the same as those of prodi-
gality. Every injudicious and unsuccessful project in agriculture,
mines, fisheries, trade, or manufactures, tends in the same manner
to diminish the funds destined for the maintenance of productive
labour. In every such project, though the capital is consumed by
productive hands only, yet, as by the injudicious manner in which
they are employed, they do not reproduce the full value of their
consumption, there must always be some diminution in what would
otherwise have been the productive funds of the society.

It can seldom happen, indeed, that the circumstances of a great
nation can be much affected either by the prodigality or misconduct
of individuals; the profusion or imprudence of some, being always
more than compensated by the frugality and good conduct of others.

With regard to profusion, the principle which prompts to expence,
is the passion for present enjoyment; which, though sometimes vio-
lent and very difficult to be restrained, is in general only momentary
and occasional. But the principle which prompts to save, is the de-
sire of bettering our condition, a desire which, though generally
calm and dispassionate, comes with us from the womb, and never
leaves us till we go into the grave. In the whole interval which
separates those two moments, there is scarce perhaps a single instant
in which any man is so perfectly and completely satisfied with his
situation, as to be without any wish of alteration or improvement
of any kind. An augmentation of fortune is the means by which the
greater part of men propose and wish to better their condition. It is
the means the most vulgar and the most obvious; and the most likely
way of augmenting their fortune, is to save and accumulate some
part of what they acquire, either regularly and annually, or upon
some extraordinary occasions. Though the principle of expence,
therefore, prevails in almost all men uf)on some occasions, and in
some men upon almost all occasions, yet in the greater part of men,
taking the whole course of their life at an average, the principle of
frugality seems not only to predominate but to predominate very
greatly.

270 WEALTH OF NATIONS

With regard to misconduct, the number of prudent and success-
ful undertakings is every-where much greater than that of inju-
dicious and unsuccessful ones. After all our complaints of the fre-
quency of bankruptcies, the unhappy men who fall into this mis-
fortune make but a very small part of the whole number engaged
in trade, and all other sorts of business; not much more perhaps
than one in a thousand. Bankruptcy is perhaps the greatest and most
humiliating calamity which can befal an innocent man. The greater
part of men, therefore, are sufficiently careful to avoid it. Some,
indeed, do not avoid it; as some do not avoid the gallows.

Great nations are never impoverished by private, though they
sometimes are by public prodigality and misconduct. The whole,
or almost the whole public revenue, is in most countries employed
in maintaining unproductive hands. Such are the people who com-
pose a numerous and splendid court, a great ecclesiastical establish-
ment, great fleets and armies, who in time of peace produce nothing,
and in time of war acquire nothing which can compensate the ex-
pence of maintaining them, even while the war lasts. Such people,
as they themselves produce nothing, are all maintained by the prod-
uce of other men's labour. When multiplied, therefore, to an un-
necessary number, they may in a particular year consimie so great a
share of this produce, as not to leave a sufficiency for maintaining
the productive labourers, who should reproduce it next year. The
next year's produce, therefore, will be less than that of the fore-
going, and if the same disorder should continue, that of the third
year will be still less than that of the second. Those unproductive
hands, who should be maintained by a part only of the spare revenue
of the people, may consume so great a share of their whole revenue,
and thereby oblige so great a number to encroach upon their capitals,
upon the funds destined for the maintenance of productive labour,
that all the frugality and good conduct of individuals may not be
able to compensate the waste and degradation of produce occasioned
by this violent and forced encroachment.

This frugality and good conduct, however, is upon most occa-
sions, it appears from experience, sufficient to compensate, not only
the private prodigality and misconduct of individuals, but the public
extravagance of government. The uniform, constant, and uninter-

ACCUMULATION OF CAPITAL 2'Jl

rupted effort of every man to better his condition, the principle from
which the public and national, as well as private opulence is origi-
nally derived, is frequently powerful enough to maintain the natural
progress of things toward improvement, in spite both of the ex-
travagance of government, and of the greatest errors of administra-
tion. Like the unknown principle of animal life, it frequently re-
stores health and vigour to the constitution, in spite, not only of the
disease, but of the absurd prescriptions of the doctor.

The annual produce of the land and labour of any nation can be
increased in its value by no other means, but by increasing either the
number of its productive labourers, or the productive pwwers of those
labourers who had before been employed. The number of its pro-
ductive labourers, it is evident, can never be much increased, but in
consequence of an increase of capital, or of the funds destined for
maintaining them. The productive powers of the same number of
labourers cannot be increased, but in consequence either of some
addition and improvement to those machines and instruments which
facilitate and abridge labour; or of a more proper division and dis-
tribution of employment. In either case an additional capital is
almost always required. It is by means of an additional capital only,
that the undertaker of any work can either provide his workmen
with better machinery, or make a more proper distribution of em-
ployment among them. When the work to be done consists of a
number of parts, to keep every man constantly employed in one
way, requires a much greater capital than where every man is oc-
casionally employed in every different part of the work. When we
compare, therefore, the state of a nation at two different periods, and
find, that the annual produce of its land and labour is evidendy
greater at the latter than at the former, that its lands are better cul-
tivated, its manufactures more numerous and more flourishing, and
its trade more extensive, we may be assured that its capital must
have increased during the interval between those two periods, and
that more must have been added to it by the good conduct of some,
than had been taken from it either by the private misconduct of
others, or by the public extravagance of government. But we shall
find this to have been the case of almost all nations, in all tolerably
quiet and peaceable times, even of those who have not enjoyed the

272 WEALTH OF NATIONS

most prudent and parsimonious governments. To form a right
judgment of it, indeed, we must compare the state of the country at
{periods somewhat distant from one another. The progress is fre-
quently so gradual, that, at near periods, the improvement is not
only not sensible, but from the declension either of certain branches
of industry, or of certain districts of the country, things which some-
times hapf)en though the country in general be in great prosperity,
there frequently arises a suspicion, that the riches and industry of
the whole are decaying.

The annual produce of the land and labour of England, for ex-
ample, is certainly much greater than it was, a little more than a
century ago, at the restoration of Charles II. Though, at present,
few people, I believe, doubt of this, yet during this period, five years
have seldom passed away in which some book or pamphlet has not
been published, written too with such abilities as to gain some au-
thority with the public, and pretending to demonstrate that the
wealth of the nation was fast declining, that the country was depopu-
lated, agriculture neglected, manufactures decaying, and trade un-
done. Nor have these publications been all party pamphlets, the
wretched offspring of falsehood and venality. Many of them have
been written by very candid and very intelligent people; who
wrote nothing but what they believed, and for no other reason but
because they believed it.

The annual produce of the land and labour of England, again,
was certainly much greater at the restoration than we can suppose
it to have been about an hundred years before, at the accession of
Elizabeth. At this period, too, we have all reason to believe, the
country was much more advanced in improvement than it had been
about a century before, towards the close of the dissensions between
the houses of York and Lancaster. Even then it was probably in
a better condition than it had been at the Norman conquest; and
at the Norman conquest than during the confusion of the Saxon
heptarchy. Even at this early period, it was certainly a more im-
proved country than at the invasion of Julius Caesar, when its inhabit-
ants were nearly in the same state with the savages in North
America.

In each of those periods, however, there was, not only much pri-

ACCUMULATION OF CAPITAL 273

vate and public profusion, many expensive and unnecessary wars,
great perversion of the annual produce from maintaining produc-
live to maintain unproductive hands; but sometimes, in the confu-
sion of civil discord, such absolute waste and destruction of stock,
as might be supposed, not only to retard, as it certainly did, the natu-
ral accumulation of riches, but to have left the country, at the end
of the period, poorer than at the beginning. Thus, in the happiest
and most fortunate period of them all, that which has passed since
the restoration, how many disorders and misfortunes have occurred,
which, could they have been foreseen, not only the impoverishment,
but the total ruin of the country would have been expected from
them? The fire and the plague of London, the two Dutch wars,
the disorders of the revolution, the war in Ireland, the four expensive
French wars of 1688, 1702, 1742, and 1756, together with the two
rebellions of 1715 and 1745. In the course of the four French wars,
the nation has contracted more than a hundred and forty-five mil-
lions of debt, over and above all the other extraordinary annual ex-
pence which they occasioned, so that the whole cannot be computed
at less than two hundred millions. So great a share of the annual
produce of the land and labour of the country, has, since the revo-
lution, been employed upon different occasions, in maintaining an
extraordinary number of unproductive hands. But had not those
wars given this particular direction to so large a capital, the greater
part of it would naturally have been employed in maintaining pro-
ductive hands, whose labour would have replaced, with a profit, the
whole value of their consumption. The value of the annual produce
of the land and labour of the country, would have been considerably
increased by it every year, and every year's increase would have aug-
mented still more that of the following year. More houses would
have been built, more lands would have been improved, and those
which had been improved before would have been better cultivated,
more manufactures would have been established, and those which
had been established before would have been more extended; and
to what height the real wealth and revenue of the country might,
by this time, have been raised, it is not perhaps very easy even to
imagine.

But though the profusion of government must, undoubtedly, have

274 WEALTH OF NATIONS

retarded the natural progress of England towards wealth and im-
provement, it has not been able to stop it. The annual produce of
its land and labour is, undoubtedly, much greater at present than
it was either at the restoration or at the revolution. The capital,
therefore, annually employed in cultivating this land, and in main-
taining this labour, must likewise be much greater. In the midst of
all the exactions of government, this capital has been silently and
gradually accumulated by the private frugality and good conduct of
individuals, by their universal, continual, and uninterrupted effort
to better their own condition. It is this effort, protected by law and
allowed by liberty to exert itself in the manner that is most advan-
tageous, which has maintained the progress of England towards opu-
lence and improvement in almost all former times, and which, it is
to be hoped, will do so in all future times. England, however, as it
has never been blessed with a very parsimonious government, so
parsimony has at no time been the characteristical virtue of its in-
habitants. It is the highest impertinence and presumption, therefore,
in kings and ministers to pretend to watch over the economy of
private people, and to restrain their expence, either by sumptuary
laws, or by prohibiting the importation of foreign luxuries. They
are themselves always, and without any exception, the greatest
spendthrifts in the society. Let them look well after their own ex-
pence, and they may safely trust private people with theirs. If their
own extravagance does not ruin the state, that of their subjects never
will.

As frugality increases, and prodigality diminishes the public capi-
tal, so the conduct of those whose expence just equals their revenue,
without either accumulating or encroaching, neither increases nor
diminishes it. Some modes of expence, however, seem to contribute
more to the growth of public opulence than others.

The revenue of an individual may be spent, either in things which
are consumed immediately, and in which one day's exjjence can
neither alleviate nor support that of another; or it may be spent in
things more durable, which can therefore be accumulated, and in
which every day's expence may, as he chuses, either alleviate or sup-
port and heighten the effect of that of the following day. A man
of fortune, for example, may either spend his revenue in a profuse

ACCUMULATION OF CAPITAL 275

and sumptuous table, and in maintaining a great number of menial
servants, and a multitude of dogs and horses; or contenting himself
with a frugal table and few attendants, he may lay out the greater
part of it in adorning his house or his country villa, in useful or
ornamental buildings, in useful or ornamental furniture, in collect-
ing books, statues, pictures; or in things more frivolous, jewels, bau-
bles, ingenious trinkets of different kinds; or, what is most trifling
of all, in amassing a great wardrobe of fine clothes, like the favourite
and minister of a great prince who died a few years ago. Were two
men of equal fortune to spend their revenue, the one chiefly in the
one way, the other in the other, the magnificence of the person whose
expence had been chiefly in durable commodities, would be continu-
ally increasing, every day's expence contributing something to sup-
port and heighten the effect of that of the following day : that of the
other, on the contrary, would be no greater at the end of the period
than at the beginning. The former too would, at the end of the
period, be the richer man of the two. He would have a stock of
goods of some kind or other, which, though it might not be worth
all that it cost, would always be worth something. No trace or ves-
tige of the expence of the latter would remain, and the effects of ten
or twenty years profusion would be as completely annihilated as if
they had never existed.

As the one mode of expence is more favourable than the other to
the opulence of an individual, so is it likewise to that of a nation.
The houses, the furniture, the clothing of the rich, in a litde time,
become useful to the inferior and middling ranks of people. They
are able to purchase them when their superiors grow weary of them,
and the general accommodation of the whole people is thus gradu-
ally improved, when this mode of expence becomes universal among
men of fortune. In countries which have long been rich, you will
frequendy find the inferior ranks of people in possession both of
houses and furniture perfectly good and entire, but of which neither
the one could have been built, nor the other have been made for their
use. What was formerly a seat of the family of Seymour, is now an
inn upon the Bath road. The marriage-bed of James the First of
Great Britain, which his Queen brought with her from Denmark,
as a present fit for a sovereign to make to a sovereign, was, a few

276 WEALTH OF NATIONS

years ago, the ornament of an ale-house at Dunfermline. In some
ancient cities, which either have been long stationary, or have gone
somewhat to decay, you will sometimes scarce find a single house
which could have been built for its present inhabitants. If you go
into those houses too, you will frequendy find many excellent, though
antiquated pieces of furniture, which are still very fit for use, and
which could as little have been made for them. Noble palaces, mag-
nificent villas, great collections of books, statues, pictures, and other
curiosities, are frequently both an ornament and an honour, not only
to the neighbourhood, but to the whole country to which they belong.
Versailles is an ornament and an honour to France, Stowe and
Wilton to England. Italy still continues to command some sort of
veneration by the number of monuments of this kind which it pos-
sesses, though the wealth which produced them has decayed, and
though the genius which planned them seems to be extinguished,
perhaps, from not having the same employment.

The expence too, which is laid out in durable commodities, is
favourable, not only to accumulation, but to frugality. If a person
should at any time exceed in it, he can easily reform without ex-
posing himself to the censure of the public. To reduce very much
the number of his servants, to reform his table from great profu-
sion to great frugality, to lay down his equipage after he has once
set it up, are changes which cannot escape the observation of his
neighbours, and which are supposed to imply some acknowledg-
ment of preceding bad conduct. Few, therefore, of those who have
once been so unfortunate as to launch out too far into this sort of
expence, have afterwards the courage to reform, till ruin and bank-
ruptcy oblige them. But if a person has, at any time, been at too
great an expence in building, in furniture, in books or pictures, no
imprudence can be inferred from his changing his conduct. These
are things in which further expence is frequently rendered unneces-
sary by former expence; and when a person stops short, he appears
to do so, not because he has exceeded his fortune, but because he
has satisfied his fancy.

The exf)ence, besides, that is laid out in durable commodities, gives
maintenance, commonly, to a greater number of people, than that
which is employed in the most profuse hospitality. Of two or three

ACCUMULATION OF CAPITAL 277

hundred weight of provisions, which may sometimes be served up
at a great festival, one-half, perhaps, is thrown to the dunghill, and
there is always a great deal wasted and abused. But if the expense
of this entertainment had been employed in setting to work masons,
carpenters, upholsterers, mechanics, &c. a quantity of provisions, of
equal value, would have been distributed among a still greater num-
ber of people, who would have bought them in penny-worths and
fxjund weights, and not have lost or thrown away a single ounce
of them. In the one way, besides, this expense maintains productive,
in the other unproductive hands. In the one way, therefore, it in-
creases, in the other, it does not increase, the exchangeable value of
the annual produce of the land and labour of the country.

I would not, however, by all this be understood to mean, that the
one species of expence always betokens a more liberal or generous
spirit than the other. When a man of fortune sf>ends his revenue
chiefly in hospitality, he shares the greater part of it with his friends
and companions; but when he employs it in purchasing such durable
commodities, he often spends the whole upon his own person, and
gives nothing to any body without an equivalent. The latter species
of expence, therefore, especially when directed towards frivolous ob-
jects, the little ornaments of dress and furniture, jewels, trinkets,
gewgaws, frequently indicates, not only a trifling, but a base and
selfish disposition. All that I mean is, that the one sort of expence, as
it always occasions some accumulation of valuable commodities, as
it is more favourable to private frugality, and, consequently, to the
increase of the public capital, and as it maintains productive, rather
than unproductive hands, conduces more than the other to the
growth of public opulence.

CHAPTER IV
Of Stock Lent at Interest

THE stock which is lent at interest is always considered as
a capital by the lender. He expects that in due time it is
to be restored to him, and that in the mean time the bor-
rower is to pay him a certain annual rent for the use of it. The bor-
rower may use it either as a capital, or as a stock reserved for
immediate consumption. If he uses it as a capital, he employs it in
the maintenance of productive labourers, who reproduce the value
with a profit. He can, in this case, both restore the capital and pay
the interest without alienating or encroaching upon any other source
of revenue. If he uses it as a stock reserved for immediate consump-
tion, he aas the part of a prodigal, and dissipates in the maintenance
of the idle, what was destined for the support of the industrious. He
can, in this case, neither restore the capital nor pay the interest, with-
out either alienating or encroaching upon some other source of rev-
enue, such as the property or the rent of land.

The stock which is lent at interest is, no doubt, occasionally em-
ployed in both these ways, but in the former much more frequently
than in the latter. The man who borrows in order to spend will
soon be ruined, and he who lends to him will generally have occa-
sion to repent of his folly. To borrow or to lend for such a pur-
jX)se, therefore, is in all cases, where gross usury is out of the ques-
tion, contrary to the interest of both parties; and though it no doubt
happens sometimes that people do both the one and the other; yet,
from the regard that all men have for their own interest, we may be
assured, that it cannot happen so very frequently as we are some-
times apt to imagine. Ask any rich man of common prudence, to
which of the two sorts of people he has lent the greater part of his
stock, to those who, he thinks, will employ it profitably, or to those
who will spend it idly, and he will laugh at you for profxjsing the
question. Even among borrowers, therefore, not the people in the

a78

STOCK LENT AT INTEREST 279

world most famous for frugality, the number of the frugal and
industrious surpasses considerably that of the prodigal and idle.

The only people to whom stock is commonly lent, without their
being expected to make any very profitable use of it, are country gen-
tlemen who borrow upon mortgage. Even they scarce ever borrow
merely to spend. What they borrow, one may say, is commonly
spent before they borrow it. They have generally consumed so great
a quantity of goods, advanced to them upon credit by shopkeepers
and tradesmen, that they find it necessary to borrow at interest in
order to pay the debt. The capital borrowed replaces the capitals of
those shopkeepers and tradesmen, which the country gentlemen
could not have replaced from the rents of their estates. It is not
properly borrowed in order to be spent, but in order to replace a
capital which had been spent before.

Almost all loans at interest are made in money, either of paper,
or of gold and silver. But what the borrower really wants, and what
the lender really supplies him with, is not the money, but the money's
worth, or the goods which it can purchase. If he wants it as a stock
for immediate consumption, it is those goods only which he can
place in that stock. If he wants it as a capital for employing industry,
it is from those goods only that the industrious can be furnished
with the tools, materials, and maintenance, necessary for carrying
on their work. By means of the loan, the lender, as it were, assigns
to the borrower his right to a certain portion of the annual produce
of the land and labour of the country, to be employed as the borrower
pleases.

The quantity of stock, therefore, or, as it is commonly expressed,
of money which can be lent at interest in any country, is not regu-
lated by the value of the money, whether paper or coin, which serves
as the instrument of the different loans made in that country, but
by the value of that part of the annual produce which, as soon as
it comes either from the ground, or from the hands of the produc-
tive labourers, is destined not only for replacing a capital, but such
a capiul as the owner does not care to be at the trouble of employing
himself. As such capitals are commonly lent out and paid back in
money, they constitute what is called the monied interest. It is dis-
tinct, not only from the landed, but from the trading and manufac-

28o WEALTH OF NATIONS

turing interests, as in these last the owners themselves employ their
own capitals. Even in the monied interest, however, the money is,
as it were, but the deed of assignment, which conveys from one hand
to another those capitals which the owners do not care to employ
themselves. Those capitals may be greater in almost any propor-
tion, than the amount of the money which serves as the instrument
of their conveyance; the same pieces of money successively serving
for many different loans, as well as for many different purchases.
A, for example, lends to W a thousand f)ounds, with which W im-
mediately purchases of B a thousand pounds worth of goods. B
having no occasion for the money himself, lends the identical pieces
to X, with which X immediately purchases of C another thousand
pounds worth of goods. C in the same manner, and for the same
reason, lends them to Y, who again purchases goods with them of
D. In this manner the same pieces, either of coin or of pap)er, may,
in the course of a few days, serve as the instrument of three different
loans, and of three different purchases, each of which is, in value,
equal to the whole amount of those pieces. What the three monied
men, A, B, and C, assign to the three borrowers, W, X, Y, is the
power of making those purchases. In this power consist both the
value and the use of the loans. The stock lent by the three monied
men, is equal to the value of the goods which can be purchased with
it, and is three times greater than that of the money with which the
purchases are made. Those loans, however, may be all perfectly well
secured, the goods purchased by the different debtors being so em-
ployed, as, in due time, to bring back, with a profit, an equal value
either of coin or of paper. And as the same pieces of money can thus
serve as the instrument of different loans to three, or for the same
reason, to thirty times their value, so they may likewise successively
serve as the instrument of repayment.

A capital lent at interest may, in this manner, be considered as
an assignment from the lender to the borrower of a certain consid-
erable portion of the annual produce; upon condition that the bor-
rower in return shall, during the continuance of the loan, annually
assign to the lender a smaller portion, called the interest; and at the
end of it, a portion equally considerable with that which had origi-
nally been assigned to him, called the repayment. Though money,

STOCK LENT AT INTEREST 28 1

either coin or paper, serves generally as the deed of assignment both
to the smaller, and to the more considerable portion, it is itself
altogether different from what is assigned by it.

In proportion as that share of the annual produce which, as soon
as it comes either from the ground, or from the hands of the produc-
tive labourers, is destined for replacing a capital, increases in any
country, what is called the monied interest naturally increases with
it. The increase of those particular capitals from which the owners
wish to derive a revenue, without being at the trouble of employing
them themselves, naturally accompanies the general increase of capi-
tals; or, in other words, as stock increases, the quantity of stock to be
lent at interest grows gradually greater and greater.

As the quantity of stock to be lent at interest increases, the inter-
est, or the price which must be paid for the use of that stock, neces-
sarily diminishes, not only from those general causes which make
the market price of things commonly diminish as their quantity in-
creases, but from other causes which are p>eculiar to this particular
case. As capitals increase in any country, the profits which can be
made by employing them necessarily diminish. It becomes gradu-
ally more and more difficult to find within the country a profitable
method of employing any new capital. There arises in consequence
a competition between different capitals, the owner of one en-
deavouring to get possession of that employment which is occupied
by another. But upon most occasions he can hope to justle that
other out of this employment, by no other means but by dealing
upon more reasonable terms. He must not only sell what he deals
in somewhat cheaper, but in order to get it to sell, he must some-
times too buy it dearer. The demand for productive labour, by
the increase of the funds which are destined for maintaining it,
grows every day greater and greater. Labourers easily find employ-
ment, but the owners of capitals find it difficult to get labourers to
employ. Their competition raises the wages of labour, and sinks
the profits of stock. But when the profits which can be made by
the use of a capital are in this manner diminished, as it were, at
both ends, the price which can be paid for the use of it, that is, the
rate of interest, must necessarily be diminished with them.

Mr. Locke, Mr. Law, and Mr. Montesquieu, as well as many

282 WEALTH OF NATIONS

other writers, seem to have imagined that the increase of the quan-
tity of gold and silver, in consequence of the discovery of the
Spanish West Indies, was the real cause of the lowering of the rate
of interest through the greater part of Europe. Those metals, they
say, having become of less value themselves, the use of any particu-
lar portion of them necessarily became of less value too, and conse-
quently the price which could be paid for it. This notion, which at
first sight seems so plausible, has been so fully exposed by Mr.
Hume, that it is perhaps, unnecessary to say any thing more about
it. The following very short and plain argument, however, may
serve to explain more distinctly the fallacy which seems to have
misled those gentlemen.

Before the discovery of the Spanish West Indies, ten per cent,
seems to have been the common rate of interest through the greater
part of Europe. It has since that time in different countries sunk
to six, five, four, and three per cent. Let us suppose that in every
particular country the value of silver has sunk precisely in the same
proportion as the rate of interest; and that in those countries, for
example, where interest has been reduced from ten to five per cent.,
the same quantity of silver can now purchase just half the quantity
of goods which it could have purchased before. This supposition
will not, I believe, be found any-where agreeable to the truth; but
it is the most favourable to the opinion which we are going to exam-
ine; and even upon this supposition it is utterly impossible that the
lowering of the value of silver could have the smallest tendency to
lower the rate of interest. If a hundred pounds are in those coun-
tries now of no more value than fifty pounds were then, ten pounds
must now be of no more value than five p>ounds were then. What-
ever were the causes which lowered the value of the capital, the
same must necessarily have lowered that of the interest, and exacdy
in the same proportion. The proportion between the value of the
capital and that of the interest, must have remained the same,
though the rate had never been altered. By altering the rate, on
the contrary, the proportion between those two values is necessarily
altered. If a hundred pounds now are worth no more than fifty
were then, five pounds now can be worth no more than two pounds
ten shillings were then. By reducing the rate of interest, therefore.

STOCK LENT AT INTEREST 283

from ten to five per cent., we give for the use of a capital, which
is supposed to be equal to one-half of its former value, an inter-
est which is equal to one-fourth only of the value of the former
interest.

Any increase in the quantity of silver, while that of the commodi-
ties circulated by means of it remained the same, could have no
other effect than to diminish the value of that metal. The nominal
value of all sorts of goods would be greater, but their real value
would be precisely the same as before. They would be exchanged
for a greater number of pieces of silver; but the quantity of labour
which they could command, the number of people whom they
could maintain and employ, would be precisely the same. The capi-
tal of the country would be the same, though a greater number of
pieces might be requisite for conveying any equal portion of it from
one hand to another. The deeds of assignment, like the convey-
ances of a verbose attorney, would be more cumbersome, but the
thing assigned would be precisely the same as before, and could
produce only the same effects. The funds for maintaining produc-
tive labour being the same, the demand for it would be the same.
Its price or wages, therefore, though nominally greater, would really
be the same. They would be paid in a greater number of pieces of
silver; but they would purchase only the same quantity of goods.
The profits of stock would be the same both nominally and really.
The wages of labour are commonly computed by the quantity of
silver which is paid to the labourer. When that is increased, there-
fore, his wages appear to be increased, though they may sometimes
be no greater than before. But the profits of stock are not computed
by the number of pieces of silver with which they are paid, but by
the proportion which those pieces bear to the whole capital em-
ployed. Thus in a particular country five shillings a week are said
to be the common wages of labour, and ten per cent, the common
profits of stock. But the whole capital of the country being the
same as before, the competition between the different capitals of
individuals into which it was divided would likewise be the same.
They would all trade with the same advantages and disadvantages.
The common proportion between capital and profit, therefore, would
be the same, and consequendy the common interest of money; what

284 WEALTH OF NATIONS

can commonly be given for the use of money being necessarily regu-
lated by what can commonly be made by the use of it.

Any increase in the quantity of commodities annually circulated
within the country, while that of the money which circulated them
remained the same, would, on the contrary, produce many other
important effects, besides that of raising the value of the money. The
capital of the country, though it might nominally be the same, would
really be augmented. It might continue to be expressed by the same
quantity of money, but it would command a greater quantity of
labour. The quantity of productive labour which it could maintain
and employ would be increased, and consequently the demand for
that labour. Its wages would naturally rise with the demand, and
yet might appear to sink. They might be paid with a smaller quan-
tity of money, but that smaller quantity might purchase a greater
quantity of goods than a greater had done before. The profits of
stock would be diminished both really and in appearance. The
whole capital of the country being augmented, the comf>etition be-
tween the different capitals of which it was composed, would natu-
rally be augmented along with it. The owners of those particular
capitals would be obliged to content themselves with a smaller pro-
portion of the produce of that labour which their respective capitals
employed. The interest of money, keeping pace always with the
profits of stock, might, in this manner, be greatly diminished, though
the value of money, or the quantity of goods which any particular
sum could purchase, was greatly augmented.

In some countries the interest of money has been prohibited by
law. But as something can every-where be made by the use of
money, something ought every-where to be paid for the use of it.
This regulation, instead of preventing, has been found from experi-
ence to increase the evil of usury; the debtor being obliged to pay,
not only for the use of the money, but for the risk which his creditor
runs by accepting a compensation for that use. He is obliged, if
one may say so, to insure his creditor from the penalties of usury.

In countries where interest is permitted, the law, in order to pre-
vent the extortion of usury, generally fixes the highest rate which
can be taken without incurring a penalty. This rate ought always to
be somewhat above the lowest market price, or the price which is

STCX)K LENT AT INTEREST 285

commonly paid for the use of money by those who can give the most
undoubted security. If this legal rate should be fixed below the lowest
market rate, the effects of this fixation must be nearly the same as
those of a total prohibition of interest. The creditor will not lend his
money for less than the use of it is worth, and the debtor must pay
him for the risk which he runs by accepting the full value of that
use. If it is fixed precisely at the lowest market price, it ruins with
honest people, who respect the laws of their country, the credit of
all those who cannot give the very best security, and obliges them
to have recourse to exorbitant usurers. In a country, such as Great
Britain, where money is lent to government at three per cent, and to
private people upon good security at four, and four and a half, the
present legal rate, five per cent., is perhaps, as proper as any.

The legal rate, it is to be observed, though it ought to be some-
what above, ought not to be much above the lowest market rate. If
the legal rate of interest in Great Britain, for example, was fixed so
high as eight or ten per cent., the greater part of the money which
was to be lent, would be lent to prodigals and projectors, who alone
would be willing to give this high interest. Sober jjeople, who will
give for the use of money no more than a part of what they are likely
to make by the use of it, would not venture into the comjjetition,
A great part of the capital of the country would thus be kept out
of the hands which were most likely to make a profitable and ad-
vantageous use of it, and thrown into those which were most likely
to waste and destroy it. Where the legal rate of interest, on the
contrary, is fixed but a very little above the lowest market rate, sober
people are universally preferred, as borrowers, to prodigals and pro-
jectors. The person who lends money gets nearly as much interest
from the former as he dares to take from the latter, and his money
is much safer in the hands of the one set of people, than in those
of the other. A great part of the capital of the country is thus
thrown into the hands in which it is mostly likely to be employed
with advantage.

No law can reduce the common rate of interest below the lowest
ordinary market rate at the time when that law is made. Notwith-
standing the edict of 1766, by which the French king attempted to
reduce the rate of interest from five to four per cent., money

286 WEALTH OF NATIONS

continued to be lent in France at five per cent^ the law being evaded
in several different ways.

The ordinary market price of land, it is to be observed, depends
every-where upon the ordinary market rate of interest. The person
who has a capital from which he wishes to derive a revenue, without
taking the trouble to employ it himself, deliberates whether he
should buy land with it, or lend it out at interest. The superior
security of land, together with some other advantages which almost
every-where attend upon this species of property, will generally dis-
pose him to content himself with a smaller revenue from land, than
what he might have by lending out his money at interest. These
advantages are sufficient to compensate a certain difference of rev-
enue; but they will compensate a certain difference only; and if the
rent of land should fall short of the interest of money by a greater
difference, nobody would buy land, which would soon reduce its
ordinary price. On the contrary, if the advantages should much
more than compensate the difference, every body would buy land,
which again would soon raise its ordinary price. When interest was
at ten per cent., land was commonly sold for ten and twelve years
purchase. As interest sunk to six, five and four per cent., the price
of land rose to twenty, five and twenty, and thirty years purchase.
The market rate of interest is higher in France than in England; and
the common price of land is lower. In England it commonly sells at
thirty; in France at twenty years purchase.

CHAPTER V
Of the Different Employment of Capitals

THOUGH all capitals are destined for the maintenance of
productive labour only, yet the quantity of that labour,
which equal capitals are capable of putting into motion,
varies extremely according to the diversity of their employment; as
does likewise the value which that employment adds to the annual
produce of the land and labour of the country.

A capital may be employed in four different ways: either, first,
in procuring the rude produce annually required for the use and
consumption of the society; or, secondly, in manufacturing and pre-
paring that rude, produce for immediate use and consumption; or,
thirdly, in transporting either the rude or manufactured produce
from the places where they abound to those where they are wanted;
or, lastly, in dividing particular portions of either into such small
parcels as suit the occasional demands of those who want them. In
the first way are employed the capitals of all those who undertake
the improvement or cultivation of lands, mines, or fisheries; in the
second, those of all master manufacturers; in the third, those of all
wholesale merchants; and in the fourth, those of all retailers. It is
difficult to conceive that a capital should be employed in any way
which may not be classed under some one or other of thoso four.

Eiach of those four methods of employing a capital is essentially
necessary either to the existence or extension of the other three, or to
the general conveniency of the society.

Unless a capital was employed in furnishing rude produce to a
certain degree of abundance, neither manufactures nor trade of any
kind could exist.

Unless a capital was employed in manufacturing that part of the
rude produce which requires a good deal of preparation before it
can be fit for use and consumption, it either would never be
produced, because there could be no demand for it; or if it was

287

288 WEALTH OF NATIONS

produced spontaneously, it would be of no value in exchange, and
could add nothing to the wealth of the society.

Unless a capital was employed in transporting, either the rude or
manufactured produce, from the places where it abounds to those
where it is wanted, no more of either could be produced than was
necessary for the consumption of the neighbourhood. The capital
of the merchant exchanges the surplus produce of one place for that
of another, and thus encourages the industry and increases the
enjoyments of both.

Unless a capital was employed in breaking and dividing certain
portions either of the rude or manufactured produce, into such small
parcels as suit the occasional demands of those who want them,
every man would be obliged to purchase a greater quantity of the
goods he wanted, than his immediate occasions required. If there
was no such trade as a butcher, for example, every man would be
obliged to purchase a whole ox or a whole sheep at a time. This
would generally be inconvenient to the rich, and much more so to
the p)Oor. If a poor workman was obliged to purchase a month's or
six months' provisions at a time, a great part of the stock which he
employs as a capital in the instruments of his trade, or in the furni-
ture of his shop, and which yields him a revenue, he would be forced
to place in that part of his stock which is reserved for immediate
consumption, and which yields him no revenue. Nothing can be
more convenient for such a person than to be able to purchase his
subsistence from day to day, or even from hour to hour, as he
wants it. He is thereby enabled to employ almost his whole stock
as a capital. He is thus enabled to furnish work to a greater value,
and the profit, which he makes by it in this way, much more than
compensates the additional price which the profit of the retailer
imjxjses upon the goods. The prejudices of some p)olitical writers
against shopkeepers and tradesmen, are altogether without founda-
tion. So far is it from being necessary, either to tax them, or to
restrict their numbers, that they can never be multiplied so as to hurt
the publick, though they may so as to hurt one another. The quan-
tity of grocery goods, for example, which can be sold in a particular
town, is limited by the demand of that town and its neighbourhood.
The capital, therefore, which can be employed in the grocery trade

EMPLOYMENT OF CAPITALS 289

cannot exceed what is sufficient to purchase that quantity. If this
capital is divided between two different grocers, their competition
will tend to make both of them sell cheaper, than if it were in the
hands of one only; and if it were divided among twenty, their com-
petition would be just so much the greater, and the chance of their
combining together, in order to raise the price, just so much the
less. Their competition might perhaps ruin some of themselves; but
to take care of this is the business of the pa/ties concerned, and it
may safely be trusted to their discretion. It can never hurt either
the consumer, or the producer; on the contrary, it must tend to make
the retailers both sell cheaper and buy dearer, than if the whole trade
was monopolized by one or two persons. Some of them, perhaps,
may sometimes decoy a weak customer to buy what he has no occa-
sion for. This evil, however, is of too little importance to deserve
the publick attention, nor would it necessarily be prevented by re-
stricting their numbers. It is not the multitude of ale-houses, to
give the most suspicious example, that occasions a general disposi-
tion to drunkenness among the common people; but that disposition
arising from other causes necessarily gives employment to a multi-
tude of ale-houses.

The persons whose capitals are employed in any of those four
ways are themselves productive labourers. Their labour, when prop-
erly directed, fixes and realizes itself in the subject or vendible com-
modity upon which it is bestowed, and generally adds to its price
the value at least of their own maintenance and consumption. The
profits of the farmer, of the manufacturer, of the merchant, and
retailer, are all drawn from the price of the goods which the two
first produce, and the two last buy and sell. Equal capitals, how-
ever, employed in each of these four different ways, will imme-
diately put into motion very different quantities of productive
labour, and augment too in very different proportions the value of
the annual produce of the land and labour of the society to which
they belong.

The capital of the retailer replaces, together with its profits, that
of the merchant of whom he purchases goods, and thereby enables
him to continue his business. The retailer himself is the only
productive labourer whom it immediately employs. In his profits,

290 WEALTH OF NATIONS

consists the whole value which its employment adds to the annual
produce of the land and labour of the society.

The capital of the wholesale merchant replaces, together with their
profits, the capitals of the farmers and manufacturers of whom he
purchases the rude and manufactured produce which he deals in,
and thereby enables them to continue their respective trades. It is
by this service chiefly that he contributes indirectly to support the
productive labour of the society, and to increase the value of its
annual produce. His capital employs too the sailors and carriers
who transport his goods from one place to another, and it augments
the price of those goods by the value, not only of his profits, but of
their wages. This is all the productive labour which it immedi-
ately puts into motion, and all the value which it immediately adds
to the annual produce. Its operation in both these respects is a good
deal superior to that of the capital of the retailer.

Part of the capital of the master manufacturer is employed as a
fixed capital in the instruments of his trade, and replaces, together
with its profits, that of some other artificer of whom he purchases
them. Part of his circulating capital is employed in purchasing mate-
rials, and replaces, with their profits, the capitals of the farmers and
miners of whom he purchases them. But a great part of it is always,
either annually, or in a much shorter period, distributed among the
different workmen whom he employs. It augments the value of
those materials by their wages, and by their masters profits upon
the whole stock of wages, materials, and instruments of trade em-
ployed in the business. It puts immediately into motion, therefore,
a much greater quantity of productive labour, and adds a much
greater value to the annual produce of the land and labour of the
society, than an equal capital in the hands of any wholesale merchant.

No equal capital puts into motion a greater quantity of produc-
tive labour than that of the farmer. Not only his labouring servants,
but his labouring catde, are productive labourers. In agriculture too
nature labours along with man; and though her labour costs no
expence, its produce has its value, as well as that of the most expen-
sive workmen. The most important operations of agriculture seem
intended, not so much to increase, though they do that too, as to
direct the fertility of nature towards the production of the plants

EMPLOYMENT OF CAPITALS 29I

most profitable to man. A field overgrown with briars and brambles
may frequently produce as great a quantity of vegetables as the best
cultivated vineyard or corn field. Planting and tillage frequently
regulate more than they animate the active fertility of nature; and
after all their labour, a great part of the work always remains to be
done by her. The labourers and labouring cattle, therefore, employed
in agriculture, not only occasion, like the workmen in manufactures,
the reproduction of a value equal to their own consumption, or to
the capital which employs them, together with its owners profits; but
of a much greater value. Over and above the capital of the farmer
and all its profits, they regularly occasion the reproduction of the rent
of the landlord. This rent may be considered as the produce of those
powers of nature, the use of which the landlord lends to the farmer.
It is greater or smaller according to the supposed extent of those
powers, or in other words, according to the supposed natural or im-
proved fertility of the land. It is the work of nature which remains
after deducting or compensating every thing which can be regarded
as the work of man. It is seldom less than a fourth, and frequendy
more than a third of the whole produce. No equal quantity of pro-
ductive labour employed in manufactures can ever occasion so great
a reproduction. In them nature does nothing; man does all; and the
reproduction must always be in proportion to the strength of the
agents that occasion it. The capital employed in agriculture, there-
fore, not only puts into motion a greater quantity of productive
labour than any equal capital employed in manufactures, but in prc^
portion too to the quantity of productive labour which it employs,
it adds a much greater value to the annual produce of the land and
labour of the country, to the real wealth and revenue of its inhabi-
tants. Of all the ways in which a capital can be employed, it is by
far the most advantageous to the society.

The capitals employed in the agriculture and in the retail trade of
any society, must always reside within that society. Their employ-
ment is confined almost to a precise spot, to the farm, and to the
shop of the retailer. They must generally too, though there are some
exceptions to this, belong to resident members of the society.

The capital of a wholesale merchant, on the contrary, seems to
have no fixed or necessary residence anywhere, but may wander

292 WEALTH OF NATIONS

about from place to place, according as it can either buy cheap or
sell dear.

The capital of the manufacturer must no doubt reside where the
manufacture is carried on; but where this shall be is not always
necessarily determined. It may frequendy be at a great distance
both from the place where the materials grow, and from that where
the complete manufacture is consumed. Lyons is very distant both
from the places which afford the materials of its manufactures, and
from those which consume them. The people of fashion of Sicily
are doathed in silks made in other countries, from the materials
which their own produces. Part of the wool of Spain is manufactured
in Great Britain, and some part of that cloth is afterwards sent back
to Spain.

Whether the merchant whose capital exports the surplus produce
of any society be a native or a foreigner, is of very litde importance.
If he is a foreigner, the number of their productive labourers is
necessarily less than if he had been a native by one man only; and
the value of their annual produce, by the profits of that one man.
The sailors or carriers whom he employs may still belong indiffer-
endy either to his country, or to their country, or to some third
country, in the same manner as if he had been a native. The capital
of a foreigner gives a value to their surplus produce equally with
that of a native, by exchanging it for something for which there is
a demand at home. It as effectually replaces the capital of the person
who produces that surplus, and as effectually enables him to continue
his business; the service by which the capital of a wholesale merchant
chiefly contributes to support the productive labour, and to augment
the value of the annual produce of the society to which he belongs.

It is of more consequence that the capital of the manufacturer
should reside within the country. It necessarily puts into motion a
greater quantity of productive labour, and adds a greater value to
the annual produce of the land and labour of the society. It may,
however, be very useful to the country, though it should not reside
within it. The capitals of the British manufacturers who work up
the flax and hemp annually imported from the coasts of the Baltiq
are surely very useful to the countries which produce them. Those
materials are a part of the surplus produce of those countries which.

EMPLOYMENT OF CAPITALS 293

unless it was annually exchanged for something which is in demand
there, would be of no value, and would soon cease to be produced.
The merchants who export it, replace the capitals of the f)eople who
produce it, and thereby encourage them to continue the production;
and the British manufacturers replace the capitals of those merchants.

A particular country, in the same manner as a particular person,
may frequently not have capital sufficient both to improve and culti-
vate all its lands, to manufacture and prepare their whole rude
produce for immediate use and consumption, and to transport the
surplus part either of the rude or manufactured produce to those dis-
tant markets where it can be exchanged for something for which
there is a demand at home. The inhabitants of many different parts
of Great Britain have not capital sufficient to improve and cultivate
all their lands. The wool of the southern counties of Scodand is, a
great part of it, after a long land carriage through very bad roads,
manufactured in Yorkshire for want of a capital to manufacture it
at home. There are many little manufacturing towns in Great Brit-
ain, of which the inhabitants have not capital sufficient to transport
the produce of their own industry to those distant markets where
there is demand and consumption for it. If there are any merchants
among them, they are prop)erly only the agents of wealthier mer-
chants who reside in some of the greater commercial cities.

When the capital of any country is not sufficient for all those three
purposes, in proportion as a greater share of it is employed in agri-
culture, the greater will be the quantity of productive labour which
it puts into motion within the country; as will likewise be the value
which its employment adds to the annual produce of the land and
labour of the society. After agriculture, the capital employed in
manufactures puts into motion the greatest quantity of productive
labour, and adds the greatest value to the annual produce. That
which is employed in the trade of exportation, has the least effect
of any of the three.

The country, indeed, which has not capital sufficient for all those
three purposes, has not arrived at that degree of opulence for which
it seems naturally destined. To attempt, however, prematurely and
with an insufficient capital, to do all the three, is certainly not the
shortest way for a society, no more than it would be for an individual,

294 WEALTH OF NATIONS

to acquire a sufficient one. The capital of all the individuals of a
nation, has its limits in the same manner as that of a single indi-
vidual, and is capable of executing only certain purpxjses. The capital
of all the individuals of a nation is increased in the same manner
as that of a single individual, by their continually accumulating and
adding to it whatever they save out of their revenue. It is likely to
increase the fastest, therefore, when it is employed in the way that
affords the greatest revenue to all the inhabitants of the country, as
they will thus be enabled to make the greatest savings. But the
revenue of all the inhabitants of the country is necessarily in propor-
tion to the value of the annual produce of their land and labour.

It has been the principal cause of the rapid progress of our Ameri-
can colonies towards wealth and greatness, that almost their whole
capitals have hitherto been employed in agriculture. They have no
manufactures, those household and coarser manufactures excepted
which necessarily accompany the progress of agriculture, and which
are the work of the women and children in every private family.
The greater part both of the expwrtation and coasting trade of Amer-
ica, is carried on by the capitals of merchants who reside in Great
Britain. Even the stores and warehouses from which goods are
retailed in some provinces, particularly in Virginia and Maryland,
belong many of them to merchants who reside in the mother country,
and afford one of the few instances of the retail trade of a society be-
ing carried on by the capitals of those who are not resident members
of it. Were the Americans, either by combination or by any other
sort of violence, to stop the importation of European manufactures,
and, by thus giving a monopoly to such of their own countrymen as
could manufacture the like goods, divert any considerable part of
their capital into this employment, they would retard instead of
accelerating the further increase in the value of their annual produce,
and would obstruct instead of promoting the progress of their coun-
try towards real wealth and greatness. This would be still more the
case, were they to attempt, in the same manner, to monopolize to
themselves their whole exportation trade.

The course of human prosperity, indeed, seems scarce ever to
have been of so long continuance as to enable any great country to
acquire capital sufficient for all those three purposes; unless, perhaps,

EMPLOYMENT OF CAPITALS 295

we give credit to the wonderful accounts of the wealth and cultiva-
tion of China, of those of antient Egypt, and of the antient state of
Indostan. Even those three countries, the wealthiest, according to all
accounts, that ever were in the world, are chiefly renowned for their
superiority in agriculture and manufactures. They do not appear to
have been eminent for foreign trade. The antient Egyptians had a
superstitious antipathy to the sea; a superstition nearly of the same
kind prevails among the Indians; and the Chinese have never ex-
celled in foreign commerce. The greater part of the surplus produce
of all those three countries seems to have been always exported by
foreigners, who gave in exchange for it something else for which they
found a demand there, frequently gold and silver.

It is thus that the same capital will in any country put into motion
a greater or smaller quantity of productive labour, and add a greater
or smaller value to the annual produce of its land and labour, accord-
ing to the different proportions in which it is employed in agriculture,
manufactures, and wholesale trade. The difference too is very great,
according to the different sorts of wholesale trade in which any part
of it is employed.

All wholesale trade, all buying in order to sell again by wholesale,
may be reduced to three different sorts. The home trade, the foreign
trade of consumption, and the carrying trade. The home trade is
employed in purchasing in one part of the same country, and selling
in another, the produce of the industry of that country. It compre-
hends both the inland and the coasting trade. The foreign trade of
consumption is employed in purchasing foreign goods for home con-
sumption. The carrying trade is employed in transacting the com-
merce of foreign countries, or in carrying the surplus produce of
one to another.

The capital which is employed in purchasing in one part of the
country in order to sell in another the produce of the industry of
that country, generally replaces by every such operation two distinct
capitals that had both been employed in the agriculture or manu-
factures of that country, and thereby enables them to continue that
employment. When it sends out from the residence of the merchant
a certain value of commodities, it generally brings back in return at
least an equal value of other commodities. When both are the prod-

296 WEALTH OF NATIONS

uce of domestick industry, it necessarily replaces by every such opera-
tion two distinct capitals, which had both been employed in support-
ing productive labour, and thereby enables them to continue that
support. The capital which sends Scotch manufactures to London,
and brings back English corn and manufactures to Edinburgh, neces-
sarily replaces, by every such operation, two British capitals which
had both been employed in the agriculture or manufactures of Great
Britain.

The capital employed in purchasing foreign goods for home-
consumption, when this purchase is made with the produce of
domestick industry, replaces too, by every such operation, two dis-
tinct capitals; but one of them only is employed in supporting
domestick industry. The capital which sends British goods to Portu-
gal, and brings back Portuguese goods to Great Britain, replaces by
every such of)eration only one British capital. The other is a Portu-
guese one. Though the returns, therefore, of the foreign trade of
consumption should be as quick as those of the home-trade, the
capital employed in it will give but one-half the encouragement to
the industry or productive labour of the country.

But the returns of the foreign trade of consumption are very sel-
dom so quick as those of the home-trade. The returns of the home-
trade generally come in before the end of the year, and sometimes
three or four times in the year. The returns of the foreign trade of
consumption seldom come in before the end of the year, and some-
times not till after two or three years. A capital, therefore, employed
in the home-trade will sometimes make twelve operations, or be sent
out and returned twelve times, before a capital employed in the for-
eign trade of consumption has made one. If the capitals are equal,
therefore, the one will give four and twenty times more encourage-
ment and support to the industry of the country than the other.

The foreign goods for home<onsumption may sometimes be pur-
chased, not with the produce of domestick industry, but with some
other foreign goods. These last, however, must have been purchased
either immediately with the produce of domestick industry, or with
something else that had been purchased with it; for the case of war
and conquest excepted, foreign goods can never be acquired, but in
exchange for something that had been produced at home, either im-

EMPLOYMENT OF CAPITALS 297

mediately, or after two or more different exchanges. The effects,
therefore, of a capital employed in such a round-about foreign trade
of consumption, are, in every resf)ect, the same as those of one em-
ployed in the most direct trade of the same kind, except that the final
returns are likely to be still more distant, as they must depend upon
the returns of two or three distinct foreign trades. If the flax and
hemp of Riga are purchased with the tobacco of Virginia, which had
been purchased with British manufactures, the merchant must wait
for the returns of two distinct foreign trades before he can employ
the same capital in re-purchasing a like quantity of British manu-
factures. If the tobacco of Virginia had been purchased, not with
British manufactures, but with the sugar and rum of Jamaica which
had been purchased with those manufactures, he must wait for the
returns of three. If those two or three distinct foreign trades should
happen to be carried on by two or three distinct merchants, of whom
the second buys the goods imported by the first, and the third buys
those imported by the second, in order to expxjrt them again, each
merchant indeed will in this case receive the returns of his own capi-
tal more quickly; but the final returns of the whole capital employed
in the trade will be just as slow as ever. Whether the whole capital
employed in such a round-about trade belong to one merchant or to
three, can make no difference with regard to the country, though it
may with regard to the particular merchants. Three times a greater
capital must in both cases be employed, in order to exchange a cer-
tain value of British manufactures for a certain quantity of flax and
hemp, than would have been necessary, had the manufactures and
the flax and hemp been directly exchanged for one another. The
whole capital employed, therefore, in such a round-about foreign
trade of consumption, will generally give less encouragement and
support to the productive labour of the country, than an equal capital
employed in a more direct trade of the same kind.

Whatever be the foreign commodity with which the foreign goods
for home-consumption are purchased, it can occasion no essential
difference either in the nature of the trade, or in the encouragement
and support which it can give to the productive labour of the coun-
try from which it is carried on. If they are purchased with the gold
of Brazil, for example, or with the silver of Peru, this gold and silver,

298 WEALTH OF NATIONS

like the tobacco of Virginia, must have been purchased with some-
thing that either was the produce of the industry of the country, or
that had been purchased with something else that was so. So far,
therefore, as the productive labour of the country is concerned, the
foreign trade of consumption which is carried on by means of gold
and silver, has all the advantages and all the inconveniencies of any
other equally round-about foreign trade of consumption, and will
replace just as fast or just as slow the capital which is immediately
employed in supporting that productive labour. It seems even to
have one advantage over any other equally round-about foreign
trade. The transportation of those metals from one place to another,
on account of their small bulk and great value, is less expensive than
that of almost any other foreign goods of equal value. Their freight
is much less, and their insurance not greater; and no goods, besides,
are less liable to suffer by the carriage. An equal quantity of foreign
goods, therefore, may frequently be purchased with a smaller quan-
tity of the produce of domestick industry, by the intervention of gold
and silver, than by that of any other foreign goods. The demand of
the country may frequendy, in this manner, be supplied more com-
pletely and at a smaller expence than in any other. Whether, by the
continual exportation of those metals, a trade of this kind is likely
to impoverish the country from which it is carried on, in any other
way, I shall have occasion to examine at great length hereafter.

That part of the capital of any country which is employed in the
carrying trade, is altogether withdrawn from supporting the pro-
ductive labour of that particular country, to support that of some
foreign countries. Though it may replace by every operation two dis-
tinct capitals, yet neither of them belongs to that particular country.
The capital of the Dutch merchant, which carries the corn of Poland
to Portugal, and brings back the fruits and wines of Portugal to
Poland, replaces by every such operation two capitals, neither of
which had been employed in supporting the productive labour of
Holland; but one of them in supporting that of Poland, and the
other that of Portugal. The profits only return regularly to Holland,
and constitute the whole addition which this trade necessarily makes
to the annual produce of the land and labour of that country. When,
indeed, the carrying trade of any particular country is carried on with

EMPLOYMENT OF CAPITALS 299

the ships and sailors of that country, that part of the capital employed
in it which pays the freight, is distributed among, and puts into
motion, a certain number of productive labourers of that country.
Almost all nations that have had any considerable share of the carry-
ing trade have, in fact, carried it on in this manner. The trade itself
has probably derived its name from it, the people of such countries
being the carriers to other countries. It does not, however, seem
essential to the nature of the trade that it should be so. A Dutch
merchant may, for example, employ his capital in transacting the
commerce of Poland and Portugal, by carrying part of the surplus
produce of the one to the other, not in Dutch, but in British bottoms.
It may be presumed, that he actually does so upon some particular
occasions. It is upon this account, however, that the carrying trade
has been supposed jjeculiarly advantageous to such a country as Great
Britain, of which the defence and security depend upon the number
of its sailors and shipping. But the same capital may employ as many
sailors and shipping, either in the foreign trade of consumption, or
even in the home-trade, when carried on by coasting vessels, as it
could in the carrying trade. The number of sailors and shipping
which any particular capital can employ, does not depend upon the
nature of the trade, but pardy upon the bulk of the goods in pro-
portion to their value, and pardy upon the distance of the ports
between which they are to be carried; chiefly upon the former of
those two circumstances. The coal-trade from Newcasde to London,
for example, employs more shipping than all the carrying trade of
England, though the ports are at no great distance. To force, there-
fore, by extraordinary encouragements, a larger share of the capital
of any country into the carrying trade, than what would naturally
go to it, will not always necessarily increase the shipping of that
country.

The capital, therefore, employed in the home-trade of any country
will generally give encouragement and support to a greater quantity
of productive labour in that country, and increase the value of its
annual produce more than an equal capital employed in the foreign
trade of consumption: and the capital employed in this latter trade
has in both these respects a still greater advantage over an equal
capital employed in the carrying trade. The riches, and so far as

300 WEALTH OF NATIONS

power depends upon riches, the power of every country, must always
be in proportion to the value of its annual produce, the fund from
which all taxes must ultimately be paid. But the great object of the
political economy of every country, is to increase the riches and power
of that country. It ought, therefore, to give no preference nor supe-
rior encouragement to the foreign trade of consumption above the
home-trade, nor to the carrying trade above either of the other two.
It ought neither to force nor to allure into either of those two chan-
nels, a greater share of the capital of the country than what would
naturally flow into them of its own accord.

Each of those different branches of trade, however, is not only
advantageous, but necessary and unavoidable, when the course of
things, without any constraint or violence, naturally introduces it.

When the produce of any particular branch of industry exceeds
what the demand of the country requires, the surplus must be sent
abroad, and exchanged for something for which there is a demand
at home. Without such exportation, a part of the productive labour
of the country must cease, and the value of its annual produce dimin-
ish. The land and labour of Great Britain produce generally more
corn, woollens, and hard ware, than the demand of the home-market
requires. The surplus part of them, therefore, must be sent abroad,
and exchanged for something for which there is a demand at home.
It is only by means of such exportation, that this surplus can acquire
a value sufficient to comp)ensate the labour and exf)ence of producing
it. The neighbourhood of the sea coast, and the banks of all navi-
gable rivers are advantageous situations for industry, only because
they facilitate the exportation and exchange of such surplus produce
for something else which is more in demand there.

When the foreign goods which are thus purchased with the sur-
plus produce of domestic industry exceed the demand of the home-
market, the surplus part of them must be sent abroad again, and
exchanged for something more in demand at home. About ninety-
six thousand hogsheads of tobacco are annually purchased in Virginia
and Maryland, with a part of the surplus produce of British industry.
But the demand of Great Britain does not require, perhaps, more
than fourteen thousand. If the remaining eighty-two thousand, there-
fore, could not be sent abroad and exchanged for something more in

EMPLOYMENT OF CAPITALS 3OI

demand at home, the importation of them must cease immediately,
and with it the productive labour of all those inhabitants of Great
Britain, who are at present employed in preparing the goods with
which these eighty-two thousand hogsheads are annually purchased.
Those goods, which are part of the produce of the land and labour
of Great Britain, having no market at home, and being deprived of
that which they had abroad, must cease to be produced. The most
round-about foreign trade of consumption, therefore, may, upon
some occasions, be as necessary for supporting the productive labour
of the country, and the value of its annual produce, as the most direct.
When the capital stock of any country is increased to such a degree,
that it cannot be all employed in supplying the consumption, and
supporting the productive labour of that particular country, the sur-
plus part of it naturally disgorges itself into the carrying trade, and
is employed in p)erforming the same offices to other countries. The
carrying trade is the natural effect and symptom of great national
wealth; but it does not seem to be the natural cause of it. Those
statesmen who have been disposed to favour it with particular en-
couragements, seem to have mistaken the effect and symptom for
the cause. Holland, in proportion to the extent of the land and the
number of its inhabitants, by far the richest country in Europe, has,
accordingly, the greatest share of the carrying trade of Europe. Eng-
land, perhaps the second richest country of Europe, is likewise sup-
posed to have a considerable share of it; though what commonly
passes for the carrying trade of England, will frequendy, perhaps, be
found to be no more than a round-about foreign trade of consump-
tion. Such are, in a great measure, the trades which carry the goods
of the East and West Indies, and of America, to different European
markets. Those goods are generally purchased either immediately
with the produce of British industry, or with something else which
has been purchased with that produce, and the final returns of those
trades are generally used or consumed in Great Britain. The trade
which is carried on in British bottoms between the different ports of
the Mediterranean, and some trade of the same kind carried on by
British merchants between the different pons of India, make, per-
haps, the principal branches of what is properly the carrying trade
of Great Britain.

302 WEALTH OF NATIONS

The extent of the home-trade and of the capital which can be em-
ployed in it, is necessarily limited by the value of the surplus produce
of all those distant places within the country which have occasion
to exchange their respective productions with one another. That of
the foreign trade of consumption, by the value of the surplus produce
of the whole country and of what can be purchased with it. That of
the carrying trade, by the value of the surplus produce of all the dif-
ferent countries in the world. Its possible extent, therefore, is in a
manner infinite in comparison of that of the other two, and is
capable of absorbing the greatest capitals.

The consideration of his own private profit, is the sole motive
which determines the owner of any capital to employ it either in agri-
culture, in manufactures, or in some particular branch of the whole-
sale or retail trade. The different quantities of productive labour
which it may put into motion, and the different values which it may
add to the annual produce of the land and labour of the society,
according as it is employed in one or other of those different ways,
never enter into his thoughts. In countries, therefore, where agri-
culture is the most profitable of all employments, and farming and
improving the most direct roads to a splendid fortune, the capitals of
individuals will naturally be employed in the manner most advan-
tageous to the whole society. The profits of agriculture, however,
seem to have no superiority over those of other employments in any
part of Europe. Projectors, indeed, in every corner of it, have within
these few years amused the public with most magnificent accounts
of the profits to be made by the cultivation and improvement of land.
Without entering into any particular discussion of their calculations,
a very simple observation may satisfy us that the result of them must
be false. We see every day the most splendid fortunes that have been
acquired in the course of a single life by trade and manufactures,
frequently from a very small capital, sometimes from no capital. A
single instance of such a fortune acquired by agriculture in the same
time, and from such a capital, has not, perhaps, occurred in Europe
during the course of the present century. In all the great countries
of Europe, however, much good land still remains uncultivated, and
the greater part of what is cultivated, is far from being improved to
the degree of which it is capable. Agriculture, therefore, is almost

EMPLOYMENT OF CAPITALS 303

every-where capable of absorbing a much greater capital than has ever
yet been employed in it. What circumstances in the policy of Europe
have given the trades which are carried on in towns so great an
advantage over that which is carried on in the country, that private
persons frequently find it more for their advantage to employ their
capitals in the most distant carrying trades of Asia and America, than
in the improvement and cultivation of the most fertile fields in their
own neighbourhood, I shall endeavour to explain at full length in
the two following books.

BOOK III

Of the Different Progress of Opulence in Different Nations

CHAPTER I
Of the Natural Progress of Opulence

THE great commerce of every civilized society, is that carried
on between the inhabitants of the town and those of the
country. It consists in the exchange of rude for manufac-
tured produce, either immediately, or by the intervention of money,
or of some sort of paper which represents money. The country sup-
plies the town with the means of subsistence, and the materials of
manufacture. The town repays this supply by sending back a part
of the manufactured produce to the inhabitants of the country. The
town, in which there neither is nor can be any reproduction of sub-
stances, may very properly be said to gain its whole wealth and sub-
sistence from the country. We must not, however, upon this account,
imagine that the gain of the town is the loss of the country. The
gains of both are mutual and reciprocal, and the division of labour
is in this, as in all other cases, advantageous to all the different per-
sons employed in the various occupations into which it is subdivided.
The inhabitants of the country purchase of the town a greater quan-
tity of manufactured goods, with the produce of a much smaller
quantity of their own labour, than they must have employed had they
attempted to prepare them themselves. The town affords a market
for the surplus produce of the country, or what is over and above
the maintenance of the cultivators, and it is there that the inhabitants
of the country exchange it for something else which is in demand
among them. The greater the number and revenue of the inhabi-
tants of the town, the more extensive is the market which it affords
to those of the country; and the more extensive that market, it is
always the more advantageous to a great number. The corn which
grows within a mile of the town, sells there for the same price with

304

NATURAL PROGRESS OF OPULENCE 305

that which comes from twenty miles distance. But the price of the
latter must generally, not only pay the expence of raising and bring-
ing it to market, but afford too the ordinary profits of agriculture
to the farmer. The proprietors and cultivators of the country, there-
fore, which lies in the neighbourhood of the town, over and above
the ordinary profits of agriculture, gain, in the price of what they
sell, the whole value of the carriage of the like produce that is
brought from more distant parts, and they save, besides, the whole
value of this carriage in the price of what they buy. Compare the
cultivation of the lands in the neighbourhood of any considerable
town, with that of those which lie at some distance from it, and you
will easily satisfy yourself how much the country is benefited by the
commerce of the town. Among all the absurd sfjeculations that have
been propagated concerning the balance of trade, it has never been
pretended that either the country loses by its commerce with the
town, or the town by that with the country which maintains it.

As subsistence is, in the nature of things, prior to conveniency and
luxury, so the industry which procures the former, must necessarily
be prior to that which ministers to the latter. The cultivation and
improvement of the country, therefore, which affords subsistence,
must, necessarily, be prior to the increase of the town, which fur-
nishes only the means of conveniency and luxury. It is the surplus
produce of the country only, or what is over and above the mainte-
nance of the cultivators, that constitutes the subsistence of the town,
which can therefore increase only with the increase of this surplus
produce. The town, indeed, may not always derive its whole sub-
sistence from the country in its neighbourhood, or even from the
territory to which it belongs, but from very distant countries; and
this, though it forms no exception from the general rule, has occa-
sioned considerable variations in the progress of opulence in differ-
ent ages and nations.

That order of things which necessity imposes in general, though
not in every particular country, is, in every particular country, pro-
moted by the natural inclinations of man. If human institutions had
never thwarted those natural inclinations, the towns could no-where
have increased beyond what the improvement and cultivation of the
territory in which they were situated could support; till such time.

306 WEALTH OF NATIONS

at least, as the whole of that territory was completely cultivated and
improved. Upon equal, or nearly equal profits, most men will chuse
to employ their capitals rather in the improvement and cultivation of
land, than either in manufactures or in foreign trade. The man who
employs his capital in land, has it more under his view and command,
and his fortune is much less liable to accident, than that of the trader,
who is obliged frequently to commit it, not only to the winds and the
waves, but to the more uncertain elements of human folly and in-
justice, by giving great credits in distant countries to men, with whose
character and situation he can seldom be thoroughly acquainted. The
capital of the landlord, on the contrary, which is fixed in the im-
provement of his land, seems to be as well secured as the nature of
human affairs can admit of. The beauty of the country besides, the
pleasure of a country life, the tranquillity of mind which it promises,
and wherever the injustice of human laws does not disturb it, the
independency which it really affords, have charms that more or less
attract every body; and as to cultivate the ground was the original
destination of man, so in every stage of his existence he seems to
retain a predilection for this primitive employment.

Without the assistance of some artificers, indeed, the cultivation
of land cannot be carried on, but with great inconveniency and con-
tinual interruption. Smiths, carpenters, wheel-wrights, and plough-
wrights, masons, and bricklayers, tanners, shoemakers, and taylors,
are people, whose service the farmer has frequent occasion for. Such
artificers too stand, occasionally, in need of the assistance of one an-
other; and as their residence is not, like that of the farmer, necessarily
tied down to a precise spot, they naturally settle in the neighbour-
hood of one another, and thus form a small town or village. The
butcher, the brewer, and the baker, soon join them, together with
many other artificers and retailers, necessary or useful for supplying
their occasional wants, and who contribute still further to augment
the town. The inhabitants of the town and those of the country are
mutually the servants of one another. The town is a continual fair
or market, to which the inhabitants of the country resort, in order
to exchange their rude for manufactured produce. It is this com-
merce which supplies the inhabitants of the town both with the
materials of their work, and the means of their subsistence. The

NATURAL PROGRESS OF OPULENCE 307

quantity of the finished work which they sell to the inhabitants of
the country, necessarily regulates the quantity of the materials and
provisions which they buy. Neither their employment nor sub-
sistence, therefore, can augment, but in proportion to the augmen-
tation of the demand from the country for finished work; and this
demand can augment only in proportion to the extension of im-
provement and cultivation. Had human institutions, therefore, never
disturbed the natural course of things, the progressive wealth and
increase of the towns would, in every political society, be conse-
quential, and in proportion to the improvement and cultivation of
the territory or country.

In our North American colonies, where uncultivated land is still
to be had upon easy terms, no manufactures for distant sale have
ever yet been established in any of their towns. When an artificer
has acquired a litde more stock than is necessary for carrying on
his own business in supplying the neighbouring country, he does not,
in North America, attempt to establish with it a manufacture for
more distant sale, but employs it in the purchase and improvement
of uncultivated land. From artificer he becomes planter, and neither
the large wages nor the easy subsistence which that country affords
to artificers, can bribe him rather to work for other f)eople than for
himself. He feels that an artificer is the servant of his customers,
from whom he derives his subsistence; but that a planter who culti-
vates his own land, and derives his necessary subsistence from the
labour of his own family, is really a master, and independent of
all the world.

In countries, on the contrary, where there is either no uncultivated
land, or none that can be had upon easy terms, every artificer who has
acquired more stock than he can employ in the occasional jobs of
the neighbourhood, endeavours to prepare work for more distant sale.
The smith erects some sort of iron, the weaver some sort of linen
or woollen manufactory. Those different manufactures come, in
process of time, to be gradually subdivided, and thereby improved
and refined in a great variety of ways, which may easily be conceived,
and which it is therefore unnecessary to explain any further.

In seeking for employment to a capital, manufactures are, upon
equal or nearly equal profits, naturally preferred to foreign com-

308 WEALTH OF NATIONS

merce, for the same reason that agriculture is naturally preferred to
manufactures. As the capital of the landlord or farmer is more secure
than that of the manufacturer, so the capital of the manufacturer,
being at all times more within his view and command, is more
secure than that of the foreign merchant. In every period, indeed, of
every society, the surplus part both of the rude and manufactured
produce, or that for which there is no demand at home, must be sent
abroad in order to be exchanged for something for which there is
some demand at home. But whether the capital, which carries this
surplus produce abroad, be a foreign or a domestic one, is of very
litde importance. If the society has not acquired sufficient capital
both to cultivate all its lands, and to manufacture in the completes!
manner the whole of its rude produce, there is even a considerable
advantage that that rude produce should be exported by a foreign
capital, in order that the whole stock of the society may be employed
in more useful purposes. The wealth of ancient Egypt, that of China
and Indostan, sufficiently demonstrate that a nation may attain a
very high degree of opulence, though the greater part of its exporta-
tion trade be carried on by foreigners. The progress of our North
American and West Indian colonies would have been much less
rapid, had no capital but what belonged to themselves been employed
in exporting their surplus produce.

According to the natural course of things, therefore, the greater
part of the capital of every growing society is, first, directed to agri-
culture, afterwards to manufactures, and last of all to foreign com-
merce. This order of things is so very natural, that in every society
that had any territory, it has always, I believe, been in some degree
observed. Some of their lands must have been cultivated before any
considerable towns could be established, and some sort of coarse
industry of the manufacturing kind must have been carried on in
those towns, before they could well think of employing themselves
in foreign commerce.

But though this natural order of things must have taken place in
some degree in every such society, it has, in all the modern states of
Europe, been, in many respects, entirely inverted. The foreign com-
merce of some of their cities has introduced all their finer manu-
factures, or such as were fit for distant sale; and manufactures and

NATURAL PROGRESS OF OPULENCE 309

foreign commerce together, have given birth to the principal im-
provements of agricuhure. The manners and customs which the
nature of their original government introduced, and which remained
after that government was gready altered, necessarily forced them
into this unnatural and retrograde order.

BOOK IV
Of Systems of Political CEconomy

introduction

POLITICAL (Economy, considered as a branch of the science
of a statesman or legislator, proposes two distinct objects: first,
to provide a plentiful revenue or subsistence for the people,
or more properly to enable them to provide such a revenue or sub-
sistence for themselves; and secondly, to supply the state or common-
wealth with a revenue sufficient for the public services. It proposes
to enrich both the |')eople and the sovereign.

The difTerent progress of opulence in different ages and nations,
has given occasion to two different systems of political (economy,
with regard to enriching the people. The one may be called the sys-
tem of commerce, the other that of agriculture. I shall endeavour
to explain both as fully and distinctly as I can, and shall begin with
the system of commerce. It is the modern system, and is best under-
st(xxi in our own country and in our own times.

310

CHAPTER I
Of the Principle of the Commercial or Mercantile System

THAT wealth consists in money, or in gold 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 pur-
chase. In consequence of its being the measure of value, we esti-
mate 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 silver
in any country is supposed to be the readiest way to enrich it. For
some time after the discovery of America, the first enquiry of the
Spaniards, when they arrived upon any 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 setdement there, or if the country was worth
the conquering. Piano Carpino, a monk sent ambassador from the
king of France to one of the sons of the famous Gengis Khan, says
that the Tartars used frequently to ask him, if there was plenty of
sheep and oxen in the kingdom of France? Their enquiry 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

3"

312 WEALTH OF NATIONS

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 move-
able goods. All other moveable goods, he says, are of so consumable
a nature that the wealth which consists in them cannot be much de-
(jended on, and a nation which abounds in them one year may,
without any exportation, but merely by their own waste and ex-
travagance, 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, there-
fore, are, according to him, the most solid and substantial part of
the moveable wealth of a nation, and to multiply those metals ought,
he thinks, upon that account, to be the great object of its political
oeconomy.

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 accumu-
late gold and silver, that, when occasion requires, it may have where-
withal 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

PRINCIPLE OF THE MERCANTILE SYSTEM 313

and Portugal, the proprietors o£ 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 pxjlicy
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 parlia-
ment, which forbid under heavy penalties the carrying gold or silver
jorth of the /{ingdom. 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 frequendy 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 quan-
tity 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 origi-
nally 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 endeav-
ours, we shall find the worth and plentiful increase of his actions."

They represented, secondly, that this prohibition could not hinder
the exportation of gold and silver, which, on account of the small-
ness 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

314 WEALTH OF NATIONS

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 na-
tions, 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 bal-
ance, than it otherwise might have been; the merchant who pur-
chased a bill upon the foreign country being obliged to pay the
banker who sold it, not only for the natural risk, trouble and expence
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 hun-
dred ounces of silver in Holland, and would purchase only a pro-
portionable 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 quan-
tity 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 ex-
change; that the one would draw so much less Dutch money to Eng-
land, 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 re-
quire 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

PRINCIPLE OF THE MERCANTILE SYSTEM 315

their exportation, when private people found any advantage in ex-
porting 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 prop)er
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 upxin those countries. But though
the risk arising from the prohibition might occasion some extraor-
dinary expence to the bankers, it would not necessarily carry any
more money out of the country. This expence 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 six-p)ence beyond the
precise sum drawn for. The high price of exchange too would natu-
rally dispose the merchants to endeavour to make their exports nearly
balance their imports, in order that they might have this high ex-
change to pay ufxjn as small a sum as pjossible. The high price of
exchange, besides, must necessarily have op)erated as a tax, in raising
the price of foreign goods, and thereby diminishing their consump>-
tion. It would tend, therefore, not to increase, but to diminish, what
they called, the unfavourable balance of trade, and consequendy
the exportation of gold and silver.

Such as they were, however, those arguments convinced the p)eople
to whom they were addressed. They were addressed by merchants
to parliaments, and to the councils of princes, to nobles, and to coun-
try gendemen; 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, expje-
rience 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 pjerfectly in what manner it enriched
themselves. It was their business to know it. But to know in what

3l6 WEALTH OF NATIONS

manner it enriched the country, was no part of their business. This
subject never came into their consideration, but when they had occa-
sion 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 there-
fore 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 exporta-
tion 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 fruit-
less. The title of Mun's book, England's Treasure in Foreign Trade,
became a fundamental maxim in the political occonomy, not of Eng-
land 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 for-
eign 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 coun-
try 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

PRINCIPLE OF THE MERCANTILE SYSTEM 317

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 free-
dom 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 com-
modities 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 tuns 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 tun, a million of tuns of
shipping, or a thousand ships of a thousand tuns 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 pre-
vent their exportation. All the sanguinary laws of Spain and Portu-.
gal 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 neighbouring countries, the govern-

3l8 WEALTH OF NATIONS

ment 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 impor-
tation of the teas of the Dutch and Gottenburgh East India com-
panies; 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 consequendy 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, per-
haps, that, during the course of the present and preceding century,
they have been constandy, 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,

PRINCIPLE OF THE MERCANTILE SYSTEM 319

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 unneces-
sarily 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 spend-
thrifts. It is sometimes general through a whole mercantile town,
and the country in its neighbourhood. Over-trading 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 expence 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 every body 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, over-trading 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 hop)es 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 difiiculty 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

320 WEALTH OF NATIONS

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 finds 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 every
thing is readily given in exchange, but which is not always with equal
readiness to be got in exchange for every thing. The greater part of
goods besides are more perishable than money, and he may fre-
quently 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 fre-
quendy consists in perishable 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 incon-
veniency, 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 con-
sumable 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

PRINCIPLE OF THE MERCANTILE SYSTEM 32 1

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 fre-
quently 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
hard-ware of England for the wines of France; and yet hard-ware
is a very durable commodity, and were it not for this continual ex-
portation, might ttx) be accumulated for ages together, to the in-
credible 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 cook-
ing 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 coun-
try 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

322 WEALTH OF NATIONS

quantity of coin requisite for circulating them : that the quantity of
plate is regulated by the number and wealth of those private families
who chuse to indulge themselves in that sort of magnificence: in-
crease 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 expence of purchasing those unnecessary
utensils would diminish instead of increasing either the quantity or
goodness of the family provisions; so the expence 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 in-
crease 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,

PRINCIPLE OF THE MERCANTILE SYSTEM 323

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 accumu-
lated 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 circu-
lating 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 too,
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 opjxirtunity of sending a greater
quantity of it abroad. All this, however, could afford but a poor
resource for maintaining a foreign war, of great expence 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 cen-
tury, the most expensive perhaps which history records, seem to have

324 WEALTH OF NATIONS

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 expence 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 accumu-
lated treasure. We never heard of any extraordinary quantity of
plate being melted down. The circulating gold and silver of the coun-
try 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 mil-
lions. 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 govern-
ment to watch over the preservation of money, since upon this sup-
position 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 any body's knowing any thing 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 over-
trading in all the ports of Great Britain; and this again occasioned the
usual complaint of the scarcity of money, which always follows over-
trading. Many people wanted it, who had neither wherewithal to
buy it, nor credit to borrow it; and because the debtors found it diffi-
cult 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.

PRINCIPLE OF THE MERCANTILE SYSTEM 325

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 gov-
ernment, or those who acted under them, contracted with a merchant
for a remittance to some foreign country, he would naturally en-
deavour 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 coun-
try, in which he could purchase a bill upon that country. The trans-
portation 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 consequendy 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 bul-
lion, as it circulates among different commercial countries in the
same manner as the national coin circulates in every particular coun-
try, may be considered as the money of the great mercantile republic.
The national coin receives its movement and direction from the com-
modities 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

326 WEALTH OF NATIONS

from what it usually follows in profound peace; that it should cir-
culate more about the seat of the war, and be more employed in
purchasing there, and in the neighbouring countries, the pay and pro-
visions 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 re-
sources which enabled us to carry on the war. It is natural indeed to
suppose, that so great an annual expence must have been defrayed
from a great annual produce. The exp)ence 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 Portu-
gal, according to the best accounts, does not commonly much exceed
six millions sterling, which, in some years, would scarce have paid
four months expence of the late war.

The importation of gold and silver is not the principal, much less
the sole benefit which a nation derives from its foreign trade. Be-
tween 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 nar-
rowness 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

PRINCIPLE OF THE MERCANTILE SYSTEM 327

important services foreign trade is continually occupied in perform-
ing, 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 em-
ployed 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 expence 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 num-
ber 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 Ameri-
can 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 open-

328 WEALTH OF NATIONS

ing 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 ofl 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 be-
fore, 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 unfor-
tunate 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 sev-
eral 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 civilized 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
indirecdy 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

PRINCIPLE OF THE MERCANTILE SYSTEM 329

company. The English, French, Swedes, and Danes, have all fol-
lowed 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 respec-
tive 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 con-
cerned 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 any thing 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 de-
serve 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 every-where
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

330 WEALTH OF NATIONS

expression has rendered this popular notion so famiUar 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 con-
sumable 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 con-
sisted 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 ceconomy 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 domes-
tic industry. Its two great engines for enriching the country, there-
fore, were restraints upon importation, and encouragements to
exportation.

The restraints upon importation were of two kinds.

First, Restraints uf>on 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 manufacturers were subject to any duty or excise either the

PRINCIPLE OF THE MERCANTILE SYSTEM 33 1

whole or a part of it was frequently drawn back upon their exporta-
tion; 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 some-
times given back upon such exportation.

Bounties were given for the encouragement either of some begin-
ning manufactures, or of such sorts of industry of other kinds as
were 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 of other countries.

By the establishment of colonies in distant countries, not only par-
ticular 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
evidendy tend either to increase or diminish the real wealth and
revenue of the country.

CHAPTER II

Of Restraints Upon the Importation from Foreign Countries
OF Such Goods as Can Be Produced at Home

BY restraining, either by high duties, or by absolute prohibitions,
the importation of such goods from foreign countries as can
be produced at home, the monopoly of the home market is
more or less secured to the domestic industry employed in producing
them. Thus the prohibition of importing either live catde or salt
provisions from foreign countries secures to the graziers of Great
Britain the monopoly of the home market for butcher's meat. The
high duties upon the importation of corn, which in times of moderate
plenty amount to a prohibition, give a like advantage to the growers
of that commodity. The prohibition of the importation of foreign
woollens is equally favourable to the woollen manufacturers. The
silk manufacture, though altogether employed upon foreign mate-
rials, has lately obtained the same advantage. The linen manufacture
has not yet obtained it, but is making great strides towards it. Many
other sorts of manufacturers have, in the same manner, obtained in
Great Britain, either altogether, or very nearly a monopoly against
their countrymen. The variety of goods of which the importation
into Great Britain is prohibited, either absolutely, or under certain
circumstances, greatly exceeds what can easily be suspected by those
who are not well acquainted with the laws of the customs.

That this monopoly of the home-market frequently gives great
encouragement to that particular species of industry which enjoys it,
and frequently turns towards that employment a greater share of
both the labour and stock of the society than would otherwise have
gone to it, cannot be doubted. But whether it tends either to increase
the general industry of the society, or to give it the most advan-
tageous direction, is not, perhaps, altogether so evident.

The general industry of the society never can exceed what the
capital of the society can employ. As the number of workmen that

332

RESTRAINTS OF PARTICULAR IMPORTS 333

can be kept in employment by any particular person must bear a
certain proportion to his capital, so the number of those that can
be continually employed by all the members of a great society, must
bear a certain proportion to the whole capital of that society, and
never can exceed that proportion. No regulation of commerce can
increase the quantity of industry in any society beyond what its
capital can maintain. It can only divert a part of it into a direction
into which it might not otherwise have gone; and it is by no means
certain that this artificial direction is likely to be more advantageous
to the society than that into which it would have gone of its own
accord.

Every individual is continually exerting himself to find out the
most advantageous employment for whatever capital he can com-
mand. It is his own advantage, indeed, and not that of the society,
which he has in view. But the study of his own advantage naturally,
or rather necessarily leads him to prefer that employment which is
most advantageous to the society.

First, every individual endeavours to employ his capital as near
home as he can, and consequently as much as he can in the support
of domestic industry; provided always that he can thereby obtain
the ordinary, or not a great deal less than the ordinary profits of stock.

Thus, upon equal or nearly equal profits, every wholesale mer-
chant naturally prefers the home-trade to the foreign trade of con-
sumption, and the foreign trade of consumption to the carrying
trade. In the home-trade his capital is never so long out of his sight
as it frequently is in the foreign trade of consumption. He can
know better the character and situation of the person whom he
trusts, and if he should happen to be deceived, he knows better
the laws of the country from which he must seek redress. In the
carrying trade, the capital of the merchant is, as it were, divided be-
tween two foreign countries, and no part of it is ever necessarily
brought home, or placed under his own immediate view and com-
mand. The capital which an Amsterdam merchant employs in
carrying corn from Konnigsberg to Lisbon, and fruit and wine from
Lisbon to Konnigsberg, must generally be the one-half of it at
Konnigsberg and the other half at Lisbon. No part of it need ever
come to Amsterdam. The natural residence of such a merchant

334 WEALTH OF NATIONS

should either be at Konnigsberg or Lisbon, and it can only be some
very particular circumstances which can make him prefer the resi-
dence of Amsterdam. The uneasiness, however, which he feels at
being separated so far from his capital, generally determines him
to bring part both of the Konnigsberg goods which he destines for
the market of Lisbon, and of the Lisbon goods which he destines
for that of Konnigsberg, to Amsterdam ; and though this necessarily
subjects him to a double charge of loading and unloading, as well
as to the payment of some duties and customs, yet for the sake of
having some part of his capital always under his own view and com-
mand, he willingly submits to this extraordinary charge; and it is
in this manner that every country which has any considerable share
of the carrying trade, becomes always the emporium, or general
market, for the goods of all the different countries whose trade it
carries on. The merchant, in order to save a second loading and
unloading, endeavours always to sell in the home-market as much
of the goods of all those different countries as he can, and thus, so
far as he can, to convert his carrying trade into a foreign trade of
consumption. A merchant, in the same manner, who is engaged in
the foreign trade of consumption, when he collects goods for foreign
markets, will always be glad, uf)on equal or nearly equal profits, to
sell as great a part of them at home as he can. He saves himself
the risk and trouble of exportation, when, so far as he can, he thus
converts his foreign trade of consumption into a home-trade. Home
is in this manner the center, if I may say so, round which the capi-
tals of the inhabitants of every country are continually circulating,
and towards which they are always tending, though by particular
causes they may sometimes be driven off and repelled from it towards
more distant employments. But a capital employed in the home-
trade, it has already been shown, necessarily puts into motion a
greater quantity of domestic industry, and gives revenue and em-
ployment to a greater number of the inhabitants of the country, than
an equal capital employed in the foreign trade of consumption: and
one employed in the foreign trade of consumption has the same
advantage over an equal capital employed in the carrying trade.
Upon equal, or only nearly equal profits, therefore, every individual
naturally inclines to employ his capital in the manner in which it

RESTRAINTS OF PARTICULAR IMPORTS 335

is likely to afFord the greatest support to domestic industry, and to
give revenue and employment to the greatest number of people of
his own country.

Secondly, every individual who employs his capital in the support
of domestic industry, necessarily endeavours so to direct that indus-
try, that its produce may be of the greatest possible value.

The produce of industry is what it adds to the subject or mate-
rials upon which it is employed. In proportion as the value of this
produce is great or small, so will likewise be the profits of the em-
ployer. But it is only for the sake of profit that any man employs
a capital in the support of industry; and he will always, therefore,
endeavour to employ it in the support of that industry of which the
produce is likely to be of the greatest value, or to exchange for the
greatest quantity either of money or of other goods.

But the annual revenue of every society is always precisely equal
to the exchangeable value of the whole annual produce of its indus-
try, or rather is precisely the same thing with that exchangeable
value. As every individual, therefore, endeavours as much as he
can both to employ his capital in the support of domestic industry,
and so to direct that industry that its produce may be of the greatest
value; every individual necessarily labours to render the annual rev-
enue of the society as great as he can. He generally, indeed, neither
intends to promote the public interest, nor knows how much he is
promoting it. By preferring the support of domestic to that of for-
eign industry, he intends only his own security; and by directing that
industry in such a manner as its produce may be of the greatest
value, he intends only his own gain, and he is in this, as in many
other cases, led by an invisible hand to promote an end which was
no part of his intention. Nor is it always the worse for the society
that it was no part of it. By pursuing his own interest he frequently
promotes that of the society more effectually than when he really in-
tends to promote it. I have never known much good done by those
who affected to trade for the public good. It is an affectation, indeed,
not very common among merchants, and very few words need be
employed in dissuading them from it.

What is the species of domestic industry which his capital can
employ, and of which the produce is likely to be of the greatest

336 WEALTH OF NATIONS

value, every individual, it is evident, can, in his local situation, judge
much better than any statesman or lawgiver can do for him. The
statesman, who should attempt to direct private people in what
manner they ought to employ their capitals, would not only load him-
self with a most unnecessary attention, but assume an authority which
could safely be trusted, not only to no single person, but to no
council or senate whatever, and which would no-where be so dan-
gerous as in the hands of a man who had folly and presumption
enough to fancy himself fit to exercise it.

To give the monopoly of the home-market to the produce of
domestic industry, in any particular art or manufacture, is in some
measure to direct private people in what manner they ought to em-
ploy their capitals, and must, in almost all cases, be either a useless
or a hurtful regulation. If the produce of domestic can be brought
there as cheap as that of foreign industry, the regulation is evi-
dendy useless. If it cannot, it must generally be hurtful. It is the
maxim of every prudent master of a family, never to attempt to
make at home what it will cost him more to make than to buy. The
taylor does not attempt to make his own shoes, but buys them of
the shoemaker. The shoemaker does not attempt to make his own
clothes, but employs a taylor. The farmer attempts to make neither
the one nor the other, but employs those different artificers. All
of them find it for their interest to employ their whole industry in
a way in which they have some advantage over their neighbours,
and to purchase with a part of its produce, or what is the same
thing, with the price of a part of it, whatever else they have occa-
sion for.

What is prudence in the conduct of every private family, can
scarce be folly in that of a great kingdom. If a foreign country can
supply us with a commodity cheajjer than we ourselves can make
it, better buy it of them with some part of the produce of our own
industry, employed in a way in which we have some advantage.
The general industry of the country, being always in proportion to
the capital which employs it, will not thereby be diminished, no
more than that of the above-mentioned artificers; but only left to
find out the way in which it can be employed with the greatest ad-
vantage. It is certainly not employed to the greatest advantage, when

RESTRAINTS OF PARTICULAR IMPORTS 337

it is thus directed towards an object which it can buy cheaper than
it can make. The value of its annual produce is certainly more or
less diminished, when it is thus turned away from producing com-
modities evidently of more value than the commodity which it is
directed to produce. According to the supposition, that commodity
could be purchased from foreign countries cheaper than it can be
made at home. It could, therefore, have been purchased with a
part only of the commodities, or, what is the same thing, with a part
only of the price of the commodities, which the industry employed
by an equal capital would have produced at home, had it been left
to follow its natural course. The industry of the country, there-
fore, is thus turned away from a more, to a less advantageous em-
ployment, and the exchangeable value of its annual produce, in-
stead of being increased, according to the intention of the lawgiver,
must necessarily be diminished by every such regulation.

By means of such regulations, indeed, a particular manufacture
may sometimes be acquired sooner than it could have been other-
wise, and after a certain time may be made at home as cheap or
cheaper than in the foreign country. But though the industry of the
society may be thus carried with advantage into a particular chan-
nel sooner than it could have been otherwise, it will by no means
follow that the sum total, either of its industry, or of its revenue,
can ever be augmented by any such regulation. The industry of
the society can augment only in proportion as its capital augments,
and its capital can augment only in proportion to what can be gradu-
ally saved out of its revenue. But the immediate effect of every
such regulation is to diminish its revenue, and what diminishes its
revenue is certainly not very likely to augment its capital faster than
it would have augmented of its own accord, had both capital and
industry been left to find out their natural employments.

Though for want of such regulations the society should never
acquire the proposed manufacture, it would not, upon that account,
necessarily be the poorer in any one period of its duration. In every
period of its duration its whole capital and industry might still have
been employed, though upon different objects, in the manner that
was most advantageous at the time. In every period its revenue
might have been the greatest which its capital could afford, and

338 WEALTH OF NATIONS

both capital and revenue might have been augmented with the great-
est possible rapidity.

The natural advantages which one country has over another in
producing particular commodities are sometimes so great that it is
acknowledged by all the world to be in vain to struggle with them.
By means of glasses, hotbeds, and hotwalls, very good grapes can
be raised in Scodand, and very good wine too can be made of them
at about thirty times the expence for which at least equally good
can be brought from foreign countries. Would it be a reasonable
law to prohibit the importation of all foreign wines, merely to en-
courage the making of claret and burgundy in Scotland? But if
there would be a manifest absurdity in turning towards any employ-
ment, thirty times more of the capital and industry of the country,
than would be necessary to purchase from foreign countries an equal
quantity of the commodities wanted, there must be an absurdity,
though not altogether so glaring, yet exactly of the same kind, in
turning towards any such employment a thirtieth, or even a three
hundredth part more of either. Whether the advantages which one
country has over another, be natural or acquired, is in this respect
of no consequence. As long as the one country has those advantages,
and the other wants them, it will always be more advantageous for
the latter, rather to buy of the former than to make. It is an ac-
quired advantage only, which one artificer has over his neighbour,
who exercises another trade; and yet they both find it more advan-
tageous to buy of one another, than to make what does not belong
to their particular trades.

Merchants and manufacturers are the fjeople who derive the great-
est advantage from this monopoly of the home-market. The pro-
hibition of the importation of foreign catde, and of salt provisions,
together with the high duties upon foreign corn, which in times of
moderate plenty amount to a prohibition, are not near so advan-
tageous to the graziers and farmers of Great Britain, as other regula-
tions of the same kind are to its merchants and manufacturers.
Manufactures, those of the finer kind especially, are more easily
transported from one country to another than corn or catde. It is in
the fetching and carrying manufactures, accordingly, that foreign
trade is chiefly employed. In manufactures, a very small advantage

RESTRAINTS OF PARTICULAR IMPORTS 339

will enable foreigners to undersell our own workmen, even in the
home market. It will require a very great one to enable them to do
so in the rude produce of the soil. If the free importation of foreign
manufactures were permitted, several of the home manufactures
would probably suffer, and some of them, perhaps, go to ruin alto-
gether, and a considerable part of the stock and industry at present
employed in them, would be forced to find out some other employ-
ment. But the freest importation of the rude produce of the soil
could have no such effect upon the agriculture of the country.

If the importation of foreign cattle, for example, were made ever
so free, so few could be imported, that the grazing trade of Great
Britain could be litde affected by it. Live catde are, perhaps, the
only commodity of which the transportation is more expensive by
sea than by land. By land they carry themselves to market. By sea,
not only the catde, but their food and water too, must be carried
at no small expence and inconveniency. The short sea between Ire-
land and Great Britain, indeed, renders the importation of Irish catde
more easy. But though the free importation of them, which was
lately permitted only for a limited time, were rendered perpetual,
it could have no considerable effect upon the interest of the graziers
of Great Britain. Those parts of Great Britain which border upon
the Irish sea are all grazing countries. Irish cattle could never be
imported for their use, but must be drove through those very ex-
tensive countries, at no small expence and inconveniency, before
they could arrive at their proper market. Fat catde could not be
drove so far. Lean cattle, therefore, only could be imported, and
such importation could interfere, not with the interest of the
feeding or fattening countries, to which, by reducing the price of
lean cattle, it would rather be advantageous, but with that of the
breeding countries only. The small number of Irish cattle imported
since their importation was permitted, together with the good price
at which lean cattle still continue to sell, seem to demonstrate that
even the breeding countries of Great Britain are never likely to be
much affected by the free importation of Irish catde. The common
people of Ireland, indeed, are said to have sometimes opposed with
violence the exportation of their cattle. But if the exporters had
found any great advantage in continuing the trade, they could easily,

340 WEALTH OF NATIONS

when the law was on their side, have conquered this mobbish
opposition.

Feeding and fattening countries, besides, must always be highly
improved, whereas breeding countries are generally uncultivated.
The high price of lean cattle, by augmenting the value of unculti-
vated land, is like a bounty against improvement. To any country
which was highly improved throughout, it would be more advan-
tageous to import its lean cattle than to breed them. The province
of Holland, accordingly, is said to follow this maxim at present.
The mountains of Scotland, Wales and Northumberland, indeed,
are countries not capable of much improvement, and seem destined
by nature to be the breeding countries of Great Britain. The freest
importation of foreign cattle could have no other effect than to hin-
der those breeding countries from taking advantage of the increas-
ing population and improvement of the rest of the kingdom from
raising their price to an exorbitant height, and from laying a
real tax upon all the more improved and cultivated parts of the
country.

The freest importation of salt provisions, in the same manner,
could have as little effect upon the interests of the graziers of Great
Britain as that of live cattle. Salt provisions are not only a very
bulky commodity, but when compared with fresh meat, they are a
commodity both of worse quality, and as they cost more labour and
exf)ence, of higher price. They could never, therefore, come into
competition with the fresh meat, though they might with the salt
provisions of the country. They might be used for victualling ships
for distant voyages, and such like uses, but could never make any
considerable part of the food of the people. The small quantity of
salt provisions imported from Ireland since their importation was
rendered free, is an experimental proof that our graziers have noth-
ing to apprehend from it. It does not appear that the price of
butcher's-meat has ever been sensibly affected by it.

Even the free importation of foreign corn could very litde affect
the interest of the farmers of Great Britain. Corn is a much more
bulky commodity than butcher's-meat. A f)ound of wheat at a penny
is as dear as a pound of butcher's-meat at fourpence. The small
quantity of foreign corn imported even in times of the greatest

RESTRAINTS OF PARTICULAR IMPORTS 34 1

scarcity, may satisfy our farmers that they can have nothing to fear
from the freest importation. The average quantity imported one
year with another, amounts only, according to the very well in-
formed author of the tracts upon the corn trade, to twenty-three
thousand seven hundred and twenty-eight quarters of all sorts of
grain, and does not exceed the five hundredth and seventy-one part
of the annual consumption. But as the bounty upon corn occasions
a greater exportation in years of plenty, so it must of consequence
occasion a greater importation in years of scarcity, than in the actual
state of tillage would otherwise take place. By means of it, the plenty
of one year does not comjjensate the scarcity of another, and as the
average quantity exported is necessarily augmented by it, so must
likewise, in the actual state of tillage, the average quantity imported.
If there were no bounty, as less corn would be exported, so it is
probable that, one year with another, less would be imported than
at present. The corn merchants, the fetchers and carriers of corn
between Great Britain and foreign countries, would have much less
employment, and might suffer considerably; but the country gentle-
men and farmers could suffer very litde. It is in the corn merchants
accordingly, rather than in the country gentlemen and farmers, that
I have observed the greatest anxiety for the renewal and continua-
tion of the bounty.

Country gendemen and farmers are, to their great honour, of all
people, the least subject to the wretched spirit of monopoly. The
undertaker of a great manufactory is sometimes alarmed if another
work of the same kind is established within twenty miles of him.
The Dutch undertaker of the woollen manufacture at Abbeville stip-
ulated, that no work of the same kind should be established within
thirty leagues of that city. Farmers and country gentlemen, on the
contrary, are generally disposed rather to promote than to obstruct
the cultivation and improvement of their neighbours' farms and es-
tates. They have no secrets, such as those of the greater part of manu-
facturers, but are generally rather fond of communicating to their
neighbours, and of extending as far as possible any new practice
which they have found to be advantageous. Pius Questus, says old
Cato, stabilissimusque, minimeque invidiosus; minimeque male cog-
itantes sunt, qui in eo studio occupati sunt. Country gentlemen and

342 WEALTH OF NATIONS

farmers, dispersed in different parts of the country, cannot so easily
combine as merchants and manufacturers, who being collected into
towns, and accustomed to that exclusive corporation spirit which pre-
vails in them, naturally endeavour to obtain against all their country-
men, the same exclusive privilege which they generally possess
against the inhabitants of their respective towns. They accordingly
seem to have been the original inventors of those restraints upon the
importation of foreign goods, which secure to them the monopoly of
the home-market. It was probably in imitation of them, and to put
themselves ujxjn a level with those who, they found, were disposed
to oppress them, that the country gentlemen and farmers of Great
Britain so far forgot the generosity which is natural to their sta-
tion, as to demand the exclusive privilege of supplying their country-
men with corn and butcher's-meat. They did not perhaps take time
to consider, how much less their interest could be affected by the
freedom of trade, than that of the people whose example they fol-
lowed.

To prohibit by a f)erpetual law the importation of foreign corn
and cattle, is in reality to enact, that the {xjpulation and industry of
the country shall at no time exceed what the rude produce of its own
soil can maintain.

There seem, however, to be two cases in which it will generally
be advantageous to lay some burden upon foreign, for the encourage-
ment of domestic industry.

The first, is, when some particular sort of industry is necessary for
the defence of the country. The defence of Great Britain, for exam-
ple, depends very much upon the number of its sailors and shipping.
The act of navigation, therefore, very properly endeavours to give the
sailors and shipping of Great Britain the monopoly of the trade of
their own country, in some cases, by absolute prohibitions, and in
others by heavy burdens upon the shipping of foreign countries. The
following are the principal dispositions of this aa.

First, all ships, of which the owners, masters, and three-fourths
of the mariners are not British subjects, are prohibited, upon pain
of forfeiting ship and cargo, from trading to the British settlements
and plantations, or from being employed in the coasting trade of
Great Britain.

RESTRAINTS OF PARTICULAR IMPORTS 343

Secondly, a great variety of the most bulky articles of importation
can be brought into Great Britain only, either in such ships as are
above described, or in ships of the country where those goods are
produced, and of which the owners, masters, and three-fourths of
the mariners, are of that particular country; and when imported even
in ships of this latter kind, they are subject to double aliens duty. If
imported in ships of any other country, the penalty is forfeiture of
ship and goods. When this act was made, the Dutch were, what
they still are, the great carriers of Europe, and by this regulation they
were entirely excluded from being the carriers to Great Britain, or
from importing to us the goods of any other European country.

Thirdly, a great variety of the most bulky articles of importation
are prohibited from being imported, even in British ships, from any
country but that in which they are produced; under pain of forfeit-
ing ship and cargo. This regulation too was probably intended
against the Dutch. Holland was then, as now, the great emporium
for all European goods, and by this regulation, British ships were
hindered from loading in Holland the goods of any other European
country.

Fourthly, salt fish of all kinds, whale-fins, whale4x)ne, oil, and
blubber, not caught by and cured on board British vessels, when im-
ported into Great Britain, are subjected to double aliens duty. The
Dutch, as they are still the principal, were then the only fishers in
Europe that attempted to supply foreign nations with fish. By this
regulation, a very heavy burden was laid upon their supplying Great
Britain.

When the act of navigation was made, though England and Hol-
land were not actually at war, the most violent animosity subsisted
between the two nations. It had begun during the government of the
long parliament, which first framed this act, and it broke out soon
after in the Dutch wars during that of the Protector and of Charles
the Second. It is not impossible, therefore, that some of the regula-
tions of this famous act may have proceeded from national animosity.
They are as wise, however, as if they had all been dictated by the
most deliberate wisdom. National animosity at that particular time
aimed at the very same object which the most deliberate wisdom
could have recommended, the diminution of the naval power of

344 WEALTH OF NATIONS

Holland, the only naval power which could endanger the security

of England.

The act of navigation is not favourable to foreign commerce, or
to the growth of that opulence which can arise from it. The interest
of a nation in its commercial relations to foreign nations is, like
that of a merchant with regard to the different people with whom he
deals, to buy as cheap and to sell as dear as possible. But it will be
most likely to buy cheap, when by the most perfect freedom of
trade it encourages all nations to bring to it the goods which it has
occasion to purchase; and, for the same reason, it will be most likely
to sell dear, when its markets are thus filled with the greatest num-
ber of buyers. The act of navigation, it is true, lays no burden upon
foreign ships that come to export the produce of British industry.
Even the ancient aliens duty, which used to be paid on all goods
exported as well as imported, has, by several subsequent acts, been
taken off from the greater part of the articles of exportation. But
if foreigners, either by prohibitions or high duties, are hindered from
coming to sell, they cannot always afford to come to buy; because
coming without a cargo, they must lose the freight from their own
country to Great Britain. By diminishing the number of sellers,
therefore, we necessarily diminish that of buyers, and are thus likely
not only to buy foreign goods dearer, but to sell our own cheaper,
than if there was a more perfect freedom of trade. As defence, how-
ever, is of much more importance than opulence, the act of naviga-
tion is, perhaps, the wisest of all the commercial regulations of
England.

The second case, in which it will generally be advantageous to lay
some burden upon foreign for the encouragement of domestic in-
dustry, is, when some tax is impKJsed at home uf)on the produce of
the latter. In this case, it seems reasonable that an equal tax should
be imposed upon the like produce of the former. This would not
give the monopoly of the home market to domestic industry, nor
turn towards a particular employment a greater share of the stock
and labour of the country, than what would naturally go to it. It
would only hinder any part of what would naturally go to it from
being turned away by the tax, into a less natural direction, and
would leave the competition between foreign and domestic industry,

RESTRAINTS OF PARTICULAR IMPORTS 345

after the tax, as nearly as possible upon the same footing as before it.
In Great Britain, when any such tax is laid upon the produce of
domestic industry, it is usual at the same time, in order to stop
the clamorous complaints of our merchants and manufacturers, that
they will be undersold at home, to lay a much heavier duty upon the
importation of all foreign goods of the same kind.

This second limitation of the freedom of trade according to some
people should, upon some occasions, be extended much farther than
to the precise foreign commodities which could come into competi-
tion with those which had been taxed at home. When the neces-
saries of life have been taxed in any country, it becomes proper, they
pretend, to tax not only the like necessaries of life imported from
other countries, but all sorts of foreign goods which can come into
competition with any thing that is the produce of domestic indus-
try. Subsistence, they say, becomes necessarily dearer in consequence
of such taxes; and the price of labour must always rise with the
price of the labourers subsistence. Every commodity, therefore, which
is the produce of domestic industry, though not immediately taxed
itself, becomes dearer in consequence of such taxes, because the la-
bour which produces it becomes so. Such taxes, therefore, are really
equivalent, they say, to a tax upon every particular commodity pro-
duced at home. In order to put domestic upon the same footing
with foreign industry, therefore, it becomes necessary, they think,
to lay some duty upon every foreign commodity, equal to this en-
hancement of the price of the home commodities with which it can
come into competition.

Whether taxes U(X)n the necessaries of life, such as those in Great
Britain upon soap, salt, leather, candles, &c. necessarily raise the
price of labour, and consequently that of all other commodities, I
shall consider hereafter, when I come to treat of taxes. Supposing,
however, in the mean time, that they have this effect, and they have
it undoubtedly, this general enhancement of the price of all com-
modities, in consequence of that of labour, is a case which differs in
the two following respects from that of a particular commodity, of
which the price was enhanced by a particular tax immediately
imposed upon it.

First, it might always be known with great exactness how far the

346 WEALTH OF NATIONS

price of such a commodity could be enhanced by such a tax: but
how far the general enhancement of the price of labour might affect
that of every different commodity about which labour was em-
ployed, could never be known with any tolerable exactness. It
would be impossible, therefore, to proportion with any tolerable
exactness the tax upon every foreign, to this enhancement of the
price of every home commodity.

Secondly, taxes upon the necessaries of life have nearly the same
effect upon the circumstances of the people as a poor soil and a bad
climate. Provisions are thereby rendered dearer in the same manner
as if it required extraordinary labour and expence to raise them. As
in the natural scarcity arising from soil and climate, it would be
absurd to direct the people in what manner they ought to employ
their capitals and industry, so is it likewise in the artificial scarcity
arising from such taxes. To be left to accommodate, as well as they
could, their industry to their situation, and to find out those em-
ployments in which, notwithstanding their unfavourable circum-
stances, they might have some advantage either in the home or in
the foreign market, is what in both cases would evidently be most for
their advantage. To lay a new tax upon them, because they are al-
ready overburdened with taxes, and because they already pay too
dear for the necessaries of life, to make them likewise pay too dear
for the greater part of other commodities, is certainly a most absurd
way of making amends.

Such taxes, when they have grown up to a certain height, are a
curse equal to the barrenness of the earth and the inclemency of the
heavens; and yet it is in the richest and most industrious countries
that they have been most generally imposed. No other countries
could support so great a disorder. As the strongest bodies only can
live and enjoy health, under an unwholesome regimen; so the na-
tions only, that in every sort of industry have the greatest natural
and acquired advantages, can subsist and prosper under such taxes.
Holland is the country in Europe in which they abound most, and
which from peculiar circumstances continues to prosper, not by
means of them, as has been most absurdly supposed, but in spite of
them.

As there are two cases in which it will generally be advantageous

RESTRAINTS OF PARTICULAR IMPORTS 347

to lay some burden upon foreign, for the encouragement of domestic
industry; so there are two others in which it may sometimes be a
matter of deUberation; in the one, how far it is proper to continue
the free importation of certain foreign goods; and in the other, how
far, or in what manner, it may be proper to restore that free impor-
tation after it has been for some time interrupted.

The case in which it may sometimes be a matter of deUberation
how far it is proper to continue the free importation of certain for-
eign goods, is, when some foreign nation restrains by high duties or
prohibitions the importation of some of our manufactures into their
country. Revenge in this case naturally dictates retaliation, and that
we should impose the like duties and prohibitions upon the impor-
tation of some or all of their manufactures into ours. Nations ac-
cordingly seldom fail to retaliate in this manner. The French have
been particularly forward to favour their own manufactures by re-
straining the importation of such foreign goods as could come into
competition with them. In this consisted a great part of the policy
of Mr. Colbert, who, notwithstanding his great abilities, seems in
this case to have been impKJsed upon by the sophistry of merchants
and manufacturers, who are always demanding a monopoly against
their countrymen. It is at present the opinion of the most intelligent
men in France that his operations of this kind have not been bene-
ficial to his country. That minister, by the tarif of 1667, imposed
very high duties upon a great number of foreign manufactures.
Upon his refusing to moderate them in favour of the Dutch, they
in 1671 prohibited the importation of the wines, brandies and manu-
factures of France. The war of 1672 seems to have been in part
tKcasioned by this commercial dispute. The peace of Nimeguen put
an end to it in 1678, by moderating some of those duties in favour
of the Dutch, who in consequence took off their prohibition. It was
about the same time that the French and English began mutually to
oppress each other's industry, by the like duties and prohibitions, of
which the French, however, seem to have set the first example. The
spirit of hostility which has subsisted between the two nations ever
since, has hitherto hindered them from being moderated on either
side. In 1697 '^^ English prohibited the importation of bonelace,
the manufacture of Flanders. The government of that country, at

348 WEALTH OF NATIONS

that time under the dominion of Spain, prohibited in return the im-
portation of EngUsh woollens. In 1700, the prohibition of importing
bonelace into England, was taken o(i upon condition that the im-
portation of English woollens into Flanders should be put on the
same footing as before.

There may be good policy in retaliations of this kind, when there
is a probability that they will procure the repeal of the high duties or
prohibitions complained of. The recovery of a great foreign market
will generally more than compensate the transitory inconveniency
of paying dearer during a short time for some sorts of goods. To
judge whether such retaliations are likely to produce such an effect,
does not, perhaps, belong so much to the science of a legislator,
whose deliberations ought to be governed by general principles
which are always the same, as to the skill of that insidious and
crafty animal, vulgarly called a statesman or politician, whose coun-
cils are directed by the momentary fluctuations of affairs. When
there is no probability that any such repeal can be procured, it seems
a bad method of compensating the injury done to certain classes of
our people, to do another injury ourselves, not only to those classes,
but to almost all the other classes of them. When our neighbours
prohibit some manufacture of ours, we generally prohibit, not only
the same, for that alone would seldom affect them considerably, but
some other manufacture of theirs. This may no doubt give encour-
agement to some particular class of workmen among ourselves, and
by excluding some of their rivals, may enable them to raise their price
in the home-market. Those workmen, however, who suffered by
our neighbours' prohibition will not be benefited by ours. On the
contrary, they and almost all the other classes of our citizens will
thereby be obliged to pay dearer than before for certain goods. Every
such law, therefore, imposes a real tax upon the whole country, not
in favour of that particular class of workmen who were injured by
our neighbours' prohibition, but of some other class.

The case in which it may sometimes be a matter of deliberation,
how far, or in what manner, it is proper to restore the free importa-
tion of foreign goods, after it has been for some time interrupted,
is, when particular manufactures, by means of high duties or pro-
hibitions upon all foreign goods which can come into competition

RESTRAINTS OF PARTICULAR IMPORTS 349

with them, have been so far extended as to employ a great muhitude
of hands. Humanity may in this case require that the freedom of
trade should be restored only by slow gradations, and with a good
deal of reserve and circumspection. Were those high duties and pro-
hibitions taken away all at once, cheaper foreign goods of the same
kind might be poured so fast into the home market, as to deprive
all at once many thousands of our people of their ordinary employ-
ment and means of subsistence. The disorder which this would oc-
casion might no doubt be very considerable. It would in all proba-
bility, however, be much less than is commonly imagined, for the
two following reasons:

First, all those manufactures, of which any part is commonly
exports to other European countries without a bounty, could be very
litde affected by the freest importation of foreign goods. Such
manufactures must be sold as cheap abroad as any other foreign
goods of the same quality and kind, and consequently must be sold
cheaper at home. They would still, therefore, keep possession of
the home market, and though a capricious man of fashion might
sometimes prefer foreign wares, merely because they were foreign,
to cheaper and better goods of the same kind that were made at
home, this folly could, from the nature of things, extend to so few,
that it could make no sensible impression upon the general em-
ployment of the people. But a great part of all the different branches
of our woollen manufacture, of our tanned leather, and of our hard-
ware, are annually exported to other European countries without any
bounty, and these are the manufactures which employ the greatest
number of hands. The silk, perhaps, is the manufacture which
would suffer the most by this freedom of trade, and after it the
linen, though the latter much less than the former.

Secondly, though a great number of people should, by thus re-
storing the freedom of trade, be thrown all at once out of their ordi-
nary employment and common method of subsistence, it would by
no means follow that they would thereby be deprived either of em-
ployment or subsistence. By the reduction of the army and navy
at the end of the late war, more than a hundred thousand soldiers
and seamen, a number equal to what is employed in the greatest
manufactures, were all at once thrown out of their ordinary employ-

350 WEALTH OF NATIONS

ment; but, though they no doubt suffered some inconveniency, they
were not thereby deprived of all employment and subsistence. The
greater part of the seamen, it is probable, gradually betook them-
selves ta the merchant-service as they could find occasion, and in the
meantime both they and the soldiers were absorbed in the great mass
of the people, and employed in a great variety of occupations. Not
only no great convulsion, but no sensible disorder arose from so great
a change in the situation of more than a hundred thousand men, all
accustomed to the use of arms, and many of them to rapine and
plunder. The number of vagrants was scarce anywhere sensibly in-
creased by it, even the wages of labour were not reduced by it in
any occupation, so far as I have been able to learn, except in that
of seamen in the merchant-service. But if we compare together the
habits of a soldier and of any sort of manufacturer, we shall find
that those of the latter do not tend so much to disqualify him from
being employed in a new trade, as those of the former from being
employed in any. The manufacturer has always been accustomed
to look for his subsistence from his labour only: the soldier to expect
it from his pay. Application and industry have been familiar to the
one; idleness and dissipation to the other. But it is surely much
easier to change the direction of industry from one sort of labour to
another, than to turn idleness and dissipation to any. To the greater
part of manufactures besides, it has already been observed, there
are other collateral manufactures of so similar a nature, that a work-
man can easily transfer his industry from one of them to another.
The greater part of such workmen, too, are occasionally employed in
country labour. The stock which employed them in a particular
manufacture before, will still remain in the country to employ an
equal number of people in some other way. The capital of the coun-
try remaining the same, the demand for labour will likewise be the
same, or very nearly the same, though it may be exerted in different
places and for different occupations. Soldiers and seamen, indeed,
when discharged from the king's service, are at liberty to exercise
any trade, within any town or place of Great Britain or Ireland. Let
the same natural liberty of exercising what species of industry they
please, be restored to all his majesty's subjects, in the same man-
ner as to soldiers and seamen; that is, break down the exclusive

RESTRAINTS OF PARTICULAR IMPORTS 35 1

privileges of corporations, and repeal the statute of apprenticeship,
both which are real encroachments upon natural liberty, and add
to these the repeal of the law of settlements, so that a poor work-
man, when thrown out of employment either in one trade or in one
place, may seek for it in another trade or in another place, without
the fear either of a prosecution or of a removal, and neither the
public nor the individuals will suffer much more from the occa-
sional disbanding some particular classes of manufacturers, than
from that of soldiers. Our manufacturers have no doubt great merit
with their country, but they cannot have more than those who defend
it with their blood, nor deserve to be treated with more delicacy.

To expect, indeed, that the freedom of trade should ever be en-
tirely restored in Great Britain, is as absurd as to expect that an
Oceana or Utopia should ever be established in it. Not only the
prejudices of the public, but what is much more unconquerable, the
private interests of many individuals, irresistibly oppose it. Were
the officers of the army to oppose with the same zeal and unanimity
any reduction in the number of forces, with which master manufac-
turers set themselves against every law that is likely to increase the
number of their rivals in the home market; were the former to
animate their soldiers, in the same manner as the latter enflame their
workmen, to attack with violence and outrage the proposers of any
such regulation; to attempt to reduce the army would be as dan-
gerous as it has now become to attempt to diminish in any respect
the monopoly which our manufacturers have obtained against us.
This monopoly has so much increased the number of some particular
tribes of them, that, like an overgrown standing army, they have be-
come formidable to the government, and upon many occasions in-
timidate the legislature. The member of parliament who supports
every proposal for strengthening this monopoly, is sure to acquire
not only the reputation of understanding trade, but great popularity
and influence with an order of men whose numbers and wealth
render them of great importance. If he opposes them, on the con-
trary, and still more if he has authority enough to be able to thwart
them, neither the most acknowledged probity, nor the highest rank,
nor the greatest public services, can protect him from the most in-
famous abuse and detraction, from personal insults, nor sometimes

352 WEALTH OF NATIONS

from real danger, arising from the insolent outrage of furious and
disappointed monopolists.

The undertaker of a great manufacture, who, by the home mar-
kets being suddenly laid open to the competition of foreigners,
should be obliged to abandon his trade, would no doubt suffer very
considerably. That part of his capital which had usually been em-
ployed in purchasing materials and in paying his workmen, might,
without much difficulty, perhaps, find another employment. But
that part of it which was fixed in workhouses, and in the instru-
ments of trade, could scarce be disposed of without considerable
loss. The equitable regard, therefore, to his interest requires that
changes of this kind should never be introduced suddenly, but
slowly, gradually, and after a very long warning. The legislature,
were it possible that its deliberations could be always directed, not
by the clamorous importunity of partial interests, but by an exten-
sive view of the general good, ought upon this very account, per-
haps, to be particularly careful neither to establish any new monopo-
lies of this kind, nor to extend further those which are already
established. Every such regulation introduces some degree of real
disorder into the constitution of the state, which it will be difficult
afterwards to cure without occasioning another disorder.

How far it may be proper to impose taxes upon the importation
of foreign goods, in order, not to prevent their importation, but to
raise a revenue for government, I shall consider hereafter when I
come to treat of taxes. Taxes imposed with a view to prevent, or
even to diminish importation, are evidently as destructive of the
revenue of the customs as of the freedom of trade.

CHAPTER III

Of the Extraordinary Restraints upon the Importation of Goods

OF Almost All Kinds, from Those Countries with Which

the Balance Is Supposed to Be Disadvantageous

PART I

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

TO lay extraordinary restraints upon the importation of
goods of almost all kinds, from those particular countries
with which the balance of trade is supposed to be disad-
vantageous, is the second expedient by which the commercial system
proposes to increase the quantity of gold and silver. Thus in Great
Britain, Silesia lawns may be imported for home consumption, upon
paying certain duties. But French cambrics and lawns are prohibited
to be imported, except into the port of London, there to be ware-
housed foi exportation. Higher duties are imposed uf)on the wines
of France than upon those of Portugal, or indeed of any other coun-
try. By what is called the impost 1692, a duty of five and twenty
per cent., of the rate or value, was laid upon all French goods;
while the goods of other nations were, the greater part of them,
subjected to much lighter duties, seldom exceeding five per cent.
The wine, brandy, salt and vinegar of France were indeed excepted;
these commodities being subjected to other heavy duties, either by
other laws, or by particular clauses of the same law. In 1696, a sec-
ond duty of twenty-five per cent., the first not having been thought
a sufficient discouragement, was imposed up>on all French goods,
except brandy; together with a new duty of five and twenty pounds
upon the ton of French wine, and another of fifteen pounds upon
the ton of French vinegar. French goods have never been omitted
in any of those general subsidies, or duties of five per cent., which
have been imposed upon all, or the greater part of the goods enu-

353

354 WEALTH OF NATIONS

merated in the book of rates. If we count the one-third and two-
third subsidies as making a complete subsidy between them, there
have been five of these general subsidies; so that before the com-
mencement of the present war seventy-five per cent, may be consid-
ered as the lowest duty to which the greater part of the goods of the
grovrth, produce, or manufacture of France were liable. But upon
the greater part of goods, those duties are equivalent to a prohibition.
The French in their turn have, I believe, treated our goods and
manufactures just as hardly; though I am not so well acquainted
with the particular hardships which they have imposed upon them.
Those mutual restraints have put an end to almost all fair commerce
between the two nations, and smugglers are now the principal im-
porters, either of British goods into France, or of French goods into
Great Britain. The principles which I have been examining in the
foregoing chapter took their origin from private interest and the
spirit of monopoly; those which I am going to examine in this,
from national prejudice and animosity. They are, accordingly, as
might well be expected, still more unreasonable. They are so, even
upon the principles of the commercial system.

First, though it were certain that in the case of a free trade be-
tween France and England, for example, the balance would be in
favour of France, it would by no means follow that such a trade
would be disadvantageous to England, or that the general balance
of its whole trade would thereby be turned more against it. If the
wines of France are better and cheaper than those of Portugal, or its
linens than those of Germany, it would be more advantageous for
Great Britain to purchase both the wine and the foreign linen
which it had occasion for of France, than of Portugal and Germany.
Though the value of the annual importations from France would
thereby be greatly augmented, the value of the whole annual im-
portations would be diminished, in proportion as the French goods
of the same quality were cheaper than those of the other two coun-
tries. This would be the case, even upon the supposition that the
whole French goods imported were to be consumed in Great Britain.

But, secondly, a great part of them might be re-exported to other
countries, where, being sold with profit, they might bring back a
return equal in value, perhaps, to the prime cost of the whole French

ON IMPORTS FROM PARTICULAR COUNTRIES 355

goods imported. What has frequendy been said of the East India
trade might possibly be true of the French; that though the greater
part of East India goods were bought with gold and silver, the re-
exportation of a part of them to other countries, brought back more
gold and silver to that which carried on the trade than the prime cost
of the whole amounted to. One of the most important branches of
the Dutch trade, at present, consists in the carriage of French goods
to other European countries. Some part even of the French wine
drank in Great Britain is clandestinely imported from Holland and
Zealand. If there was either a free trade between France and Eng-
land, or if French goods could be imported upon paying only the
same duties as those of other European nations, to be drawn back
upon exportation, England might have some share of a trade which
is found so advantageous to Holland.

Thirdly, and lastly, there is no certain criterion by which we can
determine on which side what is called the balance between any two
countries lies, or which of them exports to the greatest value. Na-
tional prejudice and animosity, prompted always by the private in-
terest of particular traders, are the principles which generally direct
our judgment upon all questions concerning it. There are two cri-
terions, however, which have frequendy been appealed to upon such
occasions, the custom-house books and the course of exchange. The
custom-house books, I think, it is now generally acknowledged, are
a very uncertain criterion, on account of the inaccuracy of the valua-
tion at which the greater part of goods are rated in them. The course
of exchange is, perhaps, almost equally so.

When the exchange between two places, such as London and
Paris, is at par, it is said to be a sign that the debts due from Lon-
don to Paris are compensated by those due from Paris to London.
On the contrary, when a premium is paid at London for a bill upon
Paris, it is said to be a sign that the debts due from London to Paris
are not compensated by those due from Paris to London, but that
a balance in money must be sent out from the latter place; for the
risk, trouble, and expence of exporting which, the premium is both
demanded and given. But the ordinary state of debt and credit be-
tween those two cities must necessarily be regulated, it is said, by
the ordinary course of their dealings with one another. When

356 WEALTH OF NATIONS

neither of them imports from the other to a greater amount than
it exports to that other, the debts and credits of each may compen-
sate one another. But when one of them imports from the other to
a greater value than it exports to that other, the former necessarily
becomes indebted to the latter in a greater sum than the latter be-
comes indebted to it: the debts and credits of each do not comp)ensate
one another, and money must be sent out from that place of which
the debts over-balance the credits. The ordinary course of exchange,
therefore, being an indication of the ordinary state of debt and credit
between two places, must likewise be an indication of the ordinary
course of their exports and imports, as these necessarily regulate that
state.

But though the ordinary course of exchange should be allowed
to be a sufficient indication of the ordinary state of debt and credit
between any two places, it would not from thence follow, that the
balance of trade was in favour of that place which had the ordinary
state of debt and credit in its favour. The ordinary state of debt
and credit between any two places is not always entirely regulated
by the ordinary course of their dealings with one another; but is
often influenced by that of the dealings of either with many other
places. If it is usual, for example, for the merchants of England to
pay for the goods which they buy of Hamburgh, Dantzic, Riga, &c.
by bills upon Holland, the ordinary state of debt and credit between
England and Holland will not be regulated entirely by the ordi-
nary course of the dealings of those two countries with one another,
but will be influenced by that of the dealings of England with
those other places. England may be obliged to send out every year
money to Holland, though its annual exports to that country may
exceed very much the annual value of its imports from thence; and
though what is called the balance of trade may be very much in
favour of England.

In the way, besides, in which the par of exchange has hitherto
been computed, the ordinary course of exchange can afford no suffi-
cient indication that the ordinary state of debt and credit is in favour
of that country which seems to have, or which is supposed to have,
the ordinary course of exchange in its favour: or, in other words, the
real exchange may be, and, in fact, often is so very different from

ON IMPORTS FROM PARTICULAR COUNTRIES 357

the computed one, that from the course of the latter, no certain con-
clusion can, upon many occasions, be drawn concerning that of the
former.

When for a sum of money paid in England, containing, according
to the standard of the English mint, a certain number of ounces of
pure silver, you receive a bill for a sum of money to be paid in
France, containing, according to the standard of the French mint,
an equal number of ounces of pure silver, exchange is said to be
at par between England and France. When you pay more, you are
supposed to give a premium, and exchange is said to be against
England, and in favour of France. When you pay less, you are su{>-
posed to get a premium, and exchange is said to be against France,
and in favour of England.

But, first, we cannot always judge of the value of the current
money of different countries by the standard of their respective
mints. In some it is more, in others it is less worn, dipt, and other-
wise degenerated from that standard. But the value of the current
coin of every country, compared with that of any other country, is
in proportion not to the quantity of pure silver which it ought to
contain, but to that which it actually does contain. Before the
reformation of the silver coin in King William's time, exchange
between England and Holland, computed, in the usual manner, ac-
cording to the standard of their respective mints, was five and twenty
per cent, against England. But the value of the current coin of
England, as we learn from Mr. Lowndes, was at that time rather
more than five and twenty per cent, below its standard value. The
real exchange, therefore, may even at that time have been in favour
of England, notwithstanding the computed exchange was so much
against it; a smaller number of ounces of pure silver, actually paid in
England, may have purchased a bill for a greater number of ounces
of pure silver to be paid in Holland, and the man who was sup-
posed to give, may in reality have got the premium. The French
coin was, before the late reformation of the English gold coin,
much less worn than the English, and was, perhaps, two or three
per cent, nearer its standard. If the computed exchange with France,
therefore, was not more than two or three per cent, against England,
the real exchange might have been in its favour. Since the reforma-

358 WEALTH OF NATIONS

tion of the gold coin, the exchange has been constantly in favour of
England, and against France.

Secondly, in some countries, the exf)ence of coinage is defrayed
by the government; in others, it is defrayed by the private people
who carry their bullion to the mint, and the government even de-
rives some revenue from the coinage. In England, it is defrayed by
the government, and if you carry a pound weight of standard silver
to the mint, you get back sixty-two shillings, containing a pound
weight of the like standard silver. In France, a duty of eight per
cent, is deducted for the coinage, which not only defrays the ex-
pence of it, but affords a small revenue to the government. In Eng-
land, as the coinage costs nothing, the current coin can never be
much more valuable than the quantity of bullion which it actually
contains. In France, the workmanship, as you pay for it, adds to
the value, in the same manner as to that of wrought plate. A sum
of French money, therefore, containing a certain weight of pure
silver, is more valuable than a sum of English money containing an
equal weight of pure silver, and must require more bullion, or other
commodities, to purchase it. Though the current coin of the two
countries, therefore, were equally near the standards of their re-
spective mints, a sum of English money could not well purchase a
sum of French money, containing an equal number of ounces of
pure silver, nor consequendy a bill upon France for such a sum.
If for such a bill no more additional money was paid than what was
sufficient to compensate the expence of the French coinage, the real
exchange might be at par between the two countries, their debts and
credits might mutually compensate one another, while the computed
exchange was considerably in favour of France. If less than this was
paid, the real exchange might be in favour of England, while the
computed was in favour of France.

Thirdly, and lasdy, in some places, as at Amsterdam, Hamburg,
Venice, &c. foreign bills of exchange are paid in what they call bank
money; while in others, as at London, Lisbon, Antwerp, Leghorn,
&C., they are paid in the common currency of the country. What is
called bank money is always of more value than the same nominal
simi of common currency. A thousand guilders in the bank of Am-
sterdam, for example, are of more value than a thousand guilders of

ON IMPORTS FROM PARTICULAR COUNTRIES 359

Amsterdam currency. The difference between them is called the agio
of the bank, which, at Amsterdam, is generally about five per cent.
Supposing the current money of two countries equally near to the
standard of their respective mints, and that the one pays foreign
bills in this common currency, while the other pays them in bank
money, it is evident that the computed exchange may be in favour of
that which pays in bank money, though the real exchange should be
in favour of that which pays in current money; for the same reason
that the computed exchange may be in favour of that which pays in
better money, or in money nearer to its own standard, though the
real exchange should be in favour of that which pays in worse. The
computed exchange, before the late reformation of the gold coin,
was generally against London, with Amsterdam, Hamburgh, Ven-
ice, and, I believe, with all other places which pay in what is called
bank money. It will by no means follow, however, that the real
exchange was against it. Since the reformation of the gold coin, it
has been in favour of London even with those places. The com-
puted exchange has generally been in favour of London with Lis-
bon, Antwerp, Leghorn, and, if you except France, I believe, with
most other parts oi Europe that pay in common currency; and it is
not improbable tliat the real exchange was so too.

PART II

Of the Unreasonableness of Those Extraordinary Restraints
Upon Other Principles

In the foregoing Part of this Chapter I have endeavoured to
shew, even upon the principles of the commercial system, how un-
necessary it is to lay extraordinary restraints upon the importation
of goods from those countries with which the balance of trade is
supposed to be disadvantageous.

Nothing, however, can be more absurd than this whole doctrine
of the balance of trade, upon which, not only these restraints, but
almost all the other regulations of commerce are founded. When
two places trade with one another, this doctrine supposes that, if the
balance be even, neither of them either loses or gains; but if it leans
in any degree to one side, that one of them loses, and the other gains

360 WEALTH OF NATIONS

in proportion to its declension from the exact equilibrium. Both
suppositions are false. A trade which is forced by means of boun-
ties and monopolies may be, and commonly is, disadvantageous to
the country in whose favour it is meant to be established, as I shall
endeavour to show hereafter. But that trade which, without force
or constraint, is naturally and regularly carried on between any
two places, is always advantageous, though not always equally so,
to both.

By advantage or gain, I understand, not the increase of the quan-
tity of gold and silver, but that of the exchangeable value of the
annual produce of the land and labour of the country, or the in-
crease of the annual revenue of its inhabitants.

If the balance be even, and if the trade between the two places con-
sist altogether in the exchange of their native commodities, they
will, upon most occasions, not only both gain, but they will gain
equally, or very near equally: each will in this case afford a market
for a part of the surplus produce of the other: each will replace a
capital which had been employed in raising and preparing for the
market this part of the surplus produce of the other, and which had
been distributed among, and given revenue and maintenance to a
certain number of its inhabitants. Some part of the inhabitants of
each, therefore, will indirectly derive their revenue and maintenance
from the other. As the commodities exchanged too are supposed to
be of equal value, so the two capitals employed in the trade will,
upon most occasions, be equal, or very nearly equal; and both being
employed in raising the native commodities of the two countries,
the revenue and maintenance which their distribution will afford
to the inhabitants of each will be equal, or very nearly equal. This
revenue and maintenance, thus mutually afforded, will be greater or
smaller in proportion to the extent of their dealings. If these should
annually amount to an hundred thousand pounds, for example, or to
a million on each side, each of them would afford an annual rev-
enue in the one case of an hundred thousand pounds, in the other,
of a million, to the inhabitants of the other.

If their trade should be of such a nature that one of them exported
to the other nothing but native commodities, while the returns of
that other consisted altogether in foreign goods; the balance, in this

ON IMPORTS FROM PARTICULAR COUNTRIES 361

case, would still be supposed even, commodities being paid for with
commodities. They would, in this case too, both gain, but they would
not gain equally; and the inhabitants of the country which expxjrted
nothing but native commodities would derive the greatest revenue
from the trade. If England, for example, should import from France
nothing but the native commodities of that country, and, not having
such commodities of its own as were in demand there, should an-
nually repay them by sending thither a large quantity of foreign
goods, tobacco, we shall suppose, and East India goods; this trade,
though it would give some revenue to the inhabitants of both coun-
tries, would give more to those of France than to those of England.
The whole French capital annually employed in it would annually
be distributed among the people of France. But that part of the
English capital only which was employed in producing the English
commodities with which those foreign goods were purchased, would
be annually distributed among the people of England. The greater
part of it would replace the capitals which had been employed in
Virginia, Indostan, and China, and which had given revenue and
maintenance to the inhabitants of those distant countries. If the capi-
tals were equal, or nearly equal, therefore, this employment of the
French capital would augment much more the revenue of the peo-
ple of France, than that of the English capital would the revenue
of the jjeople of England. France would in this case carry on a
direct foreign trade of consumption with England; whereas Eng-
land would carry on a round-about trade of the same kind with
France. The different effects of a capital employed in the direct,
and of one employed in the round-about foreign trade of consump-
tion, have already been fully explained.

There is not, probably, between any two countries, a trade which
consists altogether in the exchange either of native commodities on
both sides, or of native commodities on one side and of foreign
goods on the other. Almost all countries exchange with one another
partly native and partly foreign goods. That country, however, in
whose cargoes there is the greatest proportion of native, and the least
of foreign goods, will always be the principal gainer.

If it was not with tobacco and East India goods, but with gold
and silver, that England paid for the commodities annually imported

362 WEALTH OF NATIONS

from France, the balance, in this case, would be supposed uneven,
commodities not being paid for with commodities, but with gold
and silver. The trade, however, would, in this case, as in the fore-
going, give some revenue to the inhabitants of both countries, but
more to those of France than to those of England. It would give
some revenue to those of England. The capital which had been em-
ployed in producing the English goods that purchased this gold and
silver, the capital which had been distributed among, and given
revenue to, certain inhabitants of England, would thereby be re-
placed, and enabled to continue that employment. The whole capital
of England would no more be diminished by this exportation of gold
and silver, than by the exportation of an equal value of any other
goods. On the contrary, it would, in most cases, be augmented. No
goods are sent abroad but those for which the demand is supposed
to be greater abroad than at home, and of which the returns con-
sequently, it is expected, will be of more value at home than the
commodities exported. If the tobacco which, in England, is worth
only a hundred thousand pounds, when sent to France will
purchase wine which is, in England, worth a hundred and ten
thousand pounds, the exchange will augment the capital of England
by ten thousand pounds. If a hundred thousand pounds of English
gold, in the same manner, purchase French wine, which, in Eng-
land, is worth a hundred and ten thousand, this exchange will
equally augment the capital of England by ten thousand pounds. As
a merchant who has a hundred and ten thousand pounds worth of
wine in his cellar, is a richer man than he who has only a hundred
thousand pounds worth of tobacco in his warehouse, so is he likewise
a richer man than he who has only a hundred thousand pounds
worth of gold in his coffers. He can put into motion a greater
quantity of industry, and give revenue, maintenance, and employ-
ment, to a greater number of people than either of the other two.
But the capital of the country is equal to the capitals of all its dif-
ferent inhabitants, and the quantity of industry which can be an-
nually maintained in it, is equal to what all those different capitals
can maintain. Both the capital of the country, therefore, and the
quantity of industry which can be annually maintained in it, must
generally be augmented by this exchange. It would, indeed, be

ON IMPORTS FROM PARTICULAR COUNTRIES 363

more advantageous for England that it could purchase the wines of
France with its own hard-ware and broad-cloth, than with either
the tobacco of Virginia, or the gold and silver of Brazil and Peru.
A direct foreign trade of consumption is always more advantageous
than a round-about one. But a round-about foreign trade of con-
sumption, which is carried on with gold and silver, does not seem to
be less advantageous than any other equally round-about one.
Neither is a country which has no mines, more likely to be exhausted
of gold and silver by this annual exportation of those metals, than
one which does not grow tobacco by the like annual exportation of
that plant. As a country which has wherewithal to buy tobacco will
never be long in want of it, so neither will one be long in want of
gold and silver which has wherewithal to purchase those metals.

It is a losing trade, it is said, which a workman carries on with
the alehouse; and the trade which a manufacturing nation would
naturally carry on with a wine country, may be considered as a
trade of the same nature. I answer, that the trade with the alehouse
is not necessarily a losing trade. In its own nature it is just as ad-
vantageous as any other, though, perhaps, somewhat more liable to
be abused. The employment of a brewer, and even that of a retailer
of fermented liquors, are as necessary divisions of labour as any
other. It will generally be more advantageous for a workman to
buy of the brewer the quantity he has occasion for, than to brew it
himself, and if he is a poor workman, it will generally be more ad-
vantageous for him to buy it, by litde and little, of the retailer,
than a large quantity of the brewer. He may no doubt buy too much
of either, as he may of any other dealers in his neighbourhood, of
the butcher, if he is a glutton, or of the draper, if he affects to be a
beau among his companions. It is advantageous to the great body
of workmen, notwithstanding, that all these trades should be free,
though this freedom may be abused in all of them, and is more
likely to be so, perhaps, in some than in others. Though individuals,
besides, may sometimes ruin their fortunes by an excessive con-
sumption of fermented liquors, there seems to be no risk that a
nation should do so. Though in every country there are many peo-
ple who spend upon such liquors more than they can afford, there
are always many more who spend less. It deserves to be remarked

364 WEALTH OF NATIONS

too, that, if we consult experience, the cheapness of wine seems to
be a cause, not of drunkenness, but of sobriety. The inhabitants of
the wine countries are in general the soberest people in Europe;
witness the Spaniards, the Italians, and the inhabitants of the south-
ern provinces of France. People are seldom guilty of excess in what
is their daily fare. Nobody affects the character of liberality and good
fellowship, by being profuse of a liquor which is as cheap as small
beer. On the contrary, in the countries which, either from excessive
heat or cold, produce no grapes, and where wine consequendy is dear
and a rarity, drunkenness is a common vice, as among the northern
nations, and all those who live between the tropics, the negroes, for
example, on the coast of Guinea. When a French regiment comes
from some of the northern provinces of France, where wine is some-
what dear, to be quartered in the southern, where it is very cheap,
the soldiers, I have frequently heard it observed, are at first de-
bauched by the cheapness and novelty of good wine; but after a few
months residence, the greater part of them become as sober as the
rest of the inhabitants. Were the duties upon foreign wines, and the
excises upon malt, beer, and ale, to be taken away all at once, it
might, in the same manner, occasion in Great Britain a pretty gen-
eral and tem[K>rary drunkenness among the middling and inferior
ranks of people, which would probably be soon followed by a per-
manent and almost universal sobriety. At present drunkenness is
by no means the vice of people of fashion, or of those who can
easily afford the most expensive liquors. A gentleman drunk with
ale, has scarce ever been seen among us. The restraints uf)on the
wine trade in Great Britain, besides, do not so much seem calculated
to hinder the pieople from going, if I may say so, to the alehouse, as
from going where they can buy the best and cheapest liquor. They
favour the wine trade of Portugal, and discourage that of France.
The Portuguese, it is said, indeed, are better customers for our man-
ufactures than the French, and should therefore be encouraged in
preference to them. As they give us their custom, it is pretended, we
should give them ours. The sneaking arts of underling tradesmen
are thus erected into political maxims for the conduct of a great
empire; for it is the most underling tradesmen only who make it a
rule to employ chiefly their own customers. A great trader pur-

ON IMPORTS FROM PARTICULAR COUNTRIES 365

chases his goods always where they are cheapest and best, without
regard to any little interest of this kind.

By such maxims as these, however, nations have been taught that
their interest consisted in beggaring all their neighbours. Each na-
tion has been made to look with an invidious eye upon the prosper-
ity of all the nations with which it trades, and to consider their
gain as its own loss. Commerce, which ought naturally to be,
among nations, as among individuals, a bond of union and friend-
ship, has become the most fertile source of discord and animosity.
The capricious ambition of kings and ministers has not, during the
present and the preceding century, been more fatal to the repose of
Europe, than the impertinent jealousy of merchants and manufac-
turers. The violence and injustice of the rulers of mankind is an
ancient evil, for which, I am afraid, the nature of human affairs can
scarce admit of a remedy. But the mean rapacity, the monopolizing
spirit of merchants and manufacturers, who neither are, nor ought
to be, the rulers of mankind, though it cannot perhaps be corrected,
may very easily be prevented from disturbing the tranquillity of any
body but themselves.

That it was the spirit of monopoly which originally both in-
vented and propagated this doctrine, cannot be doubted; and they
who first taught it were by no means such fools as they who believed
it. In every country it always is and must be the interest of the great
body of the people to buy whatever they want of those who sell it
cheapest. The proposition is so very manifest, that it seems ridicu-
lous to take any pains to prove it; nor could it ever have been called
in question, had not the interested sophistry of merchants and manu-
facturers confounded the common sense of mankind. Their interest
is, in this respect, directly opposite to that of the great body of the
people. As it is the interest of the freemen of a corporation to hinder
the rest of the inhabitants from employing any workmen but them-
selves, so it is the interest of the merchants and manufacturers of
every country to secure to themselves the monopoly of the home
market. Hence in Great Britain, and in most other European coun-
tries, the extraordinary duties upon almost all goods imported by
alien merchants. Hence the high duties and prohibitions ufxjn all
those foreign manufactures which can come into competition with

366 WEALTH OF NATIONS

our own. Hence too the extraordinary restraints upon the importa-
tion of almost all sorts of goods from those countries with which
the balance of trade is supposed to be disadvantageous; that is, from
those against whom national animosity happens to be most violently
inflamed.

The wealth of a neighbouring nation, however, though dangerous
in war and politics, is certainly advantageous in trade. In a state of
hostility it may enable our enemies to maintain fleets and armies
superior to our own; but in a state of peace and commerce it must
likewise enable them to exchange with us to a greater value, and to
afford a better market, either for the immediate produce of our own
industry, or for whatever is purchased with that produce. As a rich
man is likely to be a better customer to the industrious people in
his neighbourhood, than a poor, so is likewise a rich nation. A rich
man, indeed, who is himself a manufacturer, is a very dangerous
neighbour to all those who deal in the same way. All the rest of
the neighbourhood, however, by far the greatest number, profit by
the good market which his expence affords them. They even profit
by his underselling the poorer workmen who deal in the same way
with him. The manufacturers of a rich nation, in the same manner,
may no doubt be very dangerous rivals to those of their neighbours.
This very competition, however, is advantageous to the great body
of the people, who profit greatly besides by the good market which
the great expence of such a nation affords them in every other way.
Private people who want to make a fortune, never think of retiring
to the remote and poor provinces of the country, but resort either to
the capital, or to some of the great commercial towns. They know,
that, where little wealth circulates, there is little to be got, but that
where a great deal is in motion, some shares of it may fall to them.
The same maxims which would in this manner direct the common
sense of one, or ten, or twenty individuals, should regulate the
judgment of one, or ten, or twenty millions, and should make a
whole nation regard the riches of its neighbours, as a probable cause
and occasion for itself to acquire riches. A nation that would enrich
itself by foreign trade, is certainly most likely to do so when its
neighbours are all rich, industrious, and commercial nations. A
great nation surrounded on all sides by wandering savages and poor

ON IMPORTS FROM PARTICULAR COUNTRIES 367

barbarians might, no doubt, acquire riches by the cultivation of its
own lands, and by its own interior commerce, but not by foreign
trade. It seems to have been in this manner that the ancient Egyp-
tians and the modern Chinese acquired their great wealth. The an-
cient Egyptians, it is said, neglected foreign commerce, and the
modern Chinese, it is known, hold it in the utmost contempt, and
scarce deign to afford it the decent protection of the laws. The
modern maxims of foreign commerce, by aiming at the imp)overish-
ment of all our neighbours, so far as they are capable of producing
their intended effect, tend to render that very commerce insignificant
and contemptible.

It is in consequence of these maxims that the commerce between
France and England has in both countries been subjected to so many
discouragements and restraints. If those two countries, however,
were to consider their real interest, without either mercantile jealousy
or national animosity, the commerce of France might be more advan-
tageous to Great Britain than that of any other country, and for the
same reason that of Great Britain to France. France is the nearest
neighbour to Great Britain. In the trade between the southern coast
of England and the northern and north-western coasts of France, the
returns might be expected, in the same manner as in the inland
trade, four, five, or six times in the year. The capital, therefore,
employed in this trade, could in each of the two countries keep in
motion four, five, or six times the quantity of industry, and afford
employment and subsistence to four, five, or six times the number of
people, which an equal capital could do in the greater part of the
other branches of foreign trade. Between the parts of France and
Great Britain most remote from one another, the returns might be
expected, at least, once in the year, and even this trade would so far
be at least equally advantageous as the greater part of the other
branches of our foreign European trade. It would be, at least, three
times more advantageous, than the boasted trade with our North
American colonies, in which the returns were seldom made in less
than three years, frequently not in less than four or five years.
France, besides, is supposed to contain twenty-four millions of in-
habitants. Our North American colonies were never suppKDsed to
contain more than three millions: And France is a much richer

368 WEALTH OF NATIONS

country than North America; though, on account of the more un-
equal distribution of riches, there is much more poverty and beggary
in the one country than in the other. France therefore could afford
a market at least eight times more extensive, and, on account of the
superior frequency of the returns, four and twenty times more ad-
vantageous, than that which our North American colonies ever
afforded. The trade of Great Britain would be just as advantageous
to France, and, in proportion to the wealth, population and proximity
of the respective countries, would have the same superiority over
that which France carries on with her own colonies. Such is the
very great difference between that trade which the wisdom of both
nations has thought proper to discourage, and that which it has
favoured the most.

But the very same circumstances which would have rendered
an open and free commerce between the two countries so advan-
tageous to both, have occasioned the principal obstructions to that
commerce. Being neighbours, they are necessarily enemies, and the
wealth and p)ower of each becomes, upon that account, more for-
midable to the other; and what would increase the advantage of
national friendship, serves only to inflame the violence of national
animosity. They are both rich and industrious nations; and the
merchants and manufacturers of each, dread the competition of the
skill and activity of those of the other. Mercantile jealousy is excited,
and both inflames, and is itself inflamed, by the violence of national
animosity: And the traders of both countries have announced, with
all the passionate confidence of interested falsehood, the certain ruin
of each, in consequence of that unfavourable balance of trade, which,
they pretend, would be the infallible effect of an unrestrained com-
merce with the other.

There is no commercial country in Europe of which the approach-
ing ruin has not frequently been foretold by the pretended doctors of
this system, from an unfavourable balance of trade. After all the
anxiety, however, which they have excited about this, after all the
vain attempts of almost all trading nations to turn that balance in
their own favour and against their neighbours, it does not appear
that any one nation in Europe has been in any respect impoverished
by this cause. Every town and country, on the contrary, in proper-

ON IMPORTS FROM PARTICULAR COU>nrRIES 369

tion as they have opened their ports to all nations, instead of being
ruined by this free trade, as the principles of the commercial system
would lead us to expect, have been enriched by it. Though there are
in Europe, indeed, a few towns which in some respects deserve the
name of free ports, there is no country which does so. Holland,
perhaps, approaches the nearest to this character of any, though still
very remote from it; and Holland, it is acknowledged, not only
derives its whole wealth, but a great part of its necessary subsistence,
from foreign trade.

There is another balance, indeed, which has already been ex-
plained, very different from the balance of trade, and which, accord-
ing as it happens to be either favourable or unfavourable, necessarily
occasions the prosperity or decay of every nation. This is the balance
of the annual produce and consumption. If the exchangeable value
of the annual produce, it has already been observed, exceeds that of
the annual consumption, the capital of the society must annually in-
crease in proportion to this excess. The society in this case lives
within its revenue, and what is annually saved out of its revenue,
is naturally added to its capital, and employed so as to increase still
further the annual produce. If the exchangeable value of the annual
produce, on the contrary, fall short of the annual consumption, the
capital of the society must annually decay in proportion to this defi-
ciency. The expence of the society in this case exceeds its revenue,
and necessarily encroaches upon its capital. Its capital, therefore,
must necessarily decay, and, together with it, the exchangeable value
of the annual produce of its industry.

This balance of produce and consumption is entirely different
from what is called the balance of trade. It might take place in a
nation which had no foreign trade, but which was entirely separated
from all the world. It may take place in the whole globe of the
earth, of which the wealth, population, and improvement may be
either gradually increasing or gradually decaying.

The balance of produce and consumption may be constantly in
favour of a nation, though what is called the balance of trade be
generally against it. A nation may import to a greater value than it
exports for half a century, perhaps, together; the gold and silver
which comes into it during all this time may be all immediately

370 WEALTH OF NATIONS

sent out of it; its circulating coin may gradually decay, different
sorts of paper money being substituted in its place, and even the
debts too which it contracts in the principal nations with whom it
deals, may be gradually increasing; and yet its real wealth, the ex-
changeable value of the annual produce of its lands and labour, may,
during the same period, have been increasing in a much greater pro-
portion. The state of our North American colonies, and of the trade
which they carried on with Great Britain, before the commencement
of the present disturbances, may serve as a proof that this is by no
means an impossible supposition.

CHAPTER IV
Of Drawbacks

MERCHANTS and manufacturers are not contented with
the monopoly of the home market, but desire likewise the
most extensive foreign sale for their goods. Their country
has no jurisdiction in foreign nations, and therefore can seldom
procure them any monopoly there. They are generally obliged,
therefore, to content themselves with petitioning for certain encour-
agements to exportation.

Of these encouragements what are called Drawbacks seem to be
the most reasonable. To allow the merchant to draw back uf)on
exportation, either the whole or a part of whatever excise or inland
duty is imposed upon domestic industry, can never occasion the
exportation of a greater quantity of goods than what would have
been exported had no duty been imposed. Such encouragements do
not tend to turn towards any particular employment a greater share
of the capital of the country, than what would go to that employ-
ment of its own accord, but only to hinder the duty from driving
away any part of that share to other employments. They tend not
to overturn that balance which naturally establishes itself among all
the various employments of the society; but to hinder it from being
overturned by the duty. They tend not to destroy, but to preserve,
what it is in most cases advantageous to preserve, the natural divi-
sion and distribution of labour in the society.

The same thing may be said of the drawbacks upon the re-expor-
tation of foreign goods imported; which in Great Britain generally
amount to by much the largest part of the duty upon importation.

Drawbacks were, perhaps, originally granted for the encourage-
ment of the carrying trade, which, as the freight of the ships is fre-
quently paid by foreigners in money, was supposed to be peculiarly
fitted for bringing gold and silver into the country. But though the
carrying trade certainly deserves no peculiar encouragement, though

371

372 WEALTH OF NATIONS

the motive of the institution was, perhaps, abundantly fooHsh, the
institution itself seems reasonable enough. Such drawbacks cannot
force into this trade a greater share of the capital of the country than
what would have gone to it of its own accord, had there been no
duties upon importation. They only prevent its being excluded alto-
gether by those duties. The carrying trade, though it deserves no
preference, ought not to be precluded, but to be left free like all
other trades. It is a necessary resource for those capitals which cannot
find employment either in the agriculture or in the manufactures
of the country, either in its home trade or in its foreign trade of
consumption.

The revenue of the customs, instead of suffering, profits from such
drawbacks, by that part of the duty which is retained. If the whole
duties had been retained, the foreign goods upon which they are
paid, could seldom have been exported, nor consequently imported,
for want of a market. The duties, therefore, of which a part is
retained, would never have been paid.

These reasons seem sufficiently to justify drawbacks, and would
justify them, though the whole duties, whether upon the produce of
domestic industry, or upon foreign goods, were always drawn back
upon exportation. The revenue of excise would in this case, indeed,
suffer a little, and that of the customs a good deal more; but the
natural balance of industry, the natural division and distribution of
labour, which is always more or less disturbed by such duties, would
be more nearly re-established by such a regulation.

These reasons, however, will justify drawbacks only upon export-
ing goods to those countries which are altogether foreign and inde-
pendent, not to those in which our merchants and manufacturers
enjoy a monopoly. A drawback, for example, upon the exportation
of European goods to our American colonies, will not always occa-
sion a greater exportation than what would have taken place without
it. By means of the monopoly which our merchants and manufac-
turers enjoy there, the same quantity might frequently, perhaps, be
sent thither, though the whole duties were retained. The drawback,
therefore, may frequently be pure loss to the revenue of excise and
customs, without altering the state of the trade, or rendering it in
any respect more extensive. How far such drawbacks can be justi-

DRAWBACKS 373

fied, as a proper encouragement to the industry of our colonies, or
how far it is advantageous to the mother-country, that they should
be exempted from taxes which are paid by all the rest of their fellow-
subjects, will appear hereafter when I come to treat of colonies.

Drawbacks, however, it must always be understood, are useful
only in those cases in which the goods for the exportation of which
they are given, are really exported to some foreign country; and
not clandestinely re-imported into our own. That some draw-
backs, particularly those upon tobacco, have frequently been abused
in this manner, and have given occasion to many frauds equally
hurtful both to the revenue and to the fair trader, is well known.

CHAPTER V
Of Bounties

BOUNTIES upon exportation are, in Great Britain, frequently
, petitioned for, and sometimes granted to the produce of par-
ticular branches of domestic industry. By means of them our
merchants and manufacturers, it is pretended, will be enabled to
sell their goods as cheap or cheaper than their rivals in the foreign
market. A greater quantity, it is said, will thus be exported, and the
balance of trade consequently turned more in favour of our own
country. We cannot give our workmen a monopoly in the foreign,
as we have done in the home market. We cannot force foreigners to
buy their goods, as we have done our own countrymen. The next
best expedient, it has been thought, therefore, is to pay them for
buying. It is in this manner that the mercantile system proposes to
enrich the whole country, and to put money into all our pockets by
means of the balance of trade.

Bounties, it is allowed, ought to be given to those branches of trade
only which cannot be carried on without them. But every branch
of trade in which the merchant can sell his goods for a price which
replaces to him, with the ordinary profits of stock, the whole capital
employed in preparing and sending them to market, can be carried
on without a bounty. Every such branch is evidently upon a level
with all the other branches of trade which are carried on without
bounties, and cannot therefore require one more than they. Those
trades only require bounties in which the merchant is obliged to
sell his goods for a price which does not replace to him his capital,
together with the ordinary profit; or in which he is obliged to sell
them for less than it really costs him to send them to market. The
bounty is given in order to make up this loss, and to encourage him
to continue, or perhaps to begin, a trade of which the expence is
supposed to be greater than the returns, of which every operation
eats up a part of the capital employed in it, and which is of such a

374

BOUNTIES 375

nature, that, if all other trades resembled it, there would soon be
no capital left in the country.

The trades, it is to be observed, which are carried on by means
of bounties, are the only ones which can be carried on between two
nations for any considerable time together, in such a manner as
that one of them shall always and regularly lose, or sell its goods for
less than it really costs to send them to market. But if the bounty
did not repay to the merchant what he would otherwise lose upon
the price of his goods, his own interest would soon oblige him to
employ his stock in another way, or to find out a trade in which the
price of the goods would replace to him, with the ordinary profit,
the capital employed in sending them to market. The effect of
bounties, like that of all the other expedients of the mercantile sys-
tem, can only be to force the trade of a country into a channel much
less advantageous than that in which it would naturally run of its
own accord.

The ingenious and well-informed author of the tracts upon the
corn-trade has shown very clearly, that since the bounty upon the
exportation of corn was first established, the price of the corn ex-
ported, valued moderately enough, has exceeded that of the corn im-
ported, valued very high, by a much greater sum than the amount of
the whole bounties which have been paid during that period. This,
he imagines, ujxjn the true principles of the mercantile system, is a
clear proof that this forced corn trade is beneficial to the nation; the
value of the exportation exceeding that of the importation by a
much greater sum than the whole extraordinary expence which the
public has been at in order to get it exported. He does not consider
that this extraordinary expence, or the bounty, is the smallest part
of the expence which the exportation of corn really costs the society.
The capital which the farmer employed in raising it, must likewise
be taken into the account. Unless the price of the corn when sold
in the foreign markets replaces, not only the bounty, but this capi-
tal, together with the ordinary profits of stock, the society is a loser
by the difference, or the national stock is so much diminished. But
the very reason for which it has been thought necessary to grant a
bounty, is the supposed insufficiency of the price to do this.

The average price of corn, it has been said, has fallen considerably

376 WEALTH OI NATIONS

since the establishment of the bounty. That the average price of
corn began to fall somewhat towards the end of the last century,
and has continued to do so during the course of the sixty-four first
years of the present, I have already endeavoured to show. But this
event, supposing it to be as real as I believe it to be, must have hap-
pened in spite of the bounty, and cannot possibly have happened in
consequence of it. It has happened in France, as well as in England,
though in France there was, not only no bounty, but, till 1764, the
exportation of corn was subjected to a general prohibition. This
gradual fall in the average price of grain, it is probable, therefore,
is ultimately owing neither to the one regulation nor to the other,
but to that gradual and insensible rise in the real value of silver,
which, in the first book of this discourse, I have endeavoured to
show has taken place in the general market of France, during the
course of the present century. It seems to be altogether impossible
that the bounty could ever contribute to lower the price of grain.

In years of plenty, it has already been observed, the bounty, by
occasioning an extraordinary exp>ortation, necessarily keeps up the
price of corn in the home market above what it would naturally fall
to. To do so was the avowed purpose of the institution. In years
of scarcity, though the bounty is frequently suspended, yet the great
exportation which it occasions in years of plenty, must frequently
hinder more or less the plenty of one year from relieving the scarcity
of another. Both in years of plenty, and in years of scarcity, there-
fore, the bounty necessarily tends to raise the money price of corn
somewhat higher than it otherwise would be in the home market.

That, in the actual state of tillage, the bounty must necessarily have
this tendency, will not, I apprehend, be disputed by any reasonable
person. But it has been thought by many people that it tends to
encourage tillage, and that in two different ways; first, by opening
a more extensive foreign market to the corn of the farmer, it tends,
they imagine, to increase the demand for, and consequently the
production of that commodity; and secondly, by securing to him a
better price than he could otherwise expect in the actual state of
tillage, it tends, they suppose, to encourage tillage. This double
encouragement must, they imagine, in a long period of years, occa-
sion such an increase in the production of corn, as may lower its price

BOUNTIES 377

in the home market, much more than the bounty can raise it, in the
actual state which tillage may, at the end of that period, happen to
be in.

I answer, that whatever extension of the foreign market can be
occasioned by the bounty, must, in every particular year, be alto-
gether at the expence of the home market; as every bushel of corn
which is exported by means of the bounty, and which would not
have been exported without the bounty, would have remained in
the home market to increase the consumption, and to lower the
price of that commodity. The corn bounty, it is to be observed, as
well as every other bounty upon exportation, imposes two different
taxes upon the people; first, the tax which they are obliged to con-
tribute, in order to pay the bounty; and secondly, the tax which
arises from the advanced price of the commodity in the home mar-
ket, and which, as the whole body of the f)eople are purchasers of
corn, must, in this particular commodity, be paid by the whole body
of the people. In this particular commodity, therefore, this second
tax is by much the heaviest of the two. Let us suppose that, taking
one year with another, the bounty of five shillings upon the exporta-
tion of the quarter of wheat, raises the price of that commodity in
the home market only sixpence the bushel, or four shillings the
quarter, higher than it otherways would have been in the actual
state of the crop. Even upon this very moderate supposition, the
great body of the people, over and above contributing the tax which
pays the bounty of five shillings upon every quarter of wheat ex-
ported, must pay another of four shillings upon every quarter which
they themselves consume. But, according to the very well informed
author of the tracts upon the corn-trade, the average proportion of
the corn exported to that consumed at home, is not more than that
of one to thirty-one. For every five shillings, therefore, which they
contribute to the payment of the first tax, they must contribute six
pounds four shillings to the payment of the second. So very heavy a
tax upon the first necessary of life, must either reduce the subsistence
of the labouring poor, or it must occasion some augmentation in
their pecuniary wages, proportionable to that in the pecuniary price
of their subsistence. So far as it operates in the one way, it must
reduce the ability of the labouring poor to educate and bring up their

378 WEALTH OF NATIONS

children, and must, so far, tend to restrain the population of the
country. So far as it operates in the other, it must reduce the ability
of the employers of the poor, to employ so great a number as they
otherwise might do, and must, so far, tend to restrain the industry
of the country. The extraordinary exportation of corn, therefore,
occasioned by the bounty, not only, in every particular year, dimin-
ishes the home, just as much as it extends the foreign market and
consumption, but, by restraining the population and industry of
the country, its final tendency is to stunt and restrain the gradual ex-
tension of the home market; and thereby, in the long run, rather to
diminish, than to augment, the whole market and consumption of
corn.

This enhancement of the money price of corn, however, it has been
thought, by rendering that commodity more profitable to the farmer,
must necessarily encourage its production.

1 answer, that this might be the case if the effect of the bounty was
to raise the real price of corn, or to enable the farmer, with an equal
quantity of it, to maintain a greater number of labourers in the same
manner, whether liberal, moderate, or scanty, that other labourers
are commonly maintained in his neighbourhood. But neither the
bounty, it is evident, nor any other human institution, can have any
such effect. It is not the real, but the nominal price of corn, which
can in any considerable degree be affected by the bounty. And
though the tax, which that institution imposes upon the whole body
of the jjeople, may be very burdensome to those who pay it, it is of
very little advantage to those who receive it.

The real effect of the bounty is not so much to raise the real

'alue of corn, as to degrade the real value of silver; or to make an

equal quantity of it exchange for a smaller quantity, not only of

corn, but of all other home-made commodities: for the money

price of corn regulates that of all other home-made commodities.

It regulates the money price of labour, which must always be
such as to enable the labourer to purchase a quantity of corn suffi-
cient to maintain him and his family either in the liberal, moderate,
or scanty manner in which the advancing, stationary or declining
circumstances of the society oblige his employers to maintain him.

It regulates the money price of all the other parts of the rude

BOUNTIES 379

produce of land, which, in every period of improvement, must bear
a certain proportion to that of corn, though this proportion is differ-
ent in different periods. It regulates, for example, the money price
of grass and hay, of butcher's meat, of horses, and the maintenance
of horses, of land carriage consequently, or of the greater part of the
inland commerce of the country.

By regulating the money price of all the other parts of the rude
produce of land, it regulates that of the materials of almost all manu-
factures. By regulating the money price of labour, it regulates that
of manufacturing art and industry. And by regulating both, it regu-
lates that of the complete manufacture. The money price of labour,
and of every thing that is the produce either of land or labour, must
necessarily either rise or fall in proportion to the money price of
corn.

Though in consequence of the bounty, therefore, the farmer should
be enabled to sell his corn for four shillings the bushel instead of
three and sixpence, and to pay his landlord a money rent propor-
tionable to this rise in the money price of his produce; yet if, in con-
sequence of this rise in the price of corn, four shillings will pur-
chase no more home-made goods of any other kind than three and
sixpence would have done before, neither the circumstances of the
farmer, nor those of the landlord, will be much mended by this
change. The farmer will not be able to cultivate much better: the
landlord will not be able to live much better. In the purchase of
foreign commodities this enhancement in the price of corn may
give them some little advantage. In that of home-made commodities
it can give them none at all. And almost the whole expence of the
farmer, and the far greater part even of that of the landlord, is in
home-made commodities.

That degradation in the value of silver which is the effect of the
fertility of the mines, and which operates equally, or very near
equally, through the greater part of the commercial world, is a
matter of very little consequence to any particular country. The
consequent rise of all money prices, though it does not make those
who receive them really richer, does not make them really poorer. A
service of plate becomes really cheaper, and every thing else remains
precisely of the same real value as before.

380 WEALTH OF NATIONS

But that degradation in the value of silver which, being the effect
either of the peculiar situation, or of the political institutions of a
particular country, takes place only in that country, is a matter of
very great consequence, which, far from tending to make any body
really richer, tends to make every body really poorer. The rise in
the money price of all commodities, which is in this case peculiar
to that country, tends to discourage more or less every sort of indus-
try which is carried on within it, and to enable foreign nations, by
furnishing almost all sorts of goods for a smaller quantity of silver
than its own workmen can afford to do, to undersell them, not only
in the foreign, but even in the home market.

It is the peculiar situation of Spain and Portugal as proprietors
of the mines, to be the distributors of gold and silver to all the other
countries of Europe. Those metals ought naturally, therefore, to be
somewhat cheaper in Spain and Portugal than in any other part of
Europe. The difference, however, should be no more than the
amount of the freight and insurance; and, on account of the great
value and small bulk of those metals, their freight is no great mat-
ter, and their insurance is the same as that of any other goods of
equal value. Spain and Portugal, therefore, could suffer very little
from their peculiar situation, if they did not aggravate its disad-
vantages by their f)olitical institutions.

Spain by taxing, and Portugal by prohibiting the exportation of
gold and silver, load that exportation with the expence of smuggling,
and raise the value of those metals in other countries so much more
above what it is in their own, by the whole amount of this expence.
When you dam up a stream of water, as soon as the dam is full, as
much water must run over the dam-head as if there was no dam
at all. The prohibition of exportation cannot detain a greater quan-
tity of gold and silver in Spain and Portugal than what they can
afford to employ, than what the annual produce of their land and
labour will allow them to employ, in coin, plate, gilding, and other
ornaments of gold and silver. When they have got this quantity
the dam is full, and the whole stream which flows in afterwards
must run over. The annual exportation of gold and silver from
Spain and Portugal accordingly is, by all accounts, notwithstanding
these restraints, very near equal to the whole annual importation. As

BOUNTIES 381

the water, however, must always be deeper behind the dam-head
than before it, so the quantity of gold and silver which these re-
straints detain in Spain and Portugal must, in proportion to the
annual produce of their land and labour, be greater than what is to
be found in other countries. The higher and stronger the dam-
head, the greater must be the difference in the depth of water
behind and before it. The higher the tax, the higher the penalties
with which the prohibition is guarded, the more vigilant and severe
the police which looks after the execution of the law, the greater
must be the difference in the proportion of gold and silver to the
annual produce of the land and labour of Spain and Portugal, and
to that of other countries. It is said accordingly to be very consider-
able, and that you frequently find there a profusion of plate in
houses, where there is nothing else which would, in other coun-
tries, be thought suitable or correspondent to this sort of magnifi-
cence. The cheapness of gold and silver, or what is the same thing,
the dearness of all commodities, which is the necessary effect of this
redundancy of the precious metals, discourages both the agriculture
and manufactures of Spain and Portugal, and enables foreign na-
tions to supply them with many sorts of rude, and with almost all
sorts of manufactured produce, for a smaller quantity of gold and
silver than what they themselves can either raise or make them for
at home. The tax and prohibition operate in two different ways.
They not only lower very much the value of the precious metals
in Spain and Portugal, but by detaining there a certain quantity of
those metals which would otherwise flow over other countries,
they keep up their value in those other countries somewhat above
what it otherwise would be, and thereby give those countries a
double advantage in their commerce with Spain and Portugal. Open
the flood-gates, and there will presently be less water above, and
more below, the dam-head, and it will soon come to a level in both
places. Remove the tax and the prohibition, and as the quantity
of gold and silver will diminish considerably in Spain and Portugal,
so it will increase somewhat in other countries, and the value of
those metals, their proportion to the annual produce of land and
labour, will soon come to a level, or very near to a level, in all. The
loss which Spain and Portugal could sustain by this exfwrtation

382 WEALTH OF NATIONS

of their gold and silver would be altogether nominal and imagi-
nary. The nominal value of their goods, and of the annual produce
of their land and labour, would fall, and would be expressed or
represented by a smaller quantity of silver than before: but theif
real value would be the same as before, and would be sufficient to
maintain, command, and employ, the same quantity of labour. As
the nominal value of their goods would fall, the real value of what
remained of their gold and silver would rise, and a smaller quan-
tity of those metals would answer all the same purf)oses of com-
merce and circulation which had employed a greater quantity be-
fore. The gold and silver which would go abroad would not go
abroad for nothing, but would bring back an equal value of goods
of some kind or another. Those goods too would not be all matters
of mere luxury and expence, to be consumed by idle people who
produce nothing in return for their consumption. As the real wealth
and revenue of idle people would not be augmented by this extraor-
dinary exportation of gold and silver, so neither would their con-
sumption be much augmented by it. Those goods would, probably,
the greater part of them, and certainly some part of them, consist
in materials, tools, and provisions, for the employment and mainte-
nance of industrious people, who would reproduce, with a profit,
the full value of their consumption. A part of the dead stock of
the society would thus be turned into active st(Kk, and would put
into motion a greater quantity of industry than had been employed
before. The annual produce of their land and labour would imme-
diately be augmented a little, and in a few years would, probably,
be augmented a great deal; their industry being thus relieved from
one of the most oppressive burdens which it at present labours under.
The bounty upon the expwrtation of corn necessarily operates ex-
actly in the same way as this absurd policy of Spain and Portugal.
Whatever be the actual state of tillage, it renders our corn somewhat
dearer in the home market than it otherwise would be in that state,
and somewhat cheaper in the foreign; and as the average money
price of corn regulates more or less that of all other commodities,
it lowers the value of silver considerably in the one, and tends to
raise it a little in the other. It enables foreigners, the Dutch in par-
ticular, not only to eat our corn cheaper than they otherwise could

BOUNTIES 383

do, but sometimes to eat it cheaper than even our own people can
do upon the same occasions; as we are assured by an excellent au-
thority, that of Sir Matthew Decker. It hinders our own workmen
from furnishing their goods for so small a quantity of silver as they
otherwise might do; and enables the Dutch to furnish their's for
a smaller. It tends to render our manufactures somewhat dearer in
every market, and their's somewhat cheaper than they otherwise
would be, and consequendy to give their industry a double advan-
tage over our own.

The bounty, as it raises in the home market, not so much the real,
as the nominal price of our corn, as it augments, not the quantity
of labour which a certain quantity of corn can maintain and employ,
but only the quantity of silver which it will exchange for, it discour-
ages our manufactures, without rendering any considerable service
either to our farmers or country gentlemen. It puts, indeed, a little
more money into the jxxkets of both, and it will perhaps be some-
what difficult to persuade the greater part of them that this is not
rendering them a very considerable service. But if this money sinks
in its value, in the quantity of labour, provisions, and home-made
commodities of all different kinds which it is capable of purchasing,
as much as it rises in its quantity, the service will be little more than
nominal and imaginary.

There is, perhaps, but one set of men in the whole common-
wealth to whom the bounty either was or could be essentially serv-
iceable. These were the corn merchants, the exporters and importers
of corn. In years of plenty the bounty necessarily occasioned a
greater exportation than would otherwise have taken place; and
by hindering the plenty of one year from relieving the scarcity of
another, it occasioned in years of scarcity a greater importation than
would otherwise have been necessary. It increased the business of
the corn merchant in both; and in years of scarcity, it not only
enabled him to import a greater quantity, but to sell it for a better
price, and consequently with a greater profit than he could otherwise
have made, if the plenty of one year had not been more or less
hindered from relieving the scarcity of another. It is in this set of
men, accordingly, that I have observed the greatest zeal for the con-
tinuance or renewal of the bounty.

384 WEALTH OF NATIONS

Our country gentlemen, when they imposed the high duties upon
the importation of foreign corn, which in times of moderate plenty
amount to a prohibition, and when they established the bounty, seem
to have imitated the conduct of our manufacturers. By the one
institution, they secured to themselves the monopoly of the home
market, and by the other they endeavoured to prevent that market
from ever being overstocked with their commodity. By both they
endeavoured to raise its real value, in the same manner as our
manufacturers had, by the like institutions, raised the real value of
many different sorts of manufactured goods. They did not perhaps
attend to the great and essential difference which nature has estab-
lished between corn and almost every other sort of goods. When,
either by the monopoly of the home market, or by a bounty upon
exportation, you enable our woollen or linen manufacturers to sell
their goods for somewhat a better price than they otherwise could
get for them, you raise, not only the nominal, but the real price of
those goods. You render them equivalent to a greater quantity of
labour and subsistence, you encrease not only the nominal, but the
real profit, the real wealth and revenue of those manufacturers, and
you enable them either to live better themselves, or to employ a
greater quantity of labour in those particular manufactures. You
really encourage those manufactures, and direct towards them a
greater quantity of the industry of the country, than what would
probably go to them of its own accord. But when by the like institu-
tions you raise the nominal or money-price of corn, you do not raise
its real value. You do not increase the real wealth, the real revenue
either of our farmers or country gentlemen. You do not encourage
the growth of corn, because you do not enable them to maintain
and employ more labourers in raising it. The nature of things has
stamped upon corn a real value which cannot be altered by merely
altering its money price. No bounty upon exportation, no monopoly
of the home market, can raise that value. The freest competition
cannot lower it. Through the world in general that value is equal
to the quantity of labour which it can maintain, and in every par-
ticular place it is equal to the quantity of labour which it can main-
tain in the way, whether liberal, moderate, or scanty, in which labour
is commonly maintained in that place. Woollen or linen cloth are

BOUNTIES 385

not the regulating commodities by which the real value of all other
commodities must be finally measured and determined; corn is.
The real value of every other commodity is finally measured and
determined by the proportion which its average money price bears
to the average money price of corn. The real value of corn does not
vary with those variations in its average money price, which some-
times occur from one century to another. It is the real value of silver
which varies with them.

Bounties upon the exjjortation of any home-made commodity
are liable, first, to that general objection which may be made to all
the different expedients of the mercantile system; the objection of
forcing some part of the industry of the country into a channel less
advantageous than that in which it would run of its own accord:
and, secondly, to the particular objection of forcing it, not only into
a channel that is less advantageous, but into one that is actually dis-
advantageous; the trade which cannot be carried on but by means of
a bounty being necessarily a losing trade. The bounty upon the ex-
portation of corn is liable to this further objection, that it can in no
respect promote the raising of that particular commodity of which it
was meant to encourage the production. When our country gentle-
men, therefore, demanded the establishment of the bounty, though
they acted in imitation of our merchants and manufacturers, they
did not act with that complete comprehension of their own interest
which commonly directs the conduct of those two other orders of
people. They loaded the public revenue with a very considerable
expence; they imposed a very heavy tax upon the whole body of the
people; but they did not, in any sensible degree, increase the real
value of their own commodity; and by lowering somewhat the real
value of silver, they discouraged, in some degree, the general indus-
try of the country, and, instead of advancing, retarded more or less
the improvement of their own lands, which necessarily depends upon
the general industry of the country.

To encourage the production of any commodity, a bounty upon
production, one should imagine, would have a more direct opera-
tion, than one upon exportation. It would, besides, impose only one
tax upon the people, that which they must contribute in order to pay
the bounty. Instead of raising, it would tend to lower the price of

386 WEALTH OF NATIONS

the commodity in the home market; and thereby, instead of impos-
ing a second tax upwn the people, it might at least in part, repay them
for what they had contributed to the first. Bounties upon production,
however, have been very rarely granted. The prejudices established
by the commercial system have taught us to believe, that nominal
wealth arises more immediately from exportation than from produc-
tion. It has been more favoured accordingly, as the more immediate
means of bringing money into the country. Bounties upon produc-
tion, it has been said too, have been found by experience more liable
to frauds than those upon exportation. How far this is true, I know
not. That bounties upon exportation have been abused to many
fraudulent purposes, is very well known. But it is not the interest
of merchants and manufacturers, the great inventors of all these
expedients, that the home market should be overstocked with their
goods, an event which a bounty upon production might sometimes
occasion. A bounty upon exportation, by enabling them to send
abroad the surplus part, and to keep up the price of what remains in
the home market, effectually prevents this. Of all the expedients of
the mercantile system, accordingly, it is the one of which they are
the fondest. I have known the different undertakers of some par-
ticular works agree privately among themselves to give a bounty out
of their own pockets upon the exportation of a certain proportion of
the goods which they dealt in. This expedient succeeded so well,
that it more than doubled the price of their goods in the home mar-
ket, notwithstanding a very considerable increase in the produce.
The operation of the bounty upon corn must have been wonderfully
different, if it has lowered the money price of that commodity.

Something like a bounty upon production, however, has been
granted upon some particular occasions. The tonnage bounties given
to the white-herring and whale-fisheries may, perhaps, be con-
sidered as somewhat of this nature. They tend directly, it may be
supposed, to render the goods cheaper in the home market than they
otherwise would be. In other respects their effects, it must be
acknowledged, are the same as those of bounties upon exportation.
By means of them a part of the capital of the country is employed in
bringing goods to market, of which the price docs not repay the cost,
together with the ordinary profits of stock.

BOUNTIES 387

If any particular manufacture was necessary, indeed, for the de-
fence of the society, it might not always be prudent to depend upon
our neighbours for the supply; and if such manufacture could not
otherwise be supported at home, it might not be unreasonable that
all the other branches of industry should be taxed in order to support
it. The bounties upon the exportation of British-made sail-cloth, and
British-made gun-powder, may, perhaps, both be vindicated upon
this principle.

But though it can very seldom be reasonable to tax the industry
of the great body of the people, in order to suppxjrt that of some par-
ticular class of manufacturers; yet in the wantonness of great pros-
perity, when the public enjoys a greater revenue than it knows well
what to do with, to give such bounties to favourite manufacturers,
may, perhaps, be as natural, as to incur any other idle expence. In
public, as well as in private expences, great wealth may, perhaps,
frequently be admitted as an apology for great folly. But there must
surely be something more than ordinary absurdity, in continuing
such profusion in times of general difficulty and distress.

What is called a bounty is sometimes no more than a drawback,
and consequently is not liable to the same objections as what is
properly a bounty. The bounty, for example, upon refined sugar ex-
ported, may be considered as a drawback of the duties upon the
brown and muscovado sugars from which it is made. The bounty
upon wrought silk exported, a drawback of the duties upon raw
and thrown silk imported. The bounty upon gunpowder exported, a
drawback of the duties upon brimstone and saltpetre imported. In
the language of the customs those allowances only are called draw-
backs, which are given upon goods exported in the same form in
which they are imported. When that form has been so altered by
manufacture of any kind, as to come under a new denomination,
they are called bounties.

Premiums given by the public to artists and manufacturers who
excel in their particular occupations, are not liable to the same objec-
tions as bounties. By encouraging extraordinary dexterity and in-
genuity, they serve to keep up the emulation of the workmen actually
employed in those respective occupations, and are not considerable
enough to turn towards any one of them a greater share of the capital

388 WEALTH OF NATIONS

of the country than what would go to it of its own accord. Their
tendency is not to overturn the natural balance of employments, but
to render the work which is done in each as perfect and complete
as possible. The expence of premiums, besides, is very trifling; that
of bounties very great. The bounty upon corn alone has sometimes
cost the public in one year more than three hundred thousand
pounds.

Bounties are sometimes called premiums, as drawbacks are some-
times called bounties. But we must in all cases attend to the nature
of the thing, without paying any regard to the word.

CHAPTER VI
Of Treaties of Commerce

WHEN a nation binds itself by treaty either to permit the
entry of certain goods from one foreign country which it
prohibits from all others, or to exempt the goods of one
country from duties to which it subjects those of all others, the coun-
try, or at least the merchants and manufacturers of the country, whose
commerce is so favoured, must necessarily derive great advantage
from the treaty. Those merchants and manufacturers enjoy a sort
of monopoly in the country which is so indulgent to them. That
country becomes a market both more extensive and more advan-
tageous for their goods; more extensive, because the goods of other
nations being either excluded or subjected to heavier duties, it takes
off a greater quantity of theirs: more advantageous, because the mer-
chants of the favoured country, enjoying a sort of monopoly there,
will often sell their goods for a better price than if exposed to the free
competition of all other nations.

Such treaties, however, though they may be advantageous to the
merchants and manufacturers of the favoured, are necessarily dis-
advantageous to those of the favouring country. A monopoly is
thus granted against them to a foreign nation; and they must fre-
quently buy the foreign goods they have occasion for, dearer than
if the free competition of other nations was admitted. That part of
its own produce with which such a nation purchases foreign goods,
must consequently be sold cheaper, because when two things are ex-
changed for one another, the cheapness of the one is a necessary
consequence, or rather is the same thing with the dearness of the
other. The exchangeable value of its annual produce, therefore, is
likely to be diminished by every such treaty. This diminution, how-
ever, can scarce amount to any positive loss, but only to a lessening
of the gain which it might otherwise make. Though it sells its goods
cheaper than it otherwise might do, it will not probably sell them

390 WEALTH OF NATIONS

for less than they cost; nor, as in the case of bounties, for a price
which will not replace the capital employed in bringing them to mar-
ket, together with the ordinary profits of stock. The trade could not
go on long if it did. Even the favouring country, therefore, may still
gain by the trade, though less than if there was a free competition.
Some treaties of commerce, however, have been supposed advan-
tageous upon principles very different from these; and a commercial
country has sometimes granted a monopoly of this kind against
itself to certain goods of a foreign nation, because it expected that in
the whole commerce between them, it would annually sell more
than it would buy, and that a balance in gold and silver would be
annually returned to it. It is upon this principle that the treaty of
commerce between England and Portugal, concluded in 1703, by
Mr. Methuen, has been so much commended. The following is a
literal translation of that treaty, which consists of three articles only.

ART. I

His sacred royal majesty of Portugal promises, both in his own
name, and that of his successors, to admit, for ever hereafter, into
Portugal, the woollen cloths, and the rest of the woollen manufactures
of the British, as was accustomed, till they were prohibited by the
law; nevertheless upon this condition:

ART. II

That is to say, that her sacred royal majesty of Great Britain shall,
in her own name, and that of her successors, be obliged, for ever
hereafter, to admit the wines of the growth of Portugal into Britain:
so that at no time, whether there shall be peace or war between the
kingdoms of Britain and France, any thing more shall be demanded
for these wines by the name of custom or duty, or by whatsoever
other title, directly or indirecdy, whether they shall be imported into
Great Britain in pipes or hogsheads, or other casks, than what shall
be demanded for the like quantity or measure of French wine, de-
ducting or abating a third part of the custom or duty. But if at any
time this deduction or abatement of customs, which is to be made as
aforesaid, shall in any manner be attempted and prejudiced, it shall
be just and lawful for his sacred royal majesty of Portugal, again to

TREATIES OF COMMERCE 39I

prohibit the woollen cloths, and the rest of the British woollen manu-
factures.

ART. HI

The most excellent lords the plenipotentiaries promise and take
upon themselves that their above-named masters shall ratify this
treaty; and within the space of two months the ratifications shall be
exchanged.

By this treaty the crown of Portugal becomes bound to admit the
English woollens upon the same footing as before the prohibition;
that is, not to raise the duties which had been paid before that time.
But it does not become bound to admit them upon any better
terms than those of any other nation, of France or Holland for ex-
ample. The crown of Great Britain, on the contrary, becomes bound
to admit the wines of Portugal, upon paying only two-thirds of the
duty, which is paid for those of France, the wines most likely to come
into competition with them. So far this treaty, therefore, is evi-
dently advantageous to Portugal, and disadvantageous to Great
Britain.

It has been celebrated, however, as a masterpiece of the commercial
policy of England. Portugal receives annually from the Brazils a
greater quantity of gold than can be employed in its domestic com-
merce, whether in the shape of coin or of plate. The surplus is too
valuable to be allowed to lie idle and locked up in coffers, and as it
can find no advantageous market at home, it must, notwithstanding
any prohibition, be sent abroad, and exchanged for something for
which there is a more advantageous market at home. A large share
of it comes annually to England, in return either for English goods,
or for those of other European nations that receive their returns
through England. Mr. Baretti was informed that the weekly packet-
boat from Lisbon brings, one week with another, more than fifty
thousand pounds in gold to England. The sum had probably been
exaggerated. It would amount to more than two millions six hun-
dred thousand pounds a year, which is more than the Brazils are
supposed to afford.

Our merchants were some years ago out of humour with the crown
of Portugal. Some privileges which had been granted them, not by

392 WEALTH OF NATIONS

treaty, but by the free grace of that crown, at the soHcitation, indeed,
it is probable, and in return for much greater favours, defence and
protection, from the crown of Great Britain, had been either in-
fringed or revoked. The people, therefore, usually most interested in
celebrating the Portugal trade, were then rather disposed to repre-
sent it as less advantageous than it had commonly been imagined.
The far greater part, almost the whole, they pretended, of this
annual importation of gold, was not on account of Great Britain,
but of other European nations; the fruits and wines of Portugal annu-
ally imported into Great Britain nearly compensating the value of
the British goods sent thither.

Let us suppose, however, that the whole was on account of Great
Britain, and that it amounted to a still greater sum than Mr. Baretti
seems to imagine: this trade would not, upon that account, be more
advantageous than any other in which, for the same value sent out,
we received an equal value of consumable goods in return.

It is but a very small part of this importation which, it can be
supposed, is employed as an annual addition either to the plate or
to the coin of the kingdom. The rest must all be sent abroad and
exchanged for consumable goods of some kind or other. But if
those consumable goods were purchased directly with the produce
of English industry, it would be more for the advantage of England,
than first to purchase with that produce the gold of Portugal, and
afterwards to purchase with that gold those consumable goods. A
direct foreign trade of consumption is always more advantageous
than a round-about one; and to bring the same value of foreign goods
to the home market, requires a much smaller capital in the one way
than in the other. If a smaller share of its industry, therefore, had
been employed in producing goods fit for the Portugal market, and a
greater in producing those fit for the other markets, where those
consumable goods for which there is a demand in Great Britain are
to be had, it would have been more for the advantage of England.
To procure both the gold, which it wants for its own use, and the
consumable goods, would, in this way, employ a much smaller capital
than at present. There would be a spare capital, therefore, to be
employed for other purposes, in exciting an additional quantity of
industry, and in raising a greater annual produce.

TREATIES OF COMMERCE 393

Though Britain were entirely excluded from the Portugal trade,
it could find very little difficulty in procuring all the annual sup-
plies of gold which it wants, either for the pur(X)ses of plate, or of
coin, or of foreign trade. Gold, like every other commodity, is always
somewhere or another to be got for its value by those who have that
value to give for it.

The annual surplus of gold in Portugal, besides, would still be
sent abroad, and though not carried away by Great Britain, would
be carried away by some other nation, which would be glad to sell
it again for its price, in the same manner as Great Britain does at
present. In buying gold of Portugal, indeed, we buy it at the first
hand; whereas, in buying it of any other nation, except Spain, we
should buy it at the second, and might pay somewhat dearer. This
difference, however, would surely be too insignificant to deserve the
public attention.

Almost all our gold, it is said, comes from Portugal. With other
nations the balance of trade is either against us, or not much in our
favour. But we should remember, that the more gold we import
from one country, the less we must necessarily import from all others.
The effectual demand for gold, like that for every other commodity,
is in every country limited to a certain quantity. If nine-tenths of
this quantity are imported from one country, there remains a tenth
only to be imported from all others. The more gold besides that is
annually imported from some particular countries, over and above
what is requisite for plate and for coin, the more must necessarily
be exported to some others; and the more that most insignificant
object of modern policy, the balance of trade, apf)ears to be in our
favour with some particular countries, the more it must necessarily
appear to be against us with many others.

It was upon this silly notion, however, that England could not sub-
sist without the Portugal trade, that, towards the end of the late war,
France and Spain, without pretending either offence or provocation,
required the king of Portugal to exclude all British ships from his
ports, and for the security of this exclusion, to receive into them
French or Spanish garrisons. Had the king of Portugal submitted to
those ignominious terms which his brother-in-law the king of Spain
proposed to him, Britain would have been freed from a much greater

394 WEALTH OF NATIONS

inconveniency than the loss of the Portugal trade, the burden of sup-
porting a very weak ally, so unprovided of every thing for his own
defence, that the whole power of England, had it been directed to
that single purpose, could scarce perhaps have defended him for
another campaign.

The loss of the Portugal trade would, no doubt, have occasioned
a considerable embarrassment to the merchants at that time engaged
in it, who might not, perhaps, have found out, for a year or two, any
other equally advantageous method of employing their capitals; and
in this would probably have consisted all the inconveniency which
England could have suffered from this notable piece of commercial
policy.

The great annual importation of gold and silver is neither for the
purpose of plate nor of coin, but of foreign trade. A round-about
foreign trade of consumption can be carried on more advantageously
by means of these metals than of almost any other goods. As they
are the universal instruments of commerce, they are more readily
received in return for all commodities than any other goods; and
on account of their small bulk and great value, it costs less to trans-
port them backward and forward from one place to another than
almost any other sort of merchandize, and they lose less of their
value by being so transported. Of all the commodities, therefore,
which are bought in one foreign country, for no other purpose but
to be sold or exchanged again for some other goods in another, there
are none so convenient as gold and silver. In facilitating all the differ-
ent round-about foreign trades of consumption which are carried on
in Great Britain, consists the principal advantage of the Portugal
trade; and though it is not a capital advantage, it is, no doidit, a
considerable one.

CHAPTER VII
Of Colonies

PART I
Of the Motives for Establishing new Colonies

THE interest which occasioned the first settlement of the
different European colonies in America and the West Indies,
was not ahogether so plain and distinct as that which
directed the establishment of those of ancient Greece and Rome.

All the different states of ancient Greece possessed, each of them,
but a very small territory, and when the people in any one of them
multiplied beyond what that territory could easily maintain, a part
of them were sent in quest of a new habitation in some remote and
distant part of the world; the warlike neighbours who surrounded
them on all sides, rendering it difficult for any of them to enlarge very
much its territory at home. The colonies of the Dorians resorted
chiefly to Italy and Sicily, which, in the times preceding the founda-
tion of Rome, were inhabited by barbarous and uncivilized nations:
those of the lonians and Eolians, the two other great tribes of the
Greeks, to Asia Minor and the islands of the Egean Sea, of which
the inhabitants seem at that time to have been pretty much in the
same state as those of Sicily and Italy. The mother city, though she
considered the colony as a child, at all times entitled to great favour
and assistance, and owing in return much gratitude and resjject, yet
considered it as an emancipated child, over whom she pretended
to claim no direct authority or jurisdiction. The colony settled its
own form of government, enacted its own laws, elected its own
magistrates, and made peace or war with its neighbours as an inde-
pendent state, which had no occasion to wait for the approbation or
consent of the mother city. Nothing can be more plain and distinct
than the interest which directed every such establishment.
Rome, like most of the other ancient republics, was originally

395

396 WEALTH OF NATIONS

founded upon an Agrarian law, which divided the public territory in
a certain proportion among the different citizens who composed the
state. The course of human affairs, by marriage, by succession,
and by alienation, necessarily deranged this original division, and
frequently threw the lands, which had been allotted for the mainte-
nance of many different families into the possession of a single per-
son. To remedy this disorder, for such it was supposed to be, a law
was made, restricting the quantity of land which any citizen could
possess to five hundred jugera, about three hundred and fifty Eng-
lish acres. This law, however, though we read of its having been
executed upon one or two occasions, was either neglected or evaded,
and the inequality of fortunes went on continually increasing. The
greater part of the citizens had no land, and without it the manners
and customs of those times rendered it difficult for a freeman to
maintain his independency. In the present times, though a poor man
has no land of his own, if he has a little stock, he may either farm
the lands of another, or he may carry on some little retail trade;
and if he has no stock, he may find employment either as a country
labourer, or as an artificer. But, among the ancient Romans, the lands
of the rich were all cultivated by slaves, who wrought under an over-
seer, who was likewise a slave; so that a poor freeman had litde
chance of being employed either as a farmer or as a labourer. All
trades and manufactures too, even the retail trade, were carried on
by the slaves of the rich for the benefit of their masters, whose wealth,
authority, and protection made it difficult for a poor freeman to
maintain the competition against them. The citizens, therefore, who
had no land, had scarce any other means of subsistence but the
bounties of the candidates at the annual elections. The tribunes,
when they had a mind to animate the people against the rich and
the great, put them in mind of the ancient division of lands, and
represented that law which restricted this sort of private property
as the fundamental law of the republic. The people became clamor-
ous to get land, and the rich and the great, we may believe, were
perfectly determined not to give them any part of theirs. To satisfy
them in some measure, therefore, they frequently proposed to send
out a new colony. But conquering Rome was, even u[X)n such occa-
sions, under no necessity of turning out her citizens to seek their

MOTIVES FOR ESTABLISHING COLONIES 397

fortune, if one may say so, through the wide world, without knowing
where they were to settle. She assigned them lands generally in the
conquered provinces of Italy, where, being within the dominions of
the republic, they could never form any independent state; but were
at best but a sort of corporation, which, though it had the power of
enacting bye-laws for its own government, was at all times subject
to the correction, Jurisdiction, and legislative authority of the mother
city. The sending out a colony of this kind, not only gave some
satisfaction to the f>eople, but often established a sort of garrison too
in a newly conquered province, of which the obedience might other-
wise have been doubtful. A Roman colony, therefore, whether we
consider the nature of the establishment itself, or the motives for
making it, was altogether different from a Greek one. The words
accordingly, which in the original languages denote those different
establishments, have very different meanings. The Latin word
(Colonia) signifies simply a plantation. The Greek word (Airoixii),
on the contrary, signifies a separation of dwelling, a departure
from home, a going out of the house. But, though the Roman
colonies were in many respects different from the Greek ones, the
interest which prompted to establish them was equally plain and
distinct. Both institutions derived their origin either from irresistible
necessity, or from clear and evident utility.

The establishment of the European colonies in America and the
West Indies arose from no necessity: and though the utility which
has resulted from them has been very great, it is not altogether so
clear and evident. It was not understood at their first establishment,
and was not the motive either of that establishment or of the dis-
coveries which gave occasion to it; and the nature, extent, and
limits of that utility are not, perhaps, well understood at this day.

The Venetians, during the fourteenth and fifteenth centuries,
carried on a very advantageous commerce in spiceries, and other
East India goods, which they distributed among the other nations of
Europe. They purchased them chiefly in Egypt, at that time under
the dominion of the Mammeluks, the enemies of the Turks, of whom
the Venetians were the enemies; and this union of interest, assisted
by the money of Venice, formed such a connection as gave the
Venetians almost a monopoly of the trade.

398 WEALTH OF NATIONS

The great profits of the Venetians tempted the avidity of the Por-
tuguese. They had been endeavouring, during the course of the
fifteenth century, to find out by sea a way to the countries from which
the Moors brought them ivory and gold dust across the Desart. They
discovered the Madeiras, the Canaries, the Azores, the Cape de Verd
islands, the coast of Guinea, that of Loango, Congo, Angola, and
Benguela, and finally, the Cape of Good Hope. They had long
wished to share in the profitable traffic of the Venetians, and this
last discovery opened to them a probable prospect of doing so. In
1497, Vasco de Gama sailed from the port of Lisbon with a fleet of
four ships, and, after a navigation of eleven months, arrived upon
the coast of Indostan, and thus completed a course of discoveries
which had been pursued with great steadiness, and with very little
interruption, for near a century together.

Some years before this, while the expectations of Europ)e were in
suspense about the projects of the Portuguese, of which the success
appeared yet to be doubtful, a Genoese pilot formed the yet more
daring project of sailing to the East Indies by the West. The situa-
tion of those countries was at that time very imperfecdy known in
Europe. The few Europ)ean travellers who had been there had
magnified the distance; perhaps through simplicity and ignorance,
what was really very great, appearing almost infinite to those who
could not measure it; or, perhaps, in order to increase somewhat
more the marvellous of their own adventures in visiting regions so
immensely remote from Europe. The longer the way was by the
East, Columbus very justly concluded, the shorter it would be by
the West. He proposed, therefore, to take that way, as both the
shortest and the surest, and he had the good fortune to convince
Isabella of Castile of the probability of his project. He sailed from
the p)ort of Palos in August, 1492, near five years before the expe-
dition of Vasco de Gama set out from Portugal, and, after a voyage
of between two and three months, discovered first some of the small
Bahama or Lucayan islands, and afterwards the great island of
St. Domingo.

But the countries which Columbus discovered, either in this or
in any of his subsequent voyages, had no resemblance to those which
he had gone in quest of. Instead of the wealth, cultivation and popu-

MOTIVES FOR ESTABLISHING COLONIES 399

lousness of China and Indostan, he found, in St. Domingo, and in
all the other parts of the new world which he ever visited, nothing
but a country quite covered with wood, uncultivated, and inhabited
only by some tribes of naked and miserable savages. He was not very
willing, however, to believe that they were not the same with some
of the countries described by Marco Polo, the first European who had
visited, or at least had left behind him any description of China or
the East Indies; and a very slight resemblance, such as that which
he found between the name of Cibao, a mountain in St. Domingo,
and that of Cipango, mentioned by Marco Polo, was frequently suffi-
cient to make him return to this favourite prepossession, though con-
trary to the clearest evidence. In his letters to Ferdinand and Isabella
he called the countries which he had discovered, the Indies. He en-
tertained no doubt but that they were the extremity of those which
had been described by Marco Polo, and that they were not very
distant from the Ganges, or from the countries which had been con-
quered by Alexander. Even when at last convinced that they were
different, he still flattered himself that those rich countries were at
no great distance, and in a subsequent voyage, accordingly, went in
quest of them along the coast of Terra Firma, and towards the
isthmus of Darien.

In consequence of this mistake of Columbus, the name of the
Indies has stuck to those unfortunate countries ever since; and when
it was at last clearly discovered that the new were altogether differ-
ent from the old Indies, the former were called the West, in contra-
distinction to tlie latter, which were called the East Indies.

It was of importance to Columbus, however, that the countries
which he had discovered, whatever they were, should be represented
to the court of Spain as of very great consequence; and, in what con-
stitutes the real riches of every country, the animal and vegetable
productions of the soil, there was at that time nothing which could
well justify such a representation of them.

The Cori, something between a rat and a rabbit, and supposed by
Mr. Buffon to be the same with the Aperea of Brazil, was the largest
viviparous quadruped in St. Domingo. This species seems never
to have been very numerous, and the dogs and cats of the Spaniards
are said to have long ago almost entirely extirpated it, as well as

400 WEALTH OF NATIONS

some other tribes of a still smaller size. These, however, together
with a pretty large lizard, called the Ivana or Iguana, constituted
the principal part of the animal food which the land afforded.

The vegetable food of the inhabitants, though from their want
of industry not very abundant, was not altogether so scanty. It con-
sisted in Indian corn, yams, potatoes, bananas, &c. plants which were
then altogether unknown in Europe, and which have never since
been very much esteemed in it, or supposed to yield a sustenance
equal to what is drawn from the common sorts of grain and pulse,
which have been cultivated in this part of the world time out of
mind.

The cotton plant indeed afforded the material of a very important
manufacture, and was at that time to Europeans undoubtedly the
most valuable of all the vegetable productions of those islands. But
though in the end of the fifteenth century the muslins and other
cotton goods of the East Indies were much esteemed in every part
of Europe, the cotton manufacture itself was not cultivated in any
part of it. Even this production, therefore, could not at that time
appear in the eyes of Europeans to be of very great consequence.

Finding nothing either in the animals or vegetables of the newly
discovered countries, which could justify a very advantageous repre-
sentation of them, Columbus turned his view towards their minerals;
and in the richness of the production of this third kingdom, he flat-
tered himself, he had found a full compensation for the insignificancy
of those of the other two. The little bits of gold with which the
inhabitants ornamented their dress, and which, he was informed,
they frequently found in the rivulets and torrents that fell from
the mountains, were sufficient to satisfy him that those mountains
abounded with the richest gold mines. St. Domingo, therefore, was
represented as a country abounding with gold, and, upon that account
(according to the prejudices not only of the present times, but of
those times), an inexhaustible source of real wealth to the crown and
kingdom of Spain. When Columbus, upon his return from his first
voyage, was introduced with a sort of triumphal honours to the
sovereigns of Castile and Arragon, the principal productions of the
countries which he had discovered were carried in solemn proces-
sion before him. The only valuable part of them consisted in some

MOTIVES FOR ESTABLISHING COLONIES 4OI

little fillets, bracelets, and other ornaments of gold, and in some bales
of cotton. The rest were mere objects of vulgar wonder and curi-
osity; some reeds of an extraordinary size, some birds of a very
beautiful plumage, and some stuffed skins of the huge alligator and
manati; all of which were preceded by six or seven of the wretched
natives, whose singular colour and appearance added greatly to the
novelty of the shew.

In consequence of the representations of Columbus, the council of
Castile determined to take possession of countries of which the in-
habitants were plainly incapable of defending themselves. The pious
purpose of converting them to Christianity sanctified the injustice
of the project. But the hope of finding treasures of gold there, was
the sole motive which prompted to undertake it; and to give this
motive the greater weight, it was proposed by Columbus that the
half of all the gold and silver that should be found there should
belong to the crown. This proposal was approved of by the council.

As long as the whole or the far greater part of the gold, which the
first adventurers imported into Europe, was got by so very easy a
method as the plundering of the defenceless natives, it was not per-
haps very difficult to pay even this heavy tax. But when the natives
were once fairly stript of all that they had, which, in St. Domingo,
and in all the other countries discovered by Columbus, was done
completely in six or eight years, and when in order to find more
it had become necessary to dig for it in the mines, there was no
longer any jxjssibility of paying this tax. The rigorous exaction of
it, accordingly, first occasioned, it is said, the total abandoning of the
mines of St. Domingo, which have never been wrought since. It
was soon reduced therefore to a third; then to a fifth; afterwards to
a tenth; and at last to a twentieth part of the gross produce of the
gold mines. The tax upon silver continued for a long time to be a
fifth of the gross produce. It was reduced to a tenth only in the
course of the present century. But the first adventurers do not appear
to have been much interested about silver. Nothing less precious than
gold seemed worthy of their attention.

All the other enterprises of the Spaniards in the new world, sub-
sequent to those of Columbus, seem to have been prompted by the
same motive. It was the sacred thirst of gold that carried Oieda,

402 WEALTH OF NATIONS

Nicuessa, and Vasco Nugnes de Balboa, to the isthmus of Darien,
that carried Cortez to Mexico, and Almagro and Pizzarro to ChiH
and Peru. When those adventurers arrived upon any unknown
coast, their first enquiry was always if there was any gold to be found
there; and according to the information which they received con-
cerning this particular, they determined either to quit the country
or to settle in it.

Of all those expensive and uncertain projects, however, which
bring bankruptcy upon the greater part of the people who engage in
them, there is none perhaps more perfectly ruinous than the search
after new silver and gold mines. It is jjerhaps the most disadvan-
tageous lottery in the world, or the one in which the gain of those
who draw the prizes bears the least proportion to the loss of those
who draw the blanks; for though the prizes are few and the blanks
many, the common price of a ticket is the whole fortune of a very
rich man. Projects of mining, instead of replacing the capital em-
ployed in them, together with the ordinary profits of stock, com-
monly absorb both capital and profit. They are the projects, therefore,
to which of all others a prudent law-giver, who desired to increase
the capital of his nation, would least chuse to give any extraordinary
encouragement, or to turn towards them a greater share of that
capital than what would go to them of its own accord. Such in
reality is the absurd confidence which almost all men have in their
own good fortune, that wherever there is the least probability of
success, too great a share of it is apt to go to them of its own accord.

But though the judgment of sober reason and exf)erience concern-
ing such projects has always been extremely unfavourable, that of
human avidity has commonly been quite otherwise. The same pas-
sion which has suggested to so many people the absurd idea of the
philosopher's stone, has suggested to others the equally absurd one
of immense rich mines of gold and silver. They did not consider that
the value of those metals has, in all ages and nations, arisen chiefly
from their scarcity, and that their scarcity has arisen from the very
small quantities of them which nature has any where deposited in
one place, from the hard and intractable substances with which she
has almost every where surrounded those small quantities, and con-
sequendy from the labour and expence which are every where neces-

MOTIVES FOR ESTABLISHING COLONIES 4O3

sary in order to penetrate to and get at them. They flattered them-
selves that veins of those metals might in many places be found as
large and as abundant as those which are commonly found of lead,
or copper, or tin, or iron. The dream of Sir Walter Raleigh concern-
ing the golden city and country of Eldorado, may satisfy us, that
even wise men are not always exempt from such strange delusions.
More than a hundred years after the death of that great man, the
Jesuit Gumila was still convinced of the reality of that wonderful
country, and expressed with great warmth, and I dare to say, with
great sincerity, how happy he should be to carry the light of the
gospel to a people who could so well reward the pious labours of their
missionary.

In the countries first discovered by the Spaniards, no gold or silver
mines are at present known which are supposed to be worth the
working. The quantities of those metals which the first adventurers
are said to have found there, had probably been very much magni-
fied, as well as the fertility of the mines which were wrought im-
mediately after the first discovery. What those adventurers were
reported to have found, however, was sufficient to inflame the avidity
of all their countrymen. Every Spaniard who sailed to America
expected to find an Eldorado. Fortune too did upon this what she
has done up)on very few other occasions. She realized in some
measure the extravagant hof)es of her votaries, and in the discovery
and conquest of Mexico and Peru (of which the one happened about
thirty, the other about forty years after the first expedition of Colum-
bus), she presented them with something not very unlike that pro-
fusion of the precious metals which they sought for.

A project of commerce to the East Indies, therefore, gave occasion
to the first discovery of the West. A project of conquest gave occasion
to all the establishments of the Spaniards in those newly discovered
countries. The motive which excited them to this conquest was
a project of gold and silver mines; and a course of accidents, which
no human wisdom could foresee, rendered this project much more
successful than the undertakers had any reasonable grounds for
expecting.

The first adventurers of all the other nations of Eurofje, who at-
tempted to make setdements in America, were animated by the like

404 WEALTH OF NATIONS

chimerical views; but they were not equally successful. It was more
than a hundred years after the first settlement of the Brazils, before
any silver, gold, or diamond mines were discovered there. In the
English, French, Dutch, and Danish colonies, none have ever yet
been discovered; at least none that are at present supposed to be
worth the working. The first English settlers in North America,
however, offered a fifth of all the gold and silver which should be
found there to the king, as a motive for granting them their patents.
In the patents to Sir Walter Raleigh, to the London and Plymouth
companies, to the council of Plymouth, &c. this fifth was accordingly
reserved to the crown. To the expectation of finding gold and silver
mines, those first settlers too joined that of discovering a north-west
passage to the East Indies. They have hitherto been disappointed in
both.

CHAPTER VIII

Conclusion of the Mercantile System

THOUGH the encouragement of exportation, and the dis-
couragement of impwrtation, are the two great engines by
which the mercantile system proposes to enrich every coun-
try, yet with regard to some particular commodities, it seems to fol-
low an opposite plan: to discourage exportation and to encourage
importation. Its ultimate object, however, it pretends, is always the
same, to enrich the country by an advantageous balance of trade.
It discourages the exportation of the materials of manufacture, and
of the instruments of trade, in order to give our own workmen an
advantage, and to enable them to undersell those of other nations
in all foreign markets; and by restraining, in this manner, the ex-
portation of a few commodities, of no great price, it proposes to
occasion a much greater and more valuable exportation of others. It
encourages the importation of the materials of manufacture, in order
that our own people may be enabled to work them up more cheaply,
and thereby prevent a greater and more valuable importation of the
manufactured commodities. I do not observe, at least in our Statute
Book, any encouragement given to the importation of the instru-
ments of trade. When manufactures have advanced to a certain
pitch of greatness, the fabrication of the instruments of trade becomes
itself the object of a great number of very important manufactures.
To give any particular encouragement to the importation of such
instruments, would interfere too much with the interest of those
manufactures. Such importation, therefore, instead of being encour-
aged, has frequently been prohibited. Thus the importation of wool
cards, except from Ireland, or when brought in as wreck or prize
goods, was prohibited by the 3d of Edward IV., which prohibition
was renewed by the 39th of Elizabeth, and has been continued and
rendered f)erpetual by subsequent laws.
The importation of the materials of manufacture has sometimes

405

406 WEALTH OF NATIONS

been encouraged by an exemption from the duties to which other
goods are subject, and sometimes by bounties.

The importation of sheep's wool from several different countries,
of cotton wool from all countries, of undressed flax, of the greater
part of dying drugs, of the greater part of undressed hides from
Ireland or the British colonies, of seal skins from the British Green-
land fishery, of pig and bar iron from the British colonies, as well as
of several other materials of manufacture, has been encouraged by an
exemption from all duties, if properly entered at the custom-house.
The private interest of our merchants and manufacturers may, per-
haps, have extorted from the legislature these exemptions, as well
as the greater part of our other commercial regulations. They are,
however, perfectly just and reasonable, and if, consistendy with the
necessities of the state, they could be extended to all the other mate-
rials of manufacture, the public would certainly be a gainer.

The avidity of our great manufacturers, however, has in some
cases extended these exemptions a good deal beyond what can justly
be considered as the rude materials of their work. By the 24 Geo.
II. chap. 46, a small duty of only one penny the pound was imposed
upon the importation of foreign brown linen yarn, instead of much
higher duties to which it had been subjected before, viz. of sixpence
the pound upon sail yarn, of one shilling the pound upon all French
and Dutch yarn, and of two pounds thirteen shillings and four-
pence upon the hundred weight of all spruce or Muscovia yarn.
But our manufacturers were not long satisfied with this reduction.
By the 29th of the same king, chap. 15, the same law which gave a
bounty upon the exportation of British and Irish linen of which the
price did not exceed eighteen pence the yard, even this small duty
upon the importation of brown linen yarn was taken away. In the
different operations, however, which are necessary for the prepara-
tion of linen yarn, a good deal more industry is employed, than in
the subsequent operation of preparing linen cloth from linen yarn.
To say nothing of the industry of the flax-growers and flax-dressers,
three or four spinners, at least, are necessary, in order to keep one
weaver in constant employment; and more than four-fifths of the
whole quantity of labour, necessary for the preparation of linen
cloth, is employed in that of linen yarn; but our spinners are poor

CONCLUSION OF MERCANTILE SYSTEM 407

people, women commonly, scattered about in all different parts of
the country, without support or protection. It is not by the sale of
their work, but by that of the complete work of the weavers, that
our great master manufacturers make their profits. As it is their in-
terest to sell the complete manufacture as dear, so is it to buy the
materials as cheap as possible. By extorting from the legislature
bounties upon the exportation of their own linen, high duties upon
the importation of all foreign linen, and a total prohibition of the
home consumption of some sorts of French linen, they endeavour to
sell their own goods as dear as possible. By encouraging the impor-
tation of foreign linen yarn, and thereby bringing it into competition
with that which is made by our own people, they endeavour to buy
the work of the poor spinners as cheap as possible. They are as
intent to keep down the wages of their own weavers, as the earn-
ings of the poor spinners, and it is by no means for the benefit
of the workman, that they endeavour either to raise the price of the
complete work, or to lower that of the rude materials. It is the indus-
try which is carried on for the benefit of the rich and the powerful,
that is principally encouraged by our mercantile system. That which
is carried on for the benefit of the poor and the indigent, is too often,
either neglected, or oppressed.

Both the bounty upon the exportation of linen, and the exemp-
tion from duty upon the importation of foreign yarn, which were
granted only for fifteen years, but continued by two different pro-
longations, expire with the end of the session of parliament which
shall immediately follow the 24th of June 1786.

The encouragement given to the importation of the materials of
manufacture by bounties, has been principally confined to such as
were imported from our American plantations.

The first bounties of this kind were those granted, about the begin-
ning of the present century, upon the importation of naval stores
from America. Under this denomination were comprehended timber
fit for masts, yards, and bowsprits; hemp; tar, pitch, and turpentine.
The bounty, however, of one pound the ton upon masting-timber,
and that of six pounds the ton upon hemp, were extended to such as
should be imp)orted into England from Scotland. Both these boun-
ties continued without any variation, at the same rate, till they were

408 WEALTH OF NATIONS

severally allowed to expire; that upon hemp on the ist of January
1741, and that upon masting-timber at the end of the session of
parliament immediately following the 24th June 1781.

The bounties upon the importation of tar, pitch, and turpentine
underwent, during their continuance, several alterations. Origi-
nally that U{X)n tar was four pounds the ton; that upon pitch the
same; and that U{X)n turpjentine, three pounds the ton. The bounty
of four p)ounds the ton upon tar was afterwards confined to such as
had been prepared in a particular manner; that upon other good,
clean, and merchantable tar was reduced to two p)ounds four shillings
the ton. The bounty upon pitch was likewise reduced to one pound;
and that upon turpentine to one pound ten shillings the ton.

The second bounty upon the importation of any of the materials
of manufacture, according to the order of time, was that granted by
the 21 Geo. II. chap. 30. up)on the importation of indigo from the Brit-
ish plantations. When the plantation indigo was worth three-fourths
of the price of the best French indigo, it was by this act entitled to
a bounty of sixpence the pxjund. This bounty, which, like most
others, was granted only for a limited time, was continued by several
prolongations, but was reduced to four pence the px)und. It was
allowed to expire with the end of the session of parliament which
followed the 25th March 1781.

The third bounty of this kind was that granted (much about the
time that we were beginning sometimes to court and sometimes to
quarrel with our American colonies) by the 4 Geo. III. chap. 26.
up)on the importation of hemp, or undressed flax, from the British
plantations. This bounty was granted for twenty-one years, from
the 24th June 1764, to the 24th June 1785. For the first seven years
it was to be at the rate of eight pounds the ton, for the second at
six pounds, and for the third at four pounds. It was not extended
to Scotland, of which the climate (although hemp is sometimes
raised there, in small quantities and of an inferior quality) is not
very fit for that produce. Such a bounty upon the importation of
Scotch flax into England would have been too great a discourage-
ment to the native produce of the southern part of the united
kingdom.

The fourth bounty of this kind, was that granted by the 5 Geo. III.

CONCLUSION OF MERCANTILE SYSTEM 409

chap. 45. upon the importation of wood from America. It was
granted for nine years, from the ist January 1766, to the ist January
1775. During the first three years, it was to be for every hundred and
twenty good deals, at the rate of one pound; and for every load
containing fifty cubic feet of other squared timber at the rate of
twelve shillings. For the second three years, it was for deals to be
at the rate of fifteen shillings, and for other squared timber, at the
rate of eight shillings; and for the third three years, it was for deals,
to be at the rate of ten shillings, and for other squared timber, at
the rate of five shillings.

The fifth bounty of this kind, was that granted by the 9 Geo. III.
chap. 38. upon the impwrtation of raw silk from the British planta-
tions. It was granted for twenty-one years, from the ist January
1770, to the 1st January 1791. For the first seven years it was to be
at the rate of twenty-five pounds for every hundred pounds value;
for the second, at twenty pounds; and for the third at fifteen pounds.
The management of the silk-worm, and the preparation of silk, re-
quires so much hand labour; and labour is so very dear in America,
that even this great bounty, I have been informed, was not likely to
produce any considerable effect.

The sixth bounty of this kind, was that granted by 11 Geo. III.
chap. 50. for the importation of pipe, hogshead, and barrel staves
and heading from the British plantations. It was granted for nine
years, from ist January 1772, to the ist January 1781. For the first
three years, it was for a certain quantity of each, to be at the rate of
six pounds; for the second three years, at four pounds; and for the
third three years, at two pounds.

The seventh and last bounty of this kind, was that granted by the
19 Geo. III. chap. 37. upon the importation of hemp from Ireland.
It was granted in the same manner as that for the importation of
hemp and undressed flax from America, for twenty-one years, from
the 24th June 1779, to the 24th June 1800. This term is divided, like-
wise, into three periods of seven years each; and in each of those
periods, the rate of the Irish bounty is the same with that of the
American. It does not, however, like the American bounty, extend
to the importation of undressed flax. It would have been too great a
discouragement to the cultivation of that plant in Great Britain.

410 WEALTH OF NATIONS

When this last bounty was granted, the British and Irish legislatures
were not in much better humour with one another, than the British
and American had been before. But this boon to Ireland, it is to be
hoped, has been granted under more fortunate auspices, than all
those to America.

The same commodities upon which we thus gave bounties, when
imported from America, were subjected to considerable duties when
imported from any other country. The interest of our American
colonies was regarded as the same with that of the mother country.
Their wealth was considered as our wealth. Whatever money was
sent out to them, it was said, came all back to us by the balance of
trade, and we could never become a farthing the poorer, by any
exf)ence which we could lay out upon them. They were our own in
every respect, and it was an expence laid out upon the improvement
of our own property, and for the profitable employment of our
own people. It is unnecessary, I apprehend, at present to say any
thing further, in order to expose the folly of a system, which fatal
experience has now sufficiently exposed. Had our American colonies
really been a part of Great Britain, those bounties might have been
considered as bounties ufX)n production, and would still have been
liable to all the objections to which such bounties are liable, but to
no other.

The exportation of the materials of manufacture is sometimes dis-
couraged by absolute prohibitions, and sometimes by high duties.

Our woollen manufacturers have been more successful than any
other class of workmen, in jjersuading the legislature that the pros-
perity of the nation depended upon the success and extension of
their particular business. They have not only obtained a monopoly
against the consumers by an absolute prohibition of importing
woollen cloths from any foreign country; but they have likewise
obtained another monopoly against the sheep farmers and growers
of wool, by a similar prohibition of the exportation of live sheep and
wool. The severity of many of the laws which have been enacted for
the security of the revenue is very justly complained of, as imposing
heavy [penalties up)on actions which, antecedent to the statutes that
declared them to be crimes, had always been understood to be inno-
cent. But the cruellest of our revenue laws, I will venture to affirm.

CONCLUSION OF MERCANTILE SYSTEM 4 II

are mild and gende, in comparison of some of those which die
clamour of our merchants and manufacturers have extorted from
the legislature, for the support of their own absurd and oppressive
monopolies. Like the laws of Draco, these laws may be said to be
all written in blood.

By the 8th of Elizabeth, chap. 3. the exporter of sheep, lambs or
rams, was for the first offence to forfeit all his goods for ever, to
suffer a year's imprisonment, and then to have his left hand cut off
in a market town upon a market day, to be there nailed up; and for
the second offence to be adjudged a felon, and to suffer death ac-
cordingly. To prevent the breed of our sheep from being propagated
in foreign countries, seems to have been the object of this law. By
the 13th and 14th of Charles II. chap. 18. the exportation of wool
was made felony, and the exporter subjected to the same penalties
and forfeitures as a felon.

For the honour of the national humanity, it is to be hoped that
neither of these statutes were ever executed. The first of them, how-
ever, so far as I know, has never been directly repealed, and Serjeant
Hawkins seems to consider it as still in force. It may however, per-
haps, be considered as virtually repealed by the 12th of Charles II.
chap. 32. sect. 3. which, without expressly taking away the f)enalties
imposed by former statutes, imposes a new penalty, viz. That of
twenty shillings for every sheep exported, or attempted to be ex-
ported, together with the forfeiture of the sheep and of the owner's
share of the ship. The second of them was expressly repealed by the
7th and 8th of William III. chap. 28. sect, 4. By which it is declared
that, "Whereas the statute of the 13th and 14th of King Charles II.
made against the exportation of wool, among other things in the said
act mentioned, doth enact the same to be deemed felony; by the
severity of which penalty the prosecution of offenders hath not been
so effectually put in execution : Be it, therefore, enacted by the author-
ity foresaid, that so much of the said act, which relates to the making
the said offence felony, be repealed and made void."

The penalties, however, which are either imposed by this milder
statute, or which, though imposed by former statutes, are not repealed
by this one, are still sufficiently severe. Besides the forfeiture of the
goods, the exporter incurs the penalty of three shillings for every

412 WEALTH OF NATIONS

pound weight of wool either exported or attempted to be exported,
that is about four or five times the value. Any merchant or other
person convicted of this offence is disabled from requiring any debt
or account belonging to him from any factor or other person. Let
his fortune be what it will, whether he is, or is not able to pay those
heavy penalties, the law means to ruin him completely. But as the
morals of the great body of the people are not yet so corrupt as those
of the contrivers of this statute, I have not heard that any advantage
has ever been taken of this clause. If the person convicted of this
offence is not able to pay the penalties within three months after
judgment, he is to be transported for seven years, and if he returns
before the expiration of that term, he is liable to the pains of felony,
without benefit of clergy. The owner of the ship knowing this
offence forfeits all his interest in the ship and furniture. The master
and mariners knowing this offence forfeit all their goods and chattels,
and suffer three months imprisonment. By a subsequent statute the
master suffers six months imprisonment.

In order to prevent exportation, the whole inland commerce of
wool is laid under very burdensome and oppressive restrictions. It
cannot be packed in any box, barrel, cask, case, chest, or any other
package, but only in packs of leather or pack-cloth, on which must be
marked on the outside the words wool or yarn, in large letters not
less than three inches long, on pain of forfeiting the same and the
package, and three shillings for every pound weight, to be paid by
the owner or packer. It cannot be loaden on any horse or cart, or
carried by land within five miles of the coast, but between sun-rising
and sun-setting, on pain of forfeiting the same, the horses and car-
riages. The hundred next adjoining to the sea coast, out of or
through which the wool is carried or exported, forfeits twenty
pounds, if the wool is under the value of ten pounds; and if of
greater value, then treble that value, together with treble costs, to be
sued for within the year. The execution to be against any two of
the inhabitants, whom the sessions must reimburse, by an assess-
ment on the other inhabitants, as in the cases of robbery. And if any
person compounds with the hundred for less than this penalty, he
is to be imprisoned for five years; and any other person may prose-
cute. These regulations take place through the whole kingdom.

CONCLUSION OF MERCANTILE SYSTEM 413

But in the particular counties of Kent and Sussex the restrictions
are still more troublesome. Every owner of wool within ten miles
of the sea<oast must give an account in writing, three days after
shearing, to the next officer of the customs, of the number of his
fleeces, and of the places where they are lodged. And before he re-
moves any part of them he must give the like notice of the number
and weight of the fleeces, and of the name and abode of the person
to whom they are sold, and of the place to which it is intended they
should be carried. No person within fifteen miles of the sea, in the
said counties, can buy any wool, before he enters into bond to the
king, that no part of the wool which he shall so buy shall be sold
by him to any other person within fifteen miles of the sea. If any
wool is found carrying towards the sea-side in the said counties,
unless it has been entered and security given as aforesaid, it is for-
feited, and the offender also forfeits three shillings for every pound
weight. If any person lays any wool, not entered as aforesaid, within
fifteen miles of the sea, it must be seized and forfeited; and if, after
such seizure, any person shall claim the same, he must give security
to the Exchequer, that if he is cast upon trial he shall pay treble
costs, besides all other penalties.

When such restrictions are imposed upon the inland trade, the
coasting trade, we may believe, cannot be left very free. Every owner
of wool who carrieth or causeth to be carried any wool to any port or
place on the sea-coast, in order to be from thence transported by sea
to any other place or port on the coast, must first cause an entry
thereof to be made at the port from whence it is intended to be con-
veyed, containing the weight, marks, and number of the packages
before he brings the same within five miles of that port; on pain of
forfeiting the same, and also the horses, carts, and other carriages;
and also of suffering and forfeiting, as by the other laws in force
against the exportation of wool. This law, however, (i Will. III.
chap. 32.) is so very indulgent as to declare, that "this shall not hinder
"any person from carrying his wool home from the place of shear-
"ing, though it be within five miles of the sea, provided that in ten
"days after shearing, and before he remove the wool, he do under his
"hand certify to the next officer of the customs, the true number of
"fleeces, and where it is housed; and do not remove the same, with-

414 WEALTH OF NATIONS

"out certifying to such officer, under his hand, his intention so to do,
"three days before." Bond must be given that the wool to be carried
coast-ways is to be landed at the particular port for which it is
entered outwards; and if any part of it is landed without the pres-
ence of an officer, not only the forfeiture of the wool is incurred as
in other goods, but the usual additional penalty of three shillings for
every pound weight is likewise incurred.

Our woollen manufacturers, in order to justify their demand of
such extraordinary restrictions and regulations, confidently asserted,
that English wool was of a p)eculiar quality, superior to that of any
other country; that the wool of other countries could not, without
some mixture of it, be wrought up into any tolerable manufacture;
that fine cloth could not be made without it; that England, there-
fore, if the exportation of it could be totally prevented, could monopo-
lize to herself almost the whole woollen trade of the world; and thus,
having no rivals, could sell at what price she pleased, and in a short
time acquire the most incredible degree of wealth by the most ad-
vantageous balance of trade. This doctrine, like most other doctrines
which are confidently asserted by any considerable number of people,
was, and still continues to be, most implicitly believed by a much
greater number; by almost all those who are either unacquainted
with the woollen trade, or who have not made particular enquiries.
It is, however, so perfectly false, that English wool is in any respect
necessary for the making of fine cloth, that it is altogether unfit for
it. Fine cloth is made altogether of Spanish wool. English wool can-
not be even so mixed with Spanish wool as to enter into the compo-
sition without spoiling and degrading, in some degree, the fabric
of the cloth.

It has been shown in the foregoing part of this work, that the
effect of these regulations has been to depress the price of English
wool, not only below what it naturally would be in the present times,
but very much below what it actually was in the time of Edward
III. The price of Scots wool, when in consequence of the union it
became subject to the same regulations, is said to have fallen about
one half. It is observed by the very accurate and intelligent author
of the Memoirs of Wool, the Reverend Mr. John Smith, that the
price of the best English wool in England is generally below what

CONCLUSION OF MERCANTILE SYSTEM 415

wool of a very inferior quality commonly sells for in the market of
Amsterdam. To depress the price of this commodity below what
may be called its natural and propier price, was the avowed purpwse
of those regulations; and there seems to be no doubt of their having
produced the effect that was exp)ected from them.

This reduction of price, it may perhaps be thought, by discourag-
ing the growing of wool, must have reduced very much the annual
produce of that commodity, though not below what it formerly was,
yet below what, in the present state of things, it probably would have
been, had it, in consequence of an open and free market, been allowed
to rise to the natural and proper price. I am, however, disposed to
believe, that the quantity of the annual produce cannot have been
much, though it may perhaps have been a little, affected by these
regulations. The growing of wool is not the chief purp)ose for which
the sheep farmer employs his industry and stock. He expects his
profit, not so much from the price of the fleece, as from that of the
carcase; and the average or ordinary price of the latter, must even, in
many cases, make up to him whatever deficiency there may be in
the average or ordinary price of the former. It has been observed in
the foregoing part of this work, that "Whatever regulations tend to
"sink the price, either of wool or raw hides, below what it naturally
"would be, must, in an improved and cultivated country, have some
"tendency to raise the price of butchers meat. The price both of the
"great and small cattle which are fed on improved and cultivated
"land, must be sufficient to pay the rent which the landlord, and the
"profit which the farmer has reason to expect from improved and
"cultivated land. If it is not, they will soon cease to feed them.
"Whatever part of this price, therefore, is not paid by the wool and
"the hide, must be paid by the carcase. The less there is paid for the
"one, the more must be paid for the other. In what manner this
"price is to be divided up)on the different parts of the beast, is indif-
"ferent to the landlords and farmers, provided it is all paid to them.
"In an improved and cultivated country, therefore, their interest as
"landlords and farmers cannot be much affected by such regulations,
"though their interest as consumers may, by the rise in the price of
"provisions." According to this reasoning, therefore, this degrada-
tion in the price of wool is not likely, in an improved and cultivated

4l6 WEALTH OF NATIONS

country, to occasion any diminution in the annual produce of that
commodity; except so far as by raising the price of mutton, it may
somewhat diminish the demand for, and consequently the produc-
tion of, that particular species of butchers meat. Its effect, however,
even in this way, it is probable, is not very considerable.

But though its effect upon the quantity of the annual produce may
not have been very considerable, its effect upon the quality, it may
perhaps be thought, must necessarily have been very great. The
degradation in the quality of English wool, if not below what it was
in former times, yet below what it naturally would have been in the
present state of improvement and cultivation, must have been, it
may perhaps be supposed, very nearly in proportion to the degrada-
tion of price. As the quality depends upon the breed, upon the pas-
ture, and upon the management and cleanliness of the sheep, during
the whole progress of the growth of the fleece, the attention to these
circumstances, it may naturally enough be imagined, can never be
greater than in proportion to the recompence which the price of the
fleece is likely to make for the labour and expence which that atten-
tion requires. It happens, however, that the goodness of the fleece
depends, in a great measure, upon the health, growth, and bulk of the
animal; the same attention which is necessary for the improvement of
the carcase, is, in some respects, sufficient for that of the fleece. Not-
withstanding the degradation of price, English wool is said to have
been improved considerably during the course even of the present
century. The improvement might perhaps have been greater if the
price had been better; but the lowness of price, though it may have
obstructed, yet certainly it has not altogether prevented that improve-
ment.

The violence of these regulations, therefore, seems to have affected
neither the quantity nor the quality of the annual produce of wool
so much as it might have been expected to do (though I think it
probable that it may have affected the latter a good deal more than
the former) ; and the interest of the growers of wool, though it must
have been hurt in some degree, seems, upon the whole, to have been
much less hurt than could well have been imagined.

These considerations, however, will not justify the absolute pro-

CONCLUSION OF MERCANTILE SYSTEM 417

hibition of the exportation of wool. But they will fully justify the
imposition of a considerable tax upon that exportation.

To hurt in any degree the interest of any one order of citizens,
for no other purpose but to promote that of some other, is evidently
contrary to that justice and equality of treatment which the sovereign
owes to all the different orders of his subjects. But the prohibition
certainly hurts, in some degree, the interest of the growers of wool,
for no other purpose but to promote that of the manufacturers.

Every different order of citizens is bound to contribute to the
support of the sovereign or commonwealth. A tax of five, or even
of ten shillings upon the exportation of every tod of wool, would
produce a very considerable revenue to the sovereign. It would hurt
the interest of the growers somewhat less than the prohibition, be-
cause it would not probably lower the price of wool quite so much.
It would afford a sufficient advantage to the manufacturer, because,
though he might not buy his wool altogether so cheap as under the
prohibition, he would still buy it, at least, five or ten shillings cheaper
than any foreign manufacturer could buy it, besides saving the freight
and insurance, which the other would be obliged to pay. It is scarce
possible to devise a tax which could produce any considerable reve-
nue to the sovereign, and at the same time occasion so little incon-
veniency to any body.

The prohibition, notwithstanding all the penalties which guard
it, does not prevent the exportation of wool. It is exported, it is well
known, in great quantities. The great difference between the price
in the home and that in the foreign market, presents such a tempta-
tion to smuggling, that all the rigour of the law cannot prevent it.
This illegal exportation is advantageous to nobody but the smuggler.
A legal exportation subject to a tax, by affording a revenue to the
sovereign, and thereby saving the imposition of some other, per-
haps, more burdensome and inconvenient taxes, might prove advan-
tageous to all the different subjects of the state.

The exportation of fuller's earth, or fuller's clay, supposed to be
necessary for preparing and cleansing the woollen manufactures,
has been subjected to nearly the same penalties as the exportation of
wool. Even tobacco-pipe clay, though acknowledged to be different

41 8 WEALTH OF NATIONS

from fuller's clay, yet, on account of their resemblance, and because
fuller's clay might sometimes be exported as tobacco-pipe clay, has
been laid under the same prohibitions and penalties.

By the 13th and 14th of Charles II. chap. 7. the exportation, not
only of raw hides, but of tanned leather, except in the shape of boots,
shoes, or slippers, was prohibited; and the law gave a monopoly to
our boot-makers and shoe-makers, not only against our graziers,
but against our tanners. By subsequent statutes, our tanners have
got themselves exempted from this monopoly, upon paying a small
tax of only one shilling on the hundred weight of tanned leather,
weighing one hundred and twelve pounds. They have obtained like-
wise the drawback of two-thirds of the excise duties imposed upon
their commodity, even when exported without further manufacture.
All manufactures of leather may be exported duty free; and the
exporter is besides entitled to the drawback of the whole duties of
excise. Our graziers still continue subject to the old monopoly.
Graziers separated from one another, and dispersed through all the
different corners of the country, cannot, without great difficulty, com-
bine together for the purpose either of imposing monopolies upon
their fellow-citizens, or of exempting themselves from such as may
have been imposed upon them by other people. Manufacturers of
all kinds, collected together in numerous bodies in all great cities,
easily can. Even the horns of cattle are prohibited to be exported;
and the two insignificant trades of the homer and comb-maker enjoy,
in this respect, a monopoly against the graziers.

Restraints, either by prohibitions or by taxes, upon the exportation
of goods which are partially, but not completely manufactured, are
not peculiar to the manufacture of leather. As long as any thing
remains to be done, in order to fit any commodity for immediate
use and consumption, our manufacturers think that they themselves
ought to have the doing of it. Woollen yarn and worsted are pro-
hibited to be exported under the same penalties as wool. Even while
cloths are subject to a duty upon exportation, and our dyers have
so far obtained a monopoly against our clothiers. Our clothiers would
probably have been able to defend themselves against it, but it hap-
pens that the greater part of our principal clothiers are themselves
likewise dyers. Watch-cases, clock-cases, and dial-plates for clocks

CONCLUSION OF MERCANTILE SYSTEM 419

and watches have been prohibited to be exported. Our dock-makers
and watch-makers are, it seems, unwilUng that the price of this sort
of workmanship should be raised upon them by the competition of
foreigners.

By some old statutes of Edward III., Henry VIII., and Edward
VU the exportation of all metals was prohibited. Lead and tin were
alone excepted; probably on account of the great abundance of those
metals; in the exportation of which, a considerable part of the trade
of the kingdom in those days consisted. For the encouragement of
the mining trade, the 5th of William and Mary, chap. 17, exempted
from this prohibition, iron, copper, and mundic metal made from
British ore. The exportation of all sorts of copper bars, foreign as
well as British, was afterwards permitted by the 9th and loth of
William III., chap. 26. The exportation of unmanufactured brass,
of what is called gun-metal, bell-metal, and shroff-metal, still con-
tinues to be prohibited. Brass manufactures of all sorts may be
exported duty free.

The exportation of the materials of manufacture, where it is not
altogether prohibited, is in many cases subjected to considerable
duties.

By the 8th George I., chap. 15, the exportation of all goods, the
produce or manufacture of Great Britain, upon which any duties
had been imposed by former statutes, was rendered duty free. The
following goods, however, were excepted: Alum, lead, lead ore, tin,
tanned leather, copperas, coals, wool cards, white woollen cloths,
lapis calaminaris, skins of all sorts, glue, coney hair or wool, hares
wool, hair of all sorts, horses, and litharge of lead. If you except
horses, all these are either materials of manufacture, or incomplete
manufactures (which may be considered as materials for still further
manufacture), or instruments of trade. This statute leaves them sub-
ject to all the old duties which had ever been imposed upon them, the
old subsidy and one per cent, outwards.

By the same statute a great number of foreign drugs for dyers
use, are exempted from all duties upon importation. Each of them,
however, is afterwards subjected to a certain duty, not indeed a very
heavy one, upon exportation. Our dyers, it seems, while they thought
it for their interest to encourage the importation of those drugs, by

420 WEALTH OF NATIONS

an exemption from all duties, thought it likewise for their interest
to throw some small discouragement upon their exportation. The
avidity, however, which suggested this notable piece of mercantile
ingenuity, most probably disappointed itself of its object. It neces-
sarily taught the importers to be more careful than they might
otherwise have been, that their importation should not exceed what
was necessary for the supply of the home market. The home mar-
ket was at all times likely to be more scantily supplied; the com-
modities were at all times likely to be somewhat dearer there than
they would have been, had the exportation been rendered as free as
the importation.

By the above-mentioned statute, gum senega, or gum arabic, being
among the enumerated dying drugs, might be imported duty free.
They were subjected, indeed, to a small poundage duty, amounting
only to three pence in the hundred weight upon their re-exportation.
France enjoyed, at that time, an exclusive trade to the country most
productive of those drugs, that which lies in the neighbourhood of
the Senegal; and the British market could not be easily supplied by
the immediate importation of them from the place of growth. By
the 25th Geo. II. therefore, gum senega was allowed to be imported
(contrary to the general dispositions of the act of navigation), from
any part of Europe. As the law, however, did not mean to encour-
age this species of trade, so contrary to the general principles of the
mercantile policy of England, it imposed a duty of ten shillings the
hundred weight upon such importation, and no part of this duty was
to be afterwards drawn back upon its exportation. The successful
war which began in 1755 gave Great Britain the same exclusive trade
to those countries which France had enjoyed before. Our manufac-
turers, as soon as the p)eace was made, endeavoured to avail them-
selves of this advantage, and to establish a monopoly in their own
favour, both against the growers, and against the importers of this
commodity. By the 5th Geo. III. therefore, chap. 37. the exportation
of gum senega from his majesty's dominions in Africa was confined
to Great Britain, and was subjected to all the same restrictions, regu-
lations, forfeitures, and penalties, as that of the enumerated com-
modities of the British colonies in America and the West Indies.
Its importation, indeed, was subjected to a small duty of six-pence the

CONCLUSION OF MERCANTILE SYSTEM 42 1

hundred weight, but its re-exportation was subjected to the enor-
mous duty of one pound ten shillings the hundred weight. It was
the intention of our manufacturers that the whole produce of those
countries should be imported into Great Britain, and in order that
they themselves might be enabled to buy it at their own price, that
no part of it should be exported again, but at such an expence as
would sufliciendy discourage that exportation. Their avidity, how-
ever, upon this, as well as upon many other occasions, disappointed it-
self of its object. This enormous duty presented such a temptation
to smuggling, that great quantities of this commodity were clan-
destinely exported, probably to all the manufacturing countries of •
Europe, but particularly to Holland, not only from Great Britain but
from Africa. Upon this account, by the 14 Geo. III. chap. 10. this
duty upon exportation was reduced to five shillings the hundred
weight.

In the book of rates, according to which the old subsidy was levied,
beaver skins were estimated at six shillings and eight-pence a-piece,
and the different subsidies and imposts, which before the year 1722
had been laid upon their importation, amounted to one-fifth part
of the rate, or to sixteen-pence upon each skin; all of which, except
half the old subsidy, amounting only to two-pence, was drawn back
upon exportation. This duty up)on the importation of so impwrtant
a material of manufacture had been thought too high, and, in the
year 1722, the rate was reduced to two shillings and six-pence, which
reduced the duty upon importation to six-pence, and of this only one
half was to be drawn back upon exportation. The same successful
war put the country most productive of beaver under the dominion
of Great Britain, and beaver skins being among the enumerated com-
modities, their exportation from America was consequently confined
to the market of Great Britain. Our manufacturers soon bethought
themselves of the advantage which they might make of this cir-
cumstance, and in the year 1764, the duty upon the importation of
beaver-skin was reduced to one penny, but the duty upon exporta-
tion was raised to seven-pence each skin, without any drawback of
the duty upon importation. By the same law, a duty of eighteen
pence the pound was imposed upon the exportation of beaver-wool
or wombs, without making any alteration in the duty upon the

422 WEALTH OF NATIONS

importation of that commodity, which when imported by British and
in British shipping, amounted at that time to between four-pence
and five-p)ence the piece.

Coals may be considered both as a material of manufacture and
as an instrument of trade. Heavy duties, accordingly, have been
imposed upon their exportation, amounting at present (1783) to
more than five shillings the ton, or to more than fifteen shillings the
chaldron, Newcastle measure; which is in most cases more than the
original value of the commodity at the coal pit, or even at the ship-
ping port for exportation.

The exportation, however, of the instruments of trade, properly
so called, is commonly restrained, not by high duties, but by abso-
lute prohibitions. Thus by the 7th and 8th of William III. chap. 20.
sect. 8. the exportation of frames or engines for knitting gloves or
stockings is prohibited under the penalty, not only of the forfeiture
of such frames or engines, so exported, or attempted to be exported,
but of forty pounds, one half to the king, the other to the person
who shall inform or sue for the same. In the same manner by the
14th Geo. III. chap. 71, the exportation to foreign parts, of any utensils
made use of in the cotton, linen, woollen and silk manufactures, is
prohibited under the penalty, not only of the forfeiture of such
utensils, but of two hundred pounds, to be paid by the person who
shall offend in this manner, and likewise of two hundred pounds to
be paid by the master of the ship who shall knowingly suffer such
utensils to be loaded on board his ship.

When such heavy penalties were imposed upon the exportation of
the dead instruments of trade, it could not well be expected that the
living instrument, the artificer, should be allowed to go free. Ac-
cordingly, by the 5 Geo. I. chap. 27. the person who shall be con-
victed of enticing any artificer of, or in any of the manufactures of
Great Britain, to go into any foreign parts, in order to practise or
teach his trade, is liable for the first offence to be fined in any sum
not exceeding one hundred pounds, and to three months imprison-
ment, and until the fine shall be paid; and for the second offence,
to be fined in any sum at the discretion of the court, and to imprison-
ment for twelve months, and until the fine shall be paid. By the 23
Geo. II. chap. 13. this penalty is increased for the first offence to five

CONCLUSION OF MERCANTILE SYSTEM 423

hundred pounds for every artificer so enticed, and to twelve months
imprisonment, and until the fine shall be paid; and for the second
offence, to one thousand pounds, and to two years imprisonment,
and until the fine shall be paid.

By the former of those two statutes, upon proof that any person
has been enticing any artificer, or that any artificer has promised or
contracted to go into foreign parts for the purposes aforesaid, such
artificer may be obliged to give security at the discretion of the court,
that he shall not go beyond the seas, and may be committed to prison
until he give such security.

If any artificer has gone beyond the seas, and is exercising or teach-
ing his trade in any foreign country, upon warning being given to
him by any of his majesty's ministers or consuls abroad, or by one
of his majesty's secretaries of state for the time being, if he does
not, within six months after such warning, return into this realm,
and from thenceforth abide and inhabit continually within the same,
he is from thenceforth declared incapable of taking any legacy de-
vised to him within this kingdom, or of being executor or adminis-
trator to any person, or of taking any lands within this kingdom by
descent, device, or purchase. He likewise forfeits to the king, all his
lands, goods and chattels, is declared an alien in every respect, and is
put out of the king's protection.

It is unnecessary, I imagine, to observe, how contrary such regula-
tions are to the boasted liberty of the subject, of which we affect to
be so very jealous; but which, in this case, is so plainly sacrificed to
the futile interests of our merchants and manufacturers.

The laudable motive of all these regulations, is to extend our own
manufactures, not by their own improvement, but by the depression
of those of all our neighbours, and by putting an end, as much as
possible, to the troublesome competition of such odious and dis-
agreeable rivals. Our master manufacturers think it reasonable, that
they themselves should have the monopoly of the ingenuity of all
their countrymen. Though by restraining, in some trades, the num-
ber of apprentices which can be employed at one time, and by impos-
ing the necessity of a long apprenticeship in all trades, they endeav-
our, all of them, to confine the knowledge of their respective employ-
ments to as small a number as possible; they are unwilling, however,

424 WEALTH OF NATIONS

that any part of this small number should go abroad to instruct
foreigners.

Consumption is the sole end and purpose of all production; and
the interest of the producer ought to be attended to, only so far as
it may be necessary for promoting that of the consumer. The maxim
is so perfectly self-evident, that it would be absurd to attempt to prove
it. But in the mercantile system, the interest of the consumer is
almost constantly sacrificed to that of the producer; and it seems to
consider production, and not consumption, as the ultimate end and
object of all industry and commerce.

In the restraints upon the importation of all foreign commodities
which can come into competition with those of our own growth, or
manufacture, the interest of the home<onsumer is evidently sacri-
ficed to that of the producer. It is altogether for the benefit of the
latter, that the former is obliged to pay that enhancement of price
which this monopoly almost always occasions.

It is altogether for the benefit of the producer that bounties are
granted upon the exportation of some of his productions. The home-
consumer is obliged to pay, first, the tax which is necessary for pay-
ing the bounty, and secondly, the still greater tax which necessarily
arises from the enhancement of the price of the commodity in the
home market.

By the famous treaty of commerce with Portugal, the consumer
is prevented by high duties from purchasing of a neighbouring
country, a commodity which our own climate does not produce, but
is obliged to purchase it of a distant country, though it is acknowl-
edged, that the commodity of the distant country is of a worse
quality than that of the near one. The home-consumer is obliged to
submit to this inconveniency, in order that the producer may import
into the distant country some of his productions uf)on more ad-
vantageous terms than he would otherwise have been allowed to do.
The consumer, too, is obliged to pay, whatever enhancement in the
price of those very productions, this forced exportation may occasion
in the home market.

But in the system of laws which has been established for the man-
agement of our American and West Indian colonies, the interest
of the home-consumer has been sacrificed to that of the producer

CONCLUSION OF MERCANTILE SYSTEM 425

with a more extravagant profusion than in all our other commercial
regulations. A great empire has been established for the sole pur-
pose of raising up a nation of customers who should be obliged to
buy from the shops of our different producers, all the goods with
which these could supply them. For the sake of that litde enhance-
ment of price which this monopoly might afford our producers,
the home-consumers have been burdened with the whole expence of
maintaining and defending that empire. For this purpose, and for
this purpose only, in the two last wars, more than two hundred
millions have been spent, and a new debt of more than a hundred
and seventy millions has been contracted over and above all that
had been expended for the same purpose in former wars. The in-
terest of this debt alone is not only greater than the whole extraordi-
nary profit, which, it ever could be pretended, was made by the
monopoly of the colony trade, but than the whole value of that
trade, or than the whole value of the goods, which at an average
have been annually exported to the colonies.

It cannot be very difficult to determine who have been the con-
trivers of this whole mercantile system; not the consumers, we may
believe, whose interest has been entirely neglected; but the producers,
whose interest has been so carefully attended to; and among this
latter class our merchants and manufacturers have been by far the
principal architects. In the mercantile regulations, which have been
taken notice of in this chapter, the interest of our manufacturers has
been most peculiarly attended to; and the interest, not so much of
the consumers, as that of some other sets of producers, has been
sacrificed to it.

CHAPTER IX

Of the Agricultural Systems, or of the Systems of Political
(Economy, Which Represents the Produce of Land as Either
THE Sole or the Principal Source of the Revenue and Wealth
of Every Country

THE agricultural systems of political ccconomy will not
require so long an explanation as that which I have
thought it necessary to bestow upon the mercantile or
commercial system.

That system which represents the produce of land as the sole
source of the revenue and wealth of every country has, so far as I
know, never been adopted by any nation, and it at present exists
only in the sp)eculation of a few men of great learning and ingenuity
in France. It would not, surely, be worth while to examine at
great length the errors of a system which never has done, and prob-
ably never will do any harm in any part of the world. I shall en-
deavour to explain, however, as distincdy as I can, the great outlines
of this very ingenious system.

Mr. Colbert, the famous minister of Lewis XIV., was a man of
probity, of great industry and knowledge of detail; of great ex-
perience and acuteness in the examination of public accounts, and
of abilities, in short, every way fitted for introducing method and
good order into the collection and expenditure of the public revenue.
That minister had unfortunately embraced all the prejudices of the
mercantile system, in its nature and essence a system of restraint
and regulation, and such as could scarce fail to be agreeable to a
laborious and plodding man of business, who had been accustomed
to regulate the different departments of public offices, and to estab-
lish the necessary checks and controls for confining each to its
proper sphere. The industry and commerce of a great country he
endeavoured to regulate upon the same model as the departments
of a public office; and instead of allowing every man to pursue his

426

AGRICULTURAL SYSTEMS 427

own interest his own way, upon the liberal plan of equality, liberty,
and justice, he bestowed upon certain branches of industry extraor-
dinary privileges, which he laid others under as extraordinary re-
straints. He was not only disfxjsed, like other Eurof)ean ministers^
to encourage more the industry of the towns than that of the country;
but, in order to support the industry of the towns, he was willing
even to depress and keep down that of the country. In order to
render provisions cheap to the inhabitants of the towns, and thereby
to encourage manufactures and foreign commerce, he prohibited
altogether the exportation of corn, and thus excluded the inhabitants
of the country from every foreign market for by far the most im-
portant part of the produce of their industry. This prohibition, joined
to the restraints imposed by the ancient provincial laws of France
uf)on the transf)ortation of corn from one province to another, and
to the arbitrary and degrading taxes which are levied upon the cidti-
vators in almost all the provinces, discouraged and kept down the
agriculture of that country very much below the state to which it
would naturally have risen in so very fertile a soil and so very
happy a climate. This state of discouragement and depression was
felt more or less in every different part of the country, and many
different inquiries were set on foot concerning the causes of it. One
of those causes appeared to be the preference given, by the institu-
tions of Mr. Colbert, to the industry of the towns above that of the
country.

If the rod be bent too much one way, says the proverb, in order
to make it straight you must bend it as much the other. The French
philosophers, who have proposed the system which represents agri-
culture as the sole source of the revenue and wealth of every coun-
try, seem to have adopted this proverbial maxim; and as in the plan
of Mr. Colbert the industry of the towns was certainly over-valued
in comparison with that of the country; so in their system it seems
to be as certainly undervalued.

The different orders of people who have ever been supposed to
contribute in any respect towards the annual produce of the land
and labour of the country, they divide into three classes. The first
is the class of the proprietors of land. The second is the class of
the cultivators, of farmers and country labourers, whom they honour

428 WEALTH OF NATIONS

with the peculiar appellation of the productive class. The third is
the class of artificers, manufacturers and merchants, whom they
endeavour to degrade by the humiliating appellation of the barren
or unproductive class.

The class of proprietors contributes to the annual produce by the
exp)ence which they may occasionally lay out uf)on the improvement
of the land, upon the buildings, drains, enclosures and other ameli-
orations, which they may either make or maintain upon it, and by
means of which the cultivators are enabled, with the same capital, to
raise a greater produce, and consequently to pay a greater rent. This
advanced rent may be considered as the interest or profit due to the
proprietor upwn the expence or capital which he thus employs in the
improvement of his land. Such expences are in this system called
ground expences (depenses foncieres).

The cultivators or farmers contribute to the annual produce by
what are in this system called the original and annual expwnces
(defenses primitives et depenses annuellcs) which they lay out up)on
the cultivation of the land. The original expences consist in the in-
struments of husbandry, in the stock of cattle, in the seed, and in
the maintenance of the farmer's family, servants and cattle, during
at least a great part of the first year of his occupancy, or till he can
receive some return from the land. The annual exf)ences consist
in the seed, in the wear and tear of the instruments of husbandry, and
in the annual maintenance of the farmer's servants and cattle, and
of his family too, so far as any part of them can be considered as
servants employed in cultivation. That part of the produce of the
land which remains to him after paying the rent, ought to be suffi-
cient, first, to replace to him within a reasonable time, at least during
the term of his occupancy, the whole of his original expences, to-
gether with the ordinary profits of stock; and, secondly, to replace to
him annually the whole of his annual exf)ences, together likewise
with the ordinary profits of stock. Those two sorts of expences are
two capitals which the farmer employs in cultivation; and unless
they are regularly restored to him, together with a reasonable profit,
he cannot carry on his employment upon a level with other em-
ployments; but, from a regard to his own interest, must desert it
as soon as possible, and seek some other. That part of the produce

AGRICULTURAL SYSTEMS 429

of the land which is thus necessary for enabling the farmer to con-
tinue his business, ought to be considered as a fund sacred to culti-
vation, which if the landlord violates, he necessarily reduces the
produce of his own land, and in a few years not only disables the
farmer from paying this racked rent, but from paying the reason-
able rent which he might otherwise have got for his land. The rent
which properly belongs to the landlord, is no more than the neat
produce which remains after paying in the completest manner all
the necessary expences which must be previously laid out in order to
raise the gross, or the whole produce. It is because the labour of
the cultivators, over and above paying completely all those neces-
sary expences, affords a neat produce of this kind, that this class
of people are in this system peculiarly distinguished by the
honourable apjjellation of the productive class. Their original
and annual expences are for the same reason called, in this sys-
tem, productive expences, because, over and above replacing their
own value, they occasion the annual reproduction of this neat
produce.

The ground expences, as they are called, or what the landlord
lays out upon the improvement of his land, are in this system too
honoured with the appellation of productive expences. Till the whole
of those expences, together with the ordinary profits of stock, have
been completely repaid to him by the advanced rent which he gets
from his land, that advanced rent ought to be regarded as sacred and
inviolable, both by the church and by the king; ought to be subject
neither to tithe nor to taxation. If it is otherwise, by discouraging the
improvement of land, the church discourages the future increase of
her own tithes, and the king the future increase of his own taxes.
As in a well-ordered state of things, therefore, those ground ex-
pences, over and above reproducing in the completest manner their
own value, occasion likewise after a certain time a reproduction of a
neat produce, they are in this system considered as productive
expences.

The ground expences of the landlord, however, together with the
original and the annual expences of the farmer, are the only three
sorts of expences which in this system are considered as produc-
tive. All other expences and all other orders of people, even those

430 WEALTH OF NATIONS

who in the common apprehensions of men are regarded as the
most productive, are in this account of things represented as alto-
gether barren and unproductive.

Artificers and manufacturers, in particular, whose industry, in the
common apprehensions of men, increases so much the value of the
rude produce of land, are in this system represented as a class of
people altogether barren and unproductive. Their labour, it is said,
replaces only the stock which employs them, together with its ordi-
nary profits. That stock consists in the materials, tools, and wages,
advanced to them by their employer; and is the fund destined for
their employment and maintenance. Its profits are the fund destined
for the maintenance of their employer. Their employer, as he ad-
vances to them the stock of materials, tools and wages necessary for
their employment, so he advances to himself what is necessary for his
own maintenance, and this maintenance he generally proportions to
the profit which he expects to make by the price of their work. Un-
less its price repays to him the maintenance which he advances to
himself, as well as the materials, tools and wages which he advances
to his workmen, it evidendy does not repay to him the whole ex-
pence which he lays out upon it. The profits of manufacturing stock,
therefore, are not, like the rent of land, a neat produce which re-
mains after completely repaying the whole expence which must be
laid out in order to obtain them. The stock of the farmer yields him
a profit as well as that of the master manufacturer; and it yields a
rent likewise to another person, which that of the master manufac-
turer does not. The expence, therefore, laid out in employing and
maintaining artificers and manufacturers, does no more than con-
tinue, if one may say so, the existence of its own value, and does not
produce any new value. It is therefore altogether a barren and un-
productive expence. The expence, on the contrary, laid out in em-
ploying farmers and country labourers, over and above continuing
the existence of its own value, produces a new value, the rent of
the landlord. It is therefore a productive expence.

Mercantile stock is equally barren and unproductive with manu-
facturing stock. It only continues the existence of its own value,
without producing any new value. Its profits are only the repayment
of the maintenance which its employer advances to himself during

AGRICULTURAL SYSTEMS 431

the time that he employs it, or till he receives the returns of it.
They are only the repayment of a part of the expence which must
be laid out in employing it.

The labour of artificers and manufacturers never adds any thing
to the value of the whole annual amount of the rude produce of
the land. It adds indeed greatly to the value of some particular
parts of it. But the consumption which in the mean time it occa-
sions of other parts, is precisely equal to the value which it adds to
those parts; so that the value of the whole amount is not, at any one
moment of time, in the least augmented by it. The person who
works the lace of a pair of fine ruffles, for example, will sometimes
raise the value of perhaps a pennyworth of flax to thirty pounds
sterling. But though at first sight he appears thereby to multiply
the value of a part of the rude produce about seven thousand and
two hundred times, he in reality adds nothing to the value of the
whole annual amount of the rude produce. The working of that
lace costs him perhaps two years' labour. The thirty pounds which
he gets for it when it is finished, is no more than the repayment
of the subsistence which he advances to himself during the two years
that he is employed about it. The value which, by every day's,
month's, or year's labour, he adds to the flax, does no more than
replace the value of his own consumption during that day, month,
or year. At no moment of time, therefore, does he add any thing
to the value of the whole annual amount of the rude produce of the
land: the portion of that produce which he is continually consum-
ing, being always equal to the value which he is continually pro-
ducing. The extreme poverty of the greater part of the persons em-
ployed in this expensive, though trifling manufacture, may satisfy
us that the price of their work does not in ordinary cases exceed
the value of their subsistence. It is otherwise with the work of farm-
ers and country labourers. The rent of the landlord is a value,
which, in ordinary cases, it is continually producing, over and above
replacing, in the most complete manner, the whole consumption,
the whole expence laid out upon the employment and maintenance
both of the workmen and of their employer.

Artificers, manufacturers and merchants, can augment the revenue
and wealth of their society, by parsimony only; or, as it is expressed

432 WEALTH OF NATIONS

in this system, by privation, that is, by depriving themselves o£ a
part of the funds destined for their own subsistence. They annu-
ally reproduce nothing but those funds. Unless, therefore, they an-
nually save some part of them, unless they annually deprive them-
selves of the enjoyment of some part of them, the revenue and wealth
of their society can never be in the smallest degree augmented by
means of their industry. Farmers and country labourers, on the con-
trary, may enjoy completely the whole funds destined for their own
subsistence, and yet augment at the same time the revenue and
wealth of their society. Over and above what is destined for their
own subsistence, their industry annually affords a neat produce, of
which the augmentation necessarily augments the revenue and
wealth of their society. Nations, therefore, which, like France or
England, consist in a great measure of proprietors and cultivators,
can be enriched by industry and enjoyment. Nations, on the con-
trary, which, like Holland and Hamburgh, are composed chiefly of
merchants, artificers and manufacturers, can grow rich only through
parsimony and privation. As the interest of nations so differently
circumstanced, is very different, so is likewise the common character
of the people. In those of the former kind, liberality, frankness, and
good fellowship, naturally make a part of that common character.
In the latter, narrowness, meanness, and a selfish disposition, averse
to all social pleasure and enjoyment.

The unproductive class, that of merchants, artificers and manufac-
turers, is maintained and employed altogether at the expence of the
two other classes, of that of proprietors, and of that of cultivators.
They furnish it both with the materials of its work and with the
fund of its subsistence, with the corn and catde which it consumes
while it is employed about that work. The proprietors and culti-
vators finally pav both the wages of all the workmen of the unpro-
ductive class, and the profits of all their employers. Those workmen
and their employers are properly the servants of the proprietors and
cultivators. They are only servants who work without doors, as
menial servants work within. Both the one and the other, however,
are equally maintained at the expence of the same masters. The
labour of both is equally unproductive. It adds nothing to the value
of the sum total of the rude produce of the land. Instead of increas-

AGRICULTURAL SYSTEMS 433

ing the value of that sum total, it is a charge and expence which must
be paid out of it.

The unproductive class, however, is not only useful, but greatly
useful to the other two classes. By means of the industry of mer-
chants, artificers and manufacturers, the proprietors and cultivators
can purchase both the foreign goods and the manufactured produce
of their own country which they have occasion for, with the produce
of a much smaller quantity of their own labour, than what they
would be obliged to employ, if they were to attempt, in an awkward
and unskilful manner, either to import the one, or to make the other
for their own use. By means of the unproductive class, the cultiva-
tors are delivered from many cares which would otherwise distract
their attention from the cultivation of land. The superiority of prod-
uce, which, in consequence of this undivided attention, they are en-
abled to raise, is fully sufficient to pay the whole expence which the
maintenance and employment of the unproductive class costs either
the proprietors, or themselves. The industry of merchants, artificers
and manufacturers, though in its own nature altogether unproduc-
tive, yet contributes in this manner indirectly to increase the produce
of the land. It increases the productive powers of productive labour,
by leaving it at liberty to confine itself to its proper employment,
the cultivation of land; and the plough goes frequently the easier
and the better by means of the labour of the man whose business is
most remote from the plough.

It can never be the interest of the proprietors and cultivators to
restrain or to discourage in any respect the industry of merchants,
artificers and manufacturers. The greater the liberty which this un-
productive class enjoys, the greater will be the competition in all
the different trades which compose it, and the cheaper will the other
two classes be supplied, both with foreign goods and with the manu-
factured produce of their own country.

It can never be the interest of the unproductive class to oppress
the other two classes. It is the surplus produce of the land, or what
remains after deducting the maintenance, first, of the cultivators,
and afterwards, of the proprietors, that maintains and employs the
unproductive class. The greater this surplus, the greater must like-
wise be the maintenance and employment of that class. The estab-

434 WEALTH OF NATIONS

lishment of perfect justice, of perfect liberty, and of perfect equality,
is the very simple secret which most effectually secures the highest
degree of prosperity to all the three classes.

The merchants, artificers and manufacturers of those mercantile
states which, like Holland and Hamburgh, consist chiefly of this
unproductive class, are in the same manner maintained and em-
ployed altogether at the expence of the proprietors and cultivators
of land. The only difference is, that those proprietors and cultivators
are, the greater part of them, placed at a most inconvenient distance
from the merchants, artificers and manufacturers whom they supply
with the materials of their work and the fund of their subsistence,
are the inhabitants of other countries, and the subjects of other gov-
ernments.

Such mercantile states, however, are not only useful, but greatly
useful to the inhabitants of those other countries. They fill up, in
some measure, a very important void, and supply the place of the
merchants, artificers and manufacturers, whom the inhabitants of
those countries ought to find at home, but whom, from some defect
in their policy, they do not find at home.

It can never be the interest of those landed nations, if I may call
them so, to discourage or distress the industry of such mercan-
tile states, by imposing high duties upon their trade, or upon the
commodities which they furnish. Such duties, by rendering those
commodities dearer, could serve only to sink the real value of the
surplus produce of their own land, with which, or, what comes to
the same thing, with the price of which, those commodities are
purchased.

Such duties could serve only to discourage the increase of that
surplus produce, and consequently the improvement and cultivation
of their own land. The most effectual expedient, on the contrary,
for raising the value of that surplus produce, for encouraging its in-
crease, and consequendy the improvement and cultivation of their
own land, would be to allow the most perfect freedom to the trade
of all such mercantile nations.

This perfect freedom of trade would even be the most effectual
expedient for supplying them, in due time, with all the artificers,
manufacturers and merchants, whom they wanted at home, and for

AGRICULTURAL SYSTEMS 435

filling up in the properest and most advantageous manner that very
important void which they felt there.

The continual increase of the surplus produce of their land, would,
in due time, create a greater capital than what could be employed
with the ordinary rate of profit in the improvement and cultivation
of land; and the surplus part of it would naurally turn itself to the
employment of artificers and manufacturers at home. But those
artificers and manufacturers, finding at home both the materials of
their work and the fund of their subsistence, might immediately,
even with much less art and skill, be able to work as cheap as the
like artificers and manufacturers of such mercantile states, who had
both to bring from a great distance. Even though, from want of
art and skill, they might not for some time be able to work as cheap,
yet, finding a market at home, they might be able to sell their work
there as cheap as that of the artificers and manufacturers of such mer-
cantile states, which could not be brought to that market but from so
great a distance; and as their art and skill improved, they would
soon be able to sell it cheaper. The artificers and manufacturers of
such mercantile states, therefore, would immediately be rivalled in
the market of those landed nations, and soon after undersold and
jusded out of it altogether. The cheapness of the manufactures of
those landed nations, in consequence of the gradual improvements
of art and skill, would, in due time, extend their sale beyond the
home market, and carry them to many foreign markets, from which
they would in the same manner gradually jusde out many of the
manufactures of such mercantile nations.

This continual increase both of the rude and manufactured prod-
uce of those landed nations would in due time create a greater capi-
tal than could, with the ordinary rate of profit, be employed either in
agriculture or in manufactures. The surplus of this capital would
naturally turn itself to foreign trade, and be employed in exporting,
to foreign countries, such parts of the rude and manufactured prod-
uce of its own country, as exceeded the demand of the home mar-
ket. In the exportation of the produce of their own country, the
merchants of a landed nation would have an advantage of the same
kind over those of mercantile nations, which its artificers and manu-
facturers had over the artificers and manufacturers of such nations;

436 WEALTH OF NATIONS

the advantage of finding at home that cargo, and those stores and
provisions, which the others were obUged to seek for at a distance.
With inferior art and skill in navigation, therefore, they would be
able to sell that cargo as cheap in foreign markets as the merchants
of such mercantile nations; and with equal art and skill they would
be able to sell it cheaper. They would soon, therefore, rival those
mercantile nations in this branch of foreign trade, and in due time
would justle them out of it altogether.

According to this liberal and generous system, therefore, the most
advantageous method in which a landed nation can raise up artifi-
cers, manufacturers and merchants of its own, is to grant the most
perfect freedom of trade to the artificers, manufacturers and mer-
chants of all other nations. It thereby raises the value of the surplus
produce of its own land, of which the continual increase gradually
establishes a fund, which in due time necessarily raises up all the
artificers, manufacturers and merchants whom it has occasion for.

When a landed nation, on the contrary, oppresses either by high
duties or by prohibitions the trade of foreign nations, it necessarily
hurts its own interest in two different ways. First, by raising the
price of all foreign goods and of all sorts of manufactures, it neces-
sarily sinks the real value of the surplus produce of its own land,
with which, or, what comes to the same thing, with the price of
which, it purchases those foreign goods and manufactures. Sec-
ondly, by giving a sort of monopoly of the home market to its own
merchants, artificers and manufacturers, it raises the rate of mer-
cantile and manufacturing profit in proportion to that of agricultural
profit, and consequently either draws from agriculture a part of the
capital which had before been employed in it, or hinders from going
to it a part of what would otherwise have gone to it. This policy,
therefore, discourages agriculture in two different ways; first, by sink-
ing the real value of its produce, and thereby lowering the rate of its
profit; and, secondly, by raising the rate of profit in all other employ-
ments. Agriculture is rendered less advantageous, and trade and
manufactures more advantageous than they otherwise would be; and
every man is tempted by his own interest to turn, as much as he can,
both his capital and his industry from the former to the latter em-
ployments.

AGRICULTURAL SYSTEMS 437

Though, by this oppressive policy, a landed nation should be able
to raise up artificers, manufacturers and merchants of its own, some-
what sooner than it could do by the freedom of trade; a matter,
however, which is not a little doubtful; yet it would raise them up,
if one may say so, prematurely, and before it was perfectly ripe for
them. By raising up too hastily one sjjecies of industry, it would
depress another more valuable species of industry. By raising up too
hastily a species of industry which only replaces the stock which
employs it, together with the ordinary profit, it would depress a
species of industry which, over and above replacing that stock with
its profit, affords likewise a neat produce, a free rent to the land-
lord. It would depress productive labour, by encouraging too hastily
that labour which is altogether barren and unproductive.

In what manner, according to this system, the sum total of the
annual produce of the land is distributed among the three classes
above mentioned, and in what manner the labour of the unproduc-
tive class does no more than replace the value of its own consump-
tion, without increasing in any respect the value of that sum total,
is represented by Mr. Quesnai, the very ingenious and profound
author of this system, in some arithmetical formularies. The first of
these formularies, which by way of eminence he p)eculiarly distin-
guishes by the name of the Economical Table, represents the manner
in which he supposes this distribution takes place, in a state of the
most perfect liberty, and therefore of the highest prosperity; in a
state where the annual produce is such as to afford the greatest
fKJSsible neat produce, and where each class enjoys its proper share
of the whole annual produce. Some subsequent formularies repre-
sent the manner, in which, he supposes, this distribution is made in
different states of restraint and regulation; in which, either the class
of proprietors, or the barren and unproductive class, is more favoured
than the class of cultivators, and in which, either the one or the other
encroaches more or less uf)on the share which ought properly to
belong to this productive class. Every such encroachment, every
violation of that natural distribution, which the most perfect liberty
would establish, must, according to this system, necessarily degrade
more or less, from one year to another, the value and sum total of the
annual produce, and must necessarily occasion a gradual declension

438 WEALTH OF NATIONS

in the real wealth and revenue of the society; a declension of which
the progress must be quicker or slower, according to the degree of
this encroachment, according as that natural distribution, which the
most perfect liberty would establish, is more or less violated. Those
subsequent formularies represent the different degrees of declension,
which, according to this system, correspond to the different degrees
in which this natural distribution of things is violated.

Some speculative physicians seem to have imagined that the
health of the human body could be preserved only by a certain pre-
cise regimen of diet and exercise, of which every, the smallest, vio-
lation necessarily occasioned some degree of disease or disorder pro-
portioned to the degree of the violation. Experience, however, would
seem to show, that the human body frequently preserves, to all ap-
pearance at least, the most perfect state of health under a vast variety
of different regimens; even under some which are generally believed
to be very far from being perfectly wholesome. But the healthful
state of the human body, it would seem, contains in itself some un-
known principle of preservation, capable either of preventing or of
correcting, in many respects, the bad effects even of a very faulty
regimen. Mr. Quesnai, who was himself a physician, and a very
speculative physician, seems to have entertained a notion of the
same kind concerning the political body, and to have imagined that
it would thrive and prosper only under a certain precise regimen, the
exact regimen of perfect liberty and perfect justice. He seems not
to have considered that in the pxjlitical body, the natural effort which
every man is continually making to better his own condition, is a
principle of preservation capable of preventing and correcting, in
many respects, the bad effects of a political oeconomy, in some degree
both partial and oppressive. Such a political oeconomy, though it
no doubt retards more or less, is not always capable of stopping alto-
gether the natural progress of a nation towards wealth and pros-
perity, and still less of making it go backwards. If a nation could
not prosper without the enjoyment of perfect liberty and perfect jus-
tice, there is not in the world a nation which could ever have pros-
pered. In the political body, however, the wisdom of nature has
fortunately made ample provision for remedying many of the bad

AGRICULTURAL SYSTEMS 439

effects of the folly and injustice of man; in the same manner as it
has done in the natural body, for remedying those of his sloth and
intemperance.

The capital error of this system, however, seems to lie in its rep-
resenting the class of artificers, manufacturers and merchants, as
altogether barren and unproductive. The following observations
may serve to show the impropriety of this representation.

First, this class, it is acknowledged, reproduces annually the value
of its own annual consumption, and continues, at least, the existence
of the stock or capital which maintains and employs it. But upon
this account alone the denomination of barren or unproductive
should seem to be very improperly applied to it. We should not call
a marriage barren or unproductive, though it produced only a son
and a daughter, to replace the father and mother, and though it
did not increase the number of the human sf)ecies, but only contin-
ued it as it was before. Farmers and country labourers, indeed, over
and above the stock which maintains and employs them, reproduce
annually a neat produce, a free rent to the landlord. As a marriage
which affords three children is certainly more productive than one
which affords only two; so the labour of farmers and country la-
bourers is certainly more productive than that of merchants, artifi-
cers and manufacturers. The suf>erior produce of the one class, how-
ever, does not render the other barren or unproductive.

Secondly, it seems, upon this account, altogether improper to con-
sider artificers, manufacturers and merchants, in the same light as
menial servants. The labour of menial servants does not continue
the existence of the fund which maintains and employs them. Their
maintenance and employment is altogether at the expence of their
masters, and the work which they perform is not of a nature to
repay that expence. That work consists in services which perish
generally in the very instant of their performance, and does not fix
or realize itself in any vendible commodity which can replace the
value of their wages and maintenance. The labour, on the con-
trary, of artificers, manufacturers and merchants, naturally does fix
and realize itself in some such vendible commodity. It is upon this
account that, in the chapter in which I treat of productive and un-

440 WEALTH OF NATIONS

productive labour, I have classed artificers, manufacturers and mer-
chants, among the productive labourers, and menial servants among
the barren or unproductive.

Thirdly, it seems, upon every supposition, improper to say, that
the labour of artificers, manufacturers and merchants, does not in-
crease the real revenue of the society. Though we should suppose,
for example, as it seems to be supposed in this system, that the value
of the daily, monthly, and yearly consumption of this class was ex-
actly equal to that of its daily, monthly, and yearly production; yet
it would not from thence follow that its labour added nothing to the
real revenue, to the real value of the annual produce of the land and
labour of the society. An artificer, for example, who in the first six
months after harvest, executes ten pounds worth of work, though he
should in the same time consume ten pounds worth of corn and
other necessaries, yet really adds the value of ten px)unds to the
annual produce of the land and labour of the society. While he has
been consuming a half yearly revenue of ten pounds worth of corn
and other necessaries, he has produced an equal value of work capa-
ble of purchasing, either to himself or to some other person, an equal
half yearly revenue. The value, therefore, of what has been con-
sumed and produced during these six months is equal, not to ten,
but to twenty pounds. It is possible, indeed, that no more than ten
pounds worth of this value, may ever have existed at any one mo-
ment of time. But if the ten p)ounds worth of corn and other neces-
saries, which were consumed by the artificer, had been consumed
by a soldier or by a menial servant, the value of that part of the an-
nual produce which existed at the end of the six months, would have
been ten f)ounds less than it actually is in consequence of the labour
of the artificer. Though the value of what the artificer produces,
therefore, should not at any one moment of time be supposed greater
than the value he consumes, yet at every moment of time the actually
existing value of goods in the market is, in consequence of what he
produces, greater than it otherwise would be.

When the patrons of this system assert, that the consumption of
artificers, manufacturers and merchants, is equal to the value of
what they produce, they probably mean no more than that their
revenue, or the fund destined for their consumption, is equal to it.

AGRICULTURAL SYSTEMS 44 1

But if they had expressed themselves more accurately, and only as-
serted, that the revenue of this class was equal to the value of what
they produced, it might readily have occurred to the reader, that
what would naturally be saved out of this revenue, must necessarily
increase more or less, the real wealth of the society. In order, there-
fore, to make out something like an argument, it was necessary that
they should express themselves as they have done; and this argu-
ment, even supposing things actually were as it seems to presume
them to be, turns out to be a very inconclusive one.

Fourthly, farmers and country labourers can no more augment,
without parsimony, the real revenue, the annual produce of the land
and labour of their society, than artificers, manufacturers and mer-
chants. The annual produce of the land and labour of any society
can be augmented only in two ways; either, first, by some improve-
ment in the productive powers of the useful labour actually main-
tained within it; or, secondly, by some increase in the quantity of
that labour.

The improvement in the productive powers of useful labour de-
pend, first, upon the improvement in the ability of the workman;
and, secondly, upon that of the machinery with which he works. But
the labour of artificers and manufacturers, as it is capable of being
more subdivided, and the labour of each workman reduced to a
greater simplicity of operation, than that of farmers and country
labourers, so it is likewise capable of both these sorts of improvement
in a much higher degree. In this respect, therefore, the class of cul-
tivators can have no sort of advantage over that of artificers and
manufacturers.

The increase in the quantity of useful labour actually employed
within any society, must depend altogether upon the increase of the
capital which employs it; and the increase of that capital again must
be exactly equal to the amount of the savings from the revenue,
either of the particular persons who manage and direct the employ-
ment of that capital, or of some other persons who lend it to them.
If merchants, artificers and manufacturers are, as this system seems
to suppose, naturally more inclined to parsimony and saving than
proprietors and cultivators, they are, so far, more likely to augment
the quantity of useful labour employed within their society, and

442 WEALTH OF NATIONS

consequently to increase its real revenue, the annual produce o£ its
land and labour.

Fifthly and lastly, though the revenue of the inhabitants of every
country was supposed to consist altogether, as this system seems to
suppose, in the quantity of subsistence which their industry could
procure to them; yet, even upon this supposition, the revenue of a
trading and manufacturing country must, other things being equal,
always be much greater than that of one without trade or manufac-
tures. By means of trade and manufactures, a greater quantity of
subsistence can be annually imported into a particular country than
what its own lands, in the actual state of their cultivation, could
afford. The inhabitants of a town, though they frequently possess no
lands of their own, yet draw to themselves by their industry such a
quantity of the rude produce of the lands of other people as supplies
them, not only with the materials of their work, but with the fund
of their subsistence. What a town always is with regard to the coun-
try in its neighbourhood, one independent state or country may fre-
quently be with regard to other independent states or countries. It
is thus that Holland draws a great part of its subsistence from other
countries; live cattle from Holstein and Jutland, and corn from al-
most all the different countries of Europe. A small quantity of
manufactured produce purchases a great quantity of rude produce.
A trading and manufacturing country, therefore, naturally purchases
with a small part of its manufactured produce a great part of the
rude produce of other countries; while, on the contrary, a country
without trade and manufactures is generally obliged to purchase, at
the expense of a great part of its rude produce, a very small part of
the manufactured produce of other countries. The one exports what
can subsist and accommodate but a very few, and imports the sub-
sistence and accommodation of a great number. The other exports
the accommodation and subsistence of a great number, and imports
that of a very few only. The inhabitants of the one must always
enjoy a much greater quantity of subsistence than what their own
lands, in the actual state of their cultivation, could afford. The in-
habitants of the other must always enjoy a much smaller quantity.

This system, however, with all its imperfections, is, perhaps, the
nearest approximation to the truth that has yet been published upon

AGRICULTURAL SYSTEMS 443

the subject of political occonomy, and is upon that account well
worth the consideration of every man who wishes to examine with
attention the principles of that very important science. Though in
representing the labour which is employed upon land as the only
productive labour, the notions which it inculcates are perhaps too
narrow and confined; yet in representing the wealth of nations as
consisting, not in the unconsumable riches of money, but in the con-
sumable goods annually reproduced by the labour of the society;
and in representing perfect liberty as the only effectual expedient for
rendering this annual reproduction the greatest [xjssible, its doc-
trine seems to be in every respect as just as it is generous and liberal.
Its followers are very numerous; and as men are fond of paradoxes,
and of appearing to understand what surpasses the comprehension
of ordinary people, the paradox which it maintains, concerning the
unproductive nature of manufacturing labour, has not perhaps con-
tributed a litde to increase the number of its admirers. They have
for some years past made a pretty considerable sect, distinguished in
the French republic of letters by the name of. The CEconomists.
Their works have certainly been of some service to their country;
not only by bringing into general discussion, many subjects which
had never been well examined before, but by influencing in some
measure the public administration in favour of agriculture. It has
been in consequence of their representations, accordingly, that the
agriculture of France has been delivered from several of the op>-
pressions which it before laboured under. The term during which
such a lease can be granted, as will be valid against every future
purchaser or proprietor of the land, has been prolonged from nine
to twenty-seven years. The ancient provincial restraints upon the
transportation of corn from one province of the kingdom to an-
other, have been entirely taken away, and the liberty of exporting it
to all foreign countries, has been established as the common law of
the kingdom in all ordinary cases. This sect, in their works, which
are very numerous, and which treat not only of what is prop)erly
called Political CEconomy, or of the nature and causes of the wealth
of nations, but of every other branch of the system of civil govern-
ment, all follow implicitly, and without any sensible variation, the
doctrine of Mr. Quesnai. There is upon this account litde variety in

444 WEALTH OF NATIONS

the greater part of their works. The most distinct and best connected
account of this doctrine is to be found in a little book written by Mr.
Mercier de la Riviere, sometime Intendant of Martinico, intided,
The natural and essential Order of Political Societies. The admira-
tion of this whole sect for their master, who was himself a man of
the greatest modesty and simplicity, is not inferior to that of any of
the ancient philosophers for the founders of their respective systems.
"There have been, since the world began," says a very diligent and
resf)ectable author, the Marquis de Mirabeau, "three great inventions
"which have principally given stability to political societies, inde-
"pendent of many other inventions which have enriched and adorned
"them. The first, is the invention of writing, which alone gives
"human nature the power of transmitting, without alteration, its
"laws, its contracts, its annals, and its discoveries. The second, is the
"invention of money, which binds together all the relations between
"civilized societies. The third, is the (Economical Table, the result
"of the other two, which completes them both by perfecting their
"object; the great discovery of our age, but of which our posterity
"will reap the benefit."

The greatest and most important branch of the commerce of
every nation, it has already been observed, is that which is carried
on between the inhabitants of the town and those of the country.
The inhabitants of the town draw from the country the rude produce
which constitutes both the materials of their work and the fund of
their subsistence; and they pay for this rude produce by sending back
to the country a certain portion of it manufactured and prepared for
immediate use. The trade which is carried on between those two
different sets of people, consists ultimately in a certain quantity of
rude produce exchanged for a certain quantity of manufactured
produce. The dearer the latter, therefore, the cheaper the former;
and whatever tends in any country to raise the price of manufac-
tured produce, tends to lower that of the rude produce of the land,
and thereby to discourage agriculture. The smaller the quantity of
manufactured produce which any given quantity of rude produce,
or, what comes to the same thing, which the price of any given
quantity of rude produce is capable of purchasing, the smaller the
exchangeable value of that given quantity of rude produce; the

AGRICULTURAL SYSTEMS 445

smaller the encouragement which either the landlord has to increase
its quantity by improving, or the farmer by cultivating the land.
Whatever, besides, tends to diminish in any country the number of
artificers and manufacturers, tends to diminish the home market,
the most important of all markets for the rude produce of the land,
and thereby still further to discourage agriculture.

Those systems, therefore, which preferring agriculture to all other
employments, in order to promote it, impose restraints upon manu-
factures and foreign trade, act contrary to the very end which they
propose, and directly discourage that very species of industry which
they mean to promote. They are so far, perhaps, more inconsistent
than even the mercantile system. That system, by encouraging man-
ufactures and foreign trade more than agriculture, turns a certain
portion of the capital of the society from supporting a more ad-
vantageous, to support a less advantageous species of industry. But
still it really and in the end encourages that species of industry
which it means to promote. Those agricultural systems, on the
contrary, really and in the end discourage their own favourite species
of industry.

It is thus that every system which endeavours, either, by extraor-
dinary encouragements, to draw towards a particular species of in-
dustry a greater share of the capital of the society than what would
naturally go to it; or, by extraordinary restraints, to force from a
particular species of industry some share of the capital which would
otherwise be employed in it; is in reality subversive of the great
purpose which it means to promote. It retards, instead of accelerat-
ing, the progress of the society towards real wealth and greatness:
and diminishes, instead of increasing, the real value of the annual
produce of its land and labour.

All systems either of preference or of restraint, therefore, being
thus completely taken away, the obvious and simple system of natu-
ral liberty establishes itself of its own accord. Every man, as long as
he does not violate the laws of justice, is left perfectly free to pursue
his own interest his own way, and to bring both his industry and
capital into competition with those of any other man, or order of
men. The sovereign is completely discharged from a duty, in the
attempting to perform which he must always be exposed to innu-

446 WEALTH OF NATIONS

merable delusions, and for the proper performance of which no hu-
man wisdom or knowledge could ever be sufficient; the duty of
superintending the industry of private people, and of directing it
towards the employments most suitable to the interest of the society.
According to the system of natural liberty, the sovereign has only
three duties to attend to; three duties of great importance, indeed,
but plain and intelligible to common understandings; first, the duty
of protecting the society from the violence and invasion of other in-
dependent societies; secondly, the duty of protecting, as far as possi-
ble, every member of the society from the injustice or oppresssion of
every other member of it, or the duty of establishing an exact admin-
istration of justice; and, thirdly, the duty of erecting and maintaining
certain public works and certain public institutions, which it can
never be for the interest of any individual, or small number of indi-
viduals, to erect and maintain; because the profit could never repay
the expence to any individual or small number of individuals,
though it may frequently do much more than repay it to a great
society.

The proper performance of those several duties of the sovereign
necessarily supposes a certain exp)ence; and this expence again neces-
sarily requires a certain revenue to support it. In the following book,
therefore, I shall endeavour to explain; first, what are the necessary
expences of the sovereign or commonwealth; and which of those
expences ought to be defrayed by the general contribution of the
whole society; and which of them, by that of some particular part
only, or of some particular members of the society: secondly, what
are the different methods in which the whole society may be made
to contribute towards defraying the expences incumbent on the
whole society, and what are the principal advantages and incon-
veniences of each of those methods: and, thirdly, what are the rea-
sons and causes which have induced almost all modern governments
to mortgage some part of this revenue, or to contract debts, and what
have been the effects of those debts upon the real wealth, the annual
produce of the land and labour of the society. The following book,
therefore, will naturally be divided into three chapters.

BOOK V
Of the Revenue of the Sovekeign or Commonwealth

CHAPTER I
Of the Expences of the Sovereign or Commonwealth

PARTI
Of the Expence of Defence

THE first duty of the sovereign, that of protecting the so-
ciety from the violence and invasion of other independent
societies, can be performed only by means of a military
force. But the expence both of preparing this military force in time
of peace, and of employing it in time of war, is very different in
the different states of society, in the different periods of improve-
ment.

Among nations of hunters, the lowest and rudest state of society,
such as we find it among the native tribes of North America, every
man is a warrior as well as a hunter. When he goes to war, either
to defend his society, or to revenge the injuries which have been
done to it by other societies, he maintains himself by his own labour,
in the same manner as when he lives at home. His society, for in this
state of things there is prof)erly neither sovereign nor commonwealth,
is at no sort of expence, either to prepare him for the field, or to
maintain him while he is in it.

When a civilized nation depends for its defence upon a militia,
it is at all times exposed to be conquered by any barbarous nation
which happens to be in its neighbourhood. The frequent conquests
of all the civilized countries in Asia by the Tartars, sufficiently dem-
onstrates the natural superiority, which the militia of a barbarous,

447

448 WEALTH OF NATIONS

has over that of a civiUzed nation. A well-regulated standing
army is superior to every militia. Such an army, as it can best
be maintained by an opulent and civilized nation, so it can alone
defend such a nation against the invasion of a poor and barbarous
neighbour. It is only by means of a standing army, therefore, that
the civilization of any country can be perpetuated, or even preserved
for any considerable time.

As it is only by means of a well-regulated standing army that a
civilized country can be defended; so it is only by means of it, that
a barbarous country can be suddenly and tolerably civilized. A
standing army establishes, with an irresistible force, the law of the
sovereign through the remotest provinces of the empire, and main-
tains some degree of regular government in countries which could
not otherwise admit of any. Whoever examines, with attention, the
improvements which Peter the Great introduced into the Russian
empire, will find that they almost all resolve themselves into the es-
tablishment of a well-regulated standing army. It is the instrument
which executes and maintains all his other regulations. That degree
of order and internal peace, which that empire has ever since enjoyed,
is altogether owing to the influence of that army.

Men of republican principles have been jealous of a standing
army as dangerous to liberty. It certainly is so, wherever the interest
of the general and that of the principal officers are not necessarily
connected with the support of the constitution of the state. The
standing army of Qesar destroyed the Roman republic. The stand-
ing army of Cromwell turned the long parliament out of doors. But
where the sovereign is himself the general, and the principal no-
bility and gentry of the country the chief officers of the army; where
the military force is placed under the command of those who have
ihe greatest interest in the support of the civil authority, because they
have themselves the greatest share of that authority, a standing army
can never be dangerous to liberty. On the contrary, it may in some
cases be favourable to liberty. The security which it gives to the
sovereign renders unnecessary that troublesome jealousy, which, in
some modern republics, seems to watch over the minutest actions,
and to be at all times ready to disturb the peace of every citizen.
Where the security of the magistrate, though supported by the prin-

EXPENCE OF DEFENCE 449

cipal people of the country, is endangered by every popular discon-
tent; where a small tumult is capable of bringing about in a few
hours a great revolution, the whole authority of government must be
employed to suppress and punish every murmur and complaint
against it. To a sovereign, on the contrary, who feels himself sup-
ported, not only by the natural aristocracy of the country, but by a
well-regulated standing army, the rudest, the most groundless, and
the most licentious remonstrances can give little disturbance. He can
safely pardon or neglect them, and his consciousness of his own supe-
riority naturally disposes him to do so. That degree of liberty which
approaches to licentiousness can be tolerated only in countries where
the sovereign is secured by a well-regulated standing army. It is in
such countries only, that the public safety does not require, that the
sovereign should be trusted with any discretionary power, for sup-
pressing even the impertinent wantonness of this licentious liberty.

The first duty of the sovereign, therefore, that of defending the
society from the violence and injustice of other independent societies,
grows gradually more and more expensive, as the society advances
in civilization. The military force of the society, which originally
cost the sovereign no exjience either in time of peace or in time of
war, must, in the progress of improvement, first be maintained by
him in time of war, and afterwards even in time of peace.

The great change introduced into the art of war by the invention
of fire-arms, has enhanced still further both the expence of exercis-
ing and disciplining any particular number of soldiers in time of
peace, and that of employing them in time of war. Both their arms
and their ammunition are become more expensive. A musquet is a
more expensive machine than a javelin or a bow and arrows; a can-
non or a mortar than a balista or a catapulta. The powder, which
is spent in a modern review, is lost irrevocably, and occasions a very
considerable expence. The javelins and arrows which were thrown
or shot in an ancient one, could easily be picked up again, and
were besides of very little value. The cannon and the mortar are, not
only much dearer, but much heavier machines than the balista or
catapulta, and require a greater expence, not only to prepare them
for the field, but to carry them to it. As the superiority of the mod-
ern artillery too, over that of the ancients is very great; it has

450 WEALTH OF NATIONS

become much more difficult, and consequendy much more expen-
sive, to fortify a town so as to resist even for a few weeks the attack
of that superior artillery. In modern times many different causes
contribute to render the defence of the society more expensive. The
unavoidable effects of the natural progress of improvement have, in
this respect, been a good deal enhanced by a great revolution in the
art of war, to which a mere accident, the invention of gunpowder,
seems to have given occasion.

In modern war the great expence of fire-arms gives an evident
advantage to the nation which can best afford that expence; and
consequendy, to an opulent and civilized, over a poor and barbarous
nation. In ancient times the opulent and civilized found it difficult
to defend themselves against the poor and barbarous nations. In
modern times the poor and barbarous find it difficult to defend them-
selves against the opulent and civilized. The invention of fire-arms,
an invention which at first sight appears to be so pernicious, is
certainly favourable both to the permanency and to the extension of
civilization.

PART II
Of the Expence of Justice

The second duty of the sovereign, that of protecting, as far as
possible, every member of the society from the injustice or oppres-
sion of every other member of it, or the duty of establishing an exact
administration of justice requires too very different degrees of ex-
pence in the different periods of society.

Justice, however, never was in reality administered gratis in any
country. Lawyers and attornies, at least, must always be paid by the
parties; and, if they were not, they would perform their duty still
worse than they actually perform it. The fees annually paid to law-
yers and attornies amount, in every court, to a much greater sum
than the salaries of the judges. The circumstance of those salaries
being paid by the crown, can no-where much diminish the necessary
expence of a law-suit. But it was not so much to diminish the ex-

EXPENCE OF JUSTICE 45 1

pence, as to prevent the corruption of justice, that the judges were
prohibited from receiving any present or fee from the parties.

The office of judge is in itself so very honourable, that men are
willing to accept of it, though accompanied with very small emolu-
ments. The inferior office of justice of peace, though attended with
a good deal of trouble, and in most cases with no emoluments at
all, is an object of ambition to the greater part of our country gentle-
men. The salaries of all the different judges, high and low, to-
gether with the whole expence of the administration and execution
of justice, even where it is not managed with very good oeconomy,
makes, in any civilized country, but a very inconsiderable part of
the whole expence of government.

The whole expence of justice too might easily be defrayed by the
fees of court; and, without exposing the administration of justice
to any real hazard of corruption, the public revenue might thus be
entirely discharged from a certain, though, perhaps, but a small in-
cumbrance. It is difficult to regulate the fees of court effectually,
where a person so powerful as the sovereign is to share in them, and
to derive any considerable part of his revenue from them. It is very
easy, where the judge is the principal f)erson who can reap any
benefit from them. The law can very easily oblige the judge to re-
spect the regulation, though it might not always be able to make
the sovereign respect it. Where the fees of court are precisely regu-
lated and ascertained, where they are paid all at once, at a certain
p)eriod of every process, into the hands of a cashier or receiver, to be
by him distributed in certain known propwrtions among the different
judges after the process is decided, and not till it is decided, there
seems to be no more danger of corruption than where such fees are
prohibited altogether. Those fees, without occasioning any con-
siderable increase in the expence of a law-suit, might be rendered
fully sufficient for defraying the whole expence of justice. By not
being paid to the judges till the process was determined, they might
be some incitement to the diligence of the court in examining and
deciding it. In courts which consisted of a considerable number of
judges, by proportioning the share of each judge to the number of
hours and days which he had employed in examining the process,
either in the court or in a committee by order of the court, those

452 WEALTH OF NATIONS

fees might give some encouragement to the diUgence of each par-
ticular judge. Public services are never better performed than when
their reward comes only in consequence of their being performed,
and is proportioned to the diligence employed in performing
them. . . .

A stamp-duty upon the law proceedings of each particular court,
to be levied by that court, and applied towards the maintenance
of the judges and other officers belonging to it, might, in the same
manner, afford a revenue sufficient for defraying the expence of the
administration of justice, without bringing any burden upon the
general revenue of the society. The judges indeed might, in this
case, be under the temptation of multiplying unnecessarily the pro-
ceedings upon every cause, in order to increase, as much as possible,
the produce of such a stamp-duty. It has been the custom in modern
Europe to regulate, upon most occasions, the payment of the at-
tornies and clerks of court, according to the number of pages which
they had occasion to write; the court, however, requiring that each
page should contain so many lines, and each line so many words.
In order to increase their payment, the attornies and clerks have
contrived to multiply words beyond all necessity, to the corruption
of the law language of, I believe, every court of justice in Europe.
A like temptation might perhaps occasion a like corruption in the
form of law proceedings.

PART III
Of the Expence of Public Works and Public iNSTiTtmoNs

The third and last duty of the sovereign or commonwealth is
that of erecting and maintaining those public institutions and those
public works, which, though they may be in the highest degree ad-
vantageous to a great society, are, however, of such a nature, that
the profit could never repay the expence to any individual or small
number of individuals, and which it therefore cannot be expected
that any individual or small number of individuals should erect or
maintain. The performance of this duty requires too very different
degrees of expence in the different periods of society.

COMMERCE IN GENERAL 453

After the public institutions and public works necessary for the
defence of the society, and for the administration of justice, both
of which have already been mentioned, the other works and institu-
tions of this kind are chiefly those for facilitating the commerce of
the society, and those for promoting the instruction of the people.
The institutions for instruction are of two kinds; those for d.e educa-
tion of the youth, and those for the instruction of people of all ages.
The consideration of the manner in which the expence of those dif-
ferent sorts of public works and institutions may be most properly
defrayed, will divide this third part of the present chapter into three
different articles.

ARTICLE I

Of the Pubuc Works and Institutions for Facilitating the
Commerce of the Society

And, First, of Those Which are Necessary for Facilitating
Commerce in General

That the erection and maintenance of the public works which
facilitate the commerce of any country, such as good roads, bridges,
navigable canals, harbours, &c. must require very different degrees
of expence in the different periods of society, is evident without any
proof. The expence of making and maintaining the public roads
of any country must evidently increase with the annual produce of
the land and labour of that country, or with the quantity and weight
of the goods which it becomes necessary to fetch and carry upon
those roads. The strength of a bridge must be suited to the number
and weight of the carriages which are likely to pass over it. The
depth and the supply of water for a navigable canal must be propor-
tioned to the number and tunnage of the lighters, which are likely
to carry goods up)on it; the extent of a harbour to the number of the
shipping which are likely to take shelter in it.

It does not seem necessary that the expence of those public works
should be defrayed from that public revenue, as it is commonly
called, of which the collection and application are in most countries
assigned to the executive power. The greater part of such public
works may easily be so managed, as to afford a particular revenue

454 WEALTH OF NATIONS

sufficient for defraying their own expence, without bringing any

burden up>on the general revenue of the society.

A highway, a bridge, a navigable canal, for example, may in most
cases be both made and maintained by a small toll upon the car-
riages which make use of them : a harbour, by a moderate port-duty
upon the tunnage of the shipping which load or unload in it- The
coinage, another institution for facilitating commerce, in many coun-
tries, not only defrays its own exp)ence, but affords a small revenue
or seignorage to the sovereign. The post-office, another institution
for the same purpose, over and above defraying its own expence,
affords in almost all countries a very considerable revenue to the
sovereign.

When the carriages which pass over a highway or a bridge, and
the lighters which sail upon a navigable canal, pay toll in proportion
to their weight or their tunnage, they pay for the maintenance of
those public works exactly in proportion to the wear and tear which
they occasion of them. It seems scarce possible to invent a more
equitable way of maintaining such works. This tax or toll too,
though it is advanced by the carrier, is finally paid by the consumer,
to whom it must always be charged in the price of the goods. As the
expence of carriage, however, is very much reduced by means of
such public works, the goods, notwithstanding the toll, come cheaper
to the consumer than they could otherwise have done; their price not
being so much raised by the toll, as it is lowered by the cheapness of
the carriage. The p)erson who finally pays this tax, therefore, gains
by the application, more than he loses by the payment of it. His
payment is exactly in proportion to his gain. It is in reality no more
than a part of that gain which he is obliged to give up in order to get
the rest. It seems impossible to imagine a more equitable method
of raising a tax.

When the toll upon carriages of luxury, upon coaches, post<haises,
&c. is made somewhat higher in prop)ortion to their weight, than
up)on carriages of necessary use, such as carts, waggons, &c. the in-
dolence and vanity of the rich is made to contribute in a very easy
manner to the relief of the poor, by rendering cheaper the transpor-
tation of heavy goods to all the different parts of the country.

When high roads, bridges, canals, &c. are in this manner made

COMMERCE IN GENERAL 455

and supported by the commerce which is carried on by means of
them, they can be made only where that commerce requires them,
and consequently where it is proper to make them. Their expence
too, their grandeur and magnificence, must be suited to what that
commerce can afford to pay. They must be made consequently as it
is proper to make them. A magnificent high road cannot be made
through a desart country where there is little or no commerce, or
merely because it happens to lead to the country villa of the in-
tendant of the province, or to that of some great lord to whom the
intendant finds it convenient to make his court. A great bridge can-
not be thrown over a river at a place where nobody passes, or merely
to embellish the view from the windows of a neighbouring palace:
things which sometimes happen, in countries where works of this
kind are carried on by any other revenue than that which they them-
selves are capable of affording.

In several different parts of Europe the toll or lock-duty upon a
canal is the property of private persons, whose private interest obliges
them to keep up the canal. If it is not kept in tolerable order, the
navigation necessarily ceases altogether, and along with it the whole
profit which they can make by the tolls. If those tolls were put under
the management of commissioners, who had themselves no interest
in them, they might be less attentive to the maintenance of the works
which produced them. The canal of Languedoc cost the king of
France and the province upwards of thirteen millions of livres,
which (at twenty-eight livres the mark of silver, the value of French
money in the end of the last century) amounted to upwards of nine
hundred thousand p>ounds sterling. When that great work was fin-
ished, the most likely method, it was found, of keeping it in con-
stant repair was to make a present of the tolls to Riquet the engi-
neer, who planned and conducted the work. Those tolls constitute
at present a very large estate to the different branches of the family
of that gentleman, who have, therefore, a great interest to keep the
work in constant repair. But had those tolls been put under the
management of commissioners, who had no such interest, they might
perhaps have been dissipated in ornamental and unnecessary ex-
pences, while the most essential parts of the work were allowed to
go to ruin.

456 WEALTH OF NATIONS

The tolls for the maintenance of a high road, cannot with any
safety be made the property of private persons. A high road, though
entirely neglected, does not become altogether impassable, though
a canal does. The proprietors of the tolls upon a high road, therefore,
might neglect altogether the repair of the road, and yet continue to
levy very nearly the same tolls. It is proper, therefore, that the tolls
for the maintenance of such work should be put under the manage-
ment of commissioners or trustees.

Even those public works which are of such a nature that they
cannot afford any revenue for maintaining themselves, but of which
the conveniency is nearly confined to some particular place or dis-
trict, are always better maintained by a local or provincial revenue,
under the management of a local and provincial administration,
than by the general revenue of the state, of which the executive
power must always have the management. Were the streets of Lon-
don to be lighted and paved at the expense of the treasury, is there
any probability that they would be so well lighted and paved as they
are at present, or even at so small an expence ? The expence, besides,
instead of being raised by a local tax upon the inhabitants of each
particular street, parish, or district in London, would, in this case,
be defrayed out of the general revenue of the state, and would con-
sequently be raised by a tax upon all the inhabitants of the kingdom,
of whom the greater part derive no sort of benefit from the lighting
and paving of the streets of London.

The abuses which sometimes creep into the local and provincial
administration of a local and provincial revenue, how enormous
soever they may appear, are in reality, however, almost always very
trifling, in comparison of those which commonly take place in the
administration and expenditure of the revenue of a great empire.
They are, besides, much more easily corrected. Under the local or
provincial administration of the justices of the peace in Great Brit-
ain, the six days labour which the country f)eople are obliged to give
to the reparation of the highways, is not always perhaps very judi-
ciously applied, but it is scarce ever exacted with any circumstance
of cruelty or oppression. In France, under the administration of the
intendants, the application is not always more judicious, and the

PARTICULAR BRANCHES OF COMMERCE 457

exaction is frequently the most cruel and oppressive. Such Corvees,
as they are called, make one of the principal instruments of tyranny
by which those officers chastise any parish or communeaute which
has had the misfortune to fall under their displeasure.

OF THE PUBLIC WORKS AND INSTITUTIONS WHICH ARE NECESSARY FOR
FACILITATING PARTICULAR BRANCHES OF COMMERCE

The object of the public works and institutions above mentioned
is to facilitate commerce in general. But in order to facilitate some
particular branches of it, particular institutions are necessary, which
again require a particular and extraordinary expence.

Some particular branches of commerce, which are carried on with
barbarous and uncivilized nations, require extraordinary protection.
An ordinary store or counting-house could give little security to the
goods of the merchants who trade to the western coast of Africa. To
defend them from the barbarous natives, it is necessary that the
place where they are deposited, should be, in some measure, forti-
fied. The disorders in the government of Indostan have been sup-
posed to render a like precaution necessary even among that mild
and gentle p)eople; and it was under pretence of securing their per-
sons and property from violence, that both the English and French
East India Companies were allowed to erect the first forts which
they possessed in that country. Among other nations, whose vigorous
government will suffer no strangers to jxjssess any fortified place
within their territory, it may be necessary to maintain some ambassa-
dor, minister, or consul, who may both decide, according to their
own customs, the differences arising among his own countrymen;
and, in their disputes with the natives, may, by means of his public
character, interfere with more authority, and afford them a more
powerful protection, than they could expect from any private man.
The interests of commerce have frequently made it necessary to
maintain ministers in foreign countries, where the purposes, either
of war or alliance, would not have required any. The commerce of
the Turkey Company first occasioned the establishment of an ordi-
nary ambassador at Constantinople. The first English embassies to
Russia arose altogether from commercial interests. The constant
interference, which those interests necessarily occasioned between

458 WEALTH OF NATIONS

the subjects of the different states of Europe, has probably introduced
the custom of keeping, in all neighbouring countries, ambassadors
or ministers constantly resident even in the time of peace. This cus-
tom, unknown to ancient times, seems not to be older than the end
of the fifteenth or beginning of the sixteenth century; that is, than
the time when commerce first began to extend itself to the greater
part of the nations of Europe, and when they first began to attend
to its interests.

It seems not unreasonable, that the extraordinary expence, which
the protection of any particular branch of commerce may occasion,
should be defrayed by a moderate tax upon that particular branch;
by a moderate fine, for example, to be paid by the traders when they
first enter into it, or, what is more equal, by a particular duty of so
much per cent, upon the goods which they either import into, or
export out of, the particular countries with which it is carried on.
The protection of trade in general, from pirates and free-booters, is
said to have given occasion to the first institution of the duties of
customs. But, if it was thought reasonable to lay a general tax upon
trade, in order to defray the expence of protecting trade in general,
it should seem equally reasonable to lay a particular tax upon a par-
ticular branch of trade, in order to defray the extraordinary expence
of protecting that branch.

The protection of trade in general has always been considered as
essential to the defence of the commonwealth, and, upon that ac-
count, a necessary part of the duty of the executive (Xjwer. The
collection and application of the general duties of customs, there-
fore, have always been left to that power. But the protection of any
particular branch of trade is a part of the general protection of trade;
a part, therefore, of the duty of that power; and if nations always
acted consistently, the particular duties levied for the purpwses of
such particular protection, should always have been left equally to
its disposal. But in this respect, as well as in many others, nations
have not always acted consistently; and in the greater part of the
commercial states of Europe, particular companies of merchants
have had the address to persuade the legislature to entrust to them
the performance of this part of the duty of the sovereign, together
with all the powers which are necessarily connected with it.

PARTICULAR BRANCHES OF COMMERCE 459

These companies, though they may, perhaps, have been useful
for the first introduction of some branches of commerce, by making,
at their own expence, an experiment which the state might not think
it prudent to make, have in the long-run proved, universally, either
burdensome or useless, and have either mismanaged or confined the
trade.

When those companies do not trade ujx)n a joint stock, but are
obliged to admit any person, properly qualified, upon paying a cer-
tain fine, and agreeing to submit to the regulations of the company,
each member trading upon his own stock, and at his own risk, they
are called regulated companies. When they trade upon a joint stock,
each member sharing in the common profit or loss in proportion to
his share in this stock, they are called joint stock companies. Such
companies, whether regulated or joint stock, sometimes have, and
sometimes have not, exclusive privileges.

When a company of merchants undertake, at their own risk and
expence, to establish a new trade with some remote and barbarous
nation, it may not be unreasonable to incorporate them into a joint
stock company, and to grant them, in case of their success, a mo-
nopoly of the trade for a certain number of years. It is the easiest
and most natural way in which the state can recompense them for
hazarding a dangerous and expensive exjDeriment, of which the
public is afterwards to reap the benefit. A temporary monopoly of
this kind may be vindicated upon the same principles upon which a
like monopoly of a new machine is granted to its inventor, and that
of a new book to its author. But upon the expiration of the term,
the monofXjly ought certainly to determine; the forts and garrisons,
if it was found necessary to establish any, to be taken into the hands
of government, their value to be paid to the company, and the trade
to be laid open to all the subjects of the state. By a perpetual mo-
nopoly, all the other subjects of the state are taxed very absurdly in
two different ways: first, by the high price of goods, which, in the
case of a free-trade, they could buy much cheaper; and, secondly, by
their total exclusion from a branch of business, which it might be
both convenient and profitable for many of them to carry on. It
is for the most worthless of all purposes too that they are taxed in

460 WEALTH OF NATIONS

this manner. It is merely to enable the company to support the neg-
ligence, profusion, and malversation of their own servants, whose
disorderly conduct seldom allows the dividend of the company to
exceed the ordinary rate of profit in trades which are altogether free,
and very frequently makes it fall even a good deal short of that
rate. Without a monopoly, however, a joint stock company, it would
appear from experience, cannot long carry on any branch of foreign
trade. To buy in one market, in order to sell, with profit, in an-
other, when there are many competitors in both; to watch over, not
only the occasional variations in the demand, but the much greater
and more frequent variations in the competition, or in the supply
which that demand is likely to get from other people, and to suit
with dexterity and judgment both the quantity and quality of each
assortment of goods to all these circumstances, is a species of warfare
of which the operations are continually changing, and which can
scarce ever be conducted successfully, without such an unremitting
exertion of vigilance and attention, as cannot long be exp)ected from
the directors of a joint stock company. The East India Company,
upon the redemption of their funds, and the expiration of their ex-
clusive privilege, have a right, by act of parliament, to continue a
corporation with a joint stock, and to trade in their corporate capacity
to the East Indies in common with the rest of their fellow-subjects.
But in this situation, the superior vigilance and attention of private
adventurers would, in all probability, soon make them weary of the
trade.

An eminent French author, of great knowledge in matters of po-
litical oeconomy, the Abbe Morellet, gives a list of fifty-five joint
stock companies for foreign trade, which have been established in
different parts of Europe since the year 1600, and which, according
to him, have all failed from mismanagement, notwithstanding they
had exclusive privileges. He has been misinformed with regard to
the history of two or three of them, which were not joint stock com-
panies and have not failed. But, in compensation, there have been
several joint stock companies which have failed, and which he has
omitted.

The only trades which it seems possible for a joint stock company
to carry on successfully, without an exclusive privilege, are those,

PARTICULAR BRANCHES OF COMMERCE 46 1

of which all the operations are capable of being reduced to what is
called a routine, or to such a uniformity of method as admits of lit-
tle or no variation. Of this kind is, first, the banking trade; sec-
ondly, the trade of insurance from fire, and from sea risk and cap-
ture in time of war; thirdly, the trade of making and maintaining a
navigable cut or canal; and, fourthly, the similar trade of bringing
water for the supply of a great city.

Though the principles of the banking trade may appear somewhat
abstruse, the practice is capable of being reduced to strict rules. To
depart upon any occasion from those rules, in consequence of some
flattering speculation of extraordinary gain, is almost always ex-
tremely dangerous, and frequently fatal to the banking company
which attempts it. But the constitution of joint stock companies
renders them in general more tenacious of established rules than
any private copartnery. Such companies, therefore, seem extremely
well fitted for this trade. The principal banking companies in Eu-
rope, accordingly, are joint stock companies, many of which manage
their trade very successfully without any exclusive privilege. The
Bank of England has no other exclusive privilege, except that no
other banking company in England shall consist of more than six
persons. The two banks of Edinburgh are joint stock companies
without any exclusive privilege.

The value of the risk, either from fire, or from loss by sea, or by
capture, though it cannot, perhaps, be calculated very exacdy, ad-
mits, however, of such a gross estimation as renders it, in some de-
gree, reducible to strict rule and method. The trade of insurance,
therefore, may be carried on successfully by a joint stock company,
without any exclusive privilege. Neither the London Assurance, nor
the Royal Exchange Assurance companies, have any such privilege.

When a navigable cut or canal has been once made, the manage-
ment of it becomes quite simple and easy, and is reducible to strict
rule and method. Even the making of it is so, as it may be con-
tracted for with undertakers at so much a mile, and so much a
lock. The same thing may be said of a canal, an aqueduct, or a great
pipe for bringing water to supply a great city. Such undertakings,
therefore, may be, and accordingly frequently are, very successfully
managed by joint stock companies without any exclusive privilege.

462 WEALTH OF NATIONS

To establish a joint stock company, however, for any undertaking,
merely because such a company might be capable of managing it
successfully; or to exempt a particular set of dealers from some of
the general laws which take place with regard to all their neigh-
bours, merely because they might be capable of thriving if they
had such an exemption, would certainly not be reasonable. To ren-
der such an establishment perfectly reasonable, with the circumstance
of being reducible to strict rule and method, two other circumstances
ought to concur. First, it ought to appear with the clearest evi-
dence, that the undertaking is of greater and more general utility
than the greater part of common trades; and secondly, that it re-
quires a greater capital than can easily be collected into a private
copartnery. If a moderate capital were sufficient, the great utility
of the undertaking would not be a sufficient reason for establishing
a joint stock company; because, in this case, the demand for what
it was to produce, would readily and easily be supplied by private
adventurers. In the four trades above mentioned, both those circum-
stances concur.

The great and general utility of the banking trade when prudently
managed, has been fully explained in the second book of this in-
quiry. But a public bank which is to support public credit, and
upon particular emergencies to advance to government the whole
produce of a tax, to the amount, p)erhaps, of several millions, a year
or two before it comes in, requires a greater capital than can easily
be collected into any private copartnery.

The trade of insurance gives great security to the fortunes of
private people, and by dividing among a great many that loss which
would ruin an individual, makes it fall light and easy upon the
whole society. In order to give this security, however, it is neces-
sary that the insurers should have a very large capital. Before the
establishment of the two joint stock companies for insurance in
London, a list, it is said, was laid before the attorney-general, of one
hundred and fifty private insurers who had failed in the course of a
few years.

That navigable cuts and canals, and the works which are some-
times necessary for supplying a great city with water, are of great
and general utility; while at the same time they frequently require

EDUCATIONAL INSTITUTIONS 463

a greater expence than suits the fortunes of private people, is suffi-
ciently obvious.

Except the four trades above mentioned, I have not been able to
recollect any other in which all the three circumstances, requisite
for rendering reasonable the establishment of a joint stock company,
concur. The English copper company of London, the lead smelting
company, the glass grinding company, have not even the pretext of
any great or singular utility in the object which they pursue; nor
does the pursuit of that object seem to require any expence unsuit-
able to the fortunes of many private men. Whether the trade which
those companies carry on, is reducible to such strict rule and method
as to render it fit for the management of a joint stock company, or
whether they have any reason to boast of their extraordinary profits,
I do not pretend to know. The mine-adventurers company has been
long ago bankrupt. A share in the stock of the British Linen Com-
pany of Edinburgh sells, at present, very much below par, though
less so than it did some years ago. The joint stock companies, which
are established for the public-spirited purpxjse of promoting some
particular manufacture, over and above managing their own affairs
ill, to the diminution of the general stock of the society, can in other
respects scarce ever fail to do more harm than good. Notwithstand-
ing the most upright intentions, the unavoidable partiality of their
directors to particular branches of the manufacture, of which the
undertakers mislead and impose upon them, is a real discouragement
to the rest, and necessarily breaks, more or less, that natural pro-
portion which would otherwise establish itself between judicious in-
dustry and profit, and which, to the general industry of the country,
is of all encouragements the greatest and the most effectual.

ARTICLE II
Of the Expence of the Institutions for the Education of Yoirra

The institutions for the education of the youth may, in the same
manner, furnish a revenue sufficient for defraying their own expence.
The fee or honorary which the scholar pays to the master naturally
constitutes a revenue of this kind.

Even where the reward of the master does not arise altogether

464 WEALTH OF NATIONS .

from this natural revenue, it still is not necessary that it should
be derived from that general revenue of the society, of which the col-
lection and application are, in most countries, assigned to the execu-
tive power. Through the greater part of Europe, accordingly, the en-
dowment of schools and colleges makes either no charge upon that
general revenue, or but a very small one. It every where arises chiefly
from some local or provincial revenue, from the rent of some landed
estate, or from the interest of some sum of money allotted and put
under the management of trustees for this particular purpose, some-
times by the sovereign himself, and sometimes by some private
donor.

ARTICLE III

Of the Expencb of the Institutions for the Instkuction of People

OF ALL Ages

The institutions for the instruction of people of all ages are
chiefly those for religious instruction. This is a sjjecies of instruc-
tion of which the object is not so much to render the people good
citizens in this world, as to prepare them for another and a better
world in a life to come. The teachers of the doctrine which con-
tains this instruction, in the same manner as other teachers, may
either depend altogether for their subsistence upon the voluntary
contributions of their hearers; or they may derive it from some other
fund to which the law of their country may entitle them; such as a
landed estate, a tythe or land tax, an established salary or stipend.
Their exertion, their zeal and industry, are likely to be much greater
in the former situation than in the latter. In this respect the teachers
of new religions have always had a considerable advantage in at-
tacking those ancient and established systems of which the clergy,
reposing themselves upon their benefices, had neglected to keep up
the fervour of faith and devotion in the great body of the people;
and having given themselves up to indolence, were become alto-
gether incapable of making any vigorous exertion in defence even of
their own establishment.

CONCLUSION 465

PART IV
Of the Expence of Supporting the Dignity of the Sovereign

Over and above the expence necessary for enabling the sovereign
to perform his several duties, a certain exf)ence is requisite for the
support of his dignity. This expence varies both with the different
periods of improvement, and with the different forms of govern-
ment.

In an opulent and improved society, where all the different orders
of f)eople are growing every day more expjensive in their houses, in
their furniture, in their tables, in their dress, and in theii equipage;
it cannot well be expected that the sovereign should alone hold out
against the fashion. He naturally, therefore, or rather necessarily
becomes more expensive in all those different articles too. His dig-
nity even seems to require that he should become so.

As in pKjint of dignity, a monarch is more raised above his subjects
than the chief magistrate of any republic is ever supposed to be
above his fellow<itizens; so a greater expsence is necessary for sup-
porting that higher dignity. We naturally expect more splendor in
the court of a king, than in the mansion-house of a doge or burgo-
master.

CONCLUSION

The expence of defending the society, and that of supporting the
dignity of the chief magistrate, are both laid out for the general
benefit of the whole society. It is reasonable, therefore, that they
should be defrayed by the general contribution of the whole society,
all the different members contributing, as nearly as possible, in pro-
portion to their respective abilities.

The expence of the administration of justice too, may, no doubt,
be considered as laid out for the benefit of the whole society. There
is no impropriety, therefore, in its being defrayed by the general
contribution of the whole society. The (jersons, however, who give
occasion to this expence are those who, by their injustice in one way
or another, make it necessary to seek redress or protection from the
courts of justice. The persons again most immediately benefited by

466 WEALTH OF NATIONS

this expence, are those whom the courts of justice either restore to
their rights, or maintain in their rights. The expence of the adminis-
tration of justice, therefore, may very properly be defrayed by the
particular contribution of one or other, or both of those two different
sets of persons, according as different occasions may require, that is,
by the fees of court. It cannot be necessary to have recourse to the
general contribution of the whole society, except for the conviction
of those criminals who have not themselves any estate or fund
suflScient for paying those fees.

Those local or provincial expences of which the benefit is local
or provincial (what is laid out, for example, upon the police of a
particular town or district) ought to be defrayed by a local or pro-
vincial revenue, and ought to be no burden upon the general rev-
enue of the society. It is unjust that the whole society should con-
tribute towards an expence of which the benefit is confined to a part
of the society.

The expence of maintaining good roads and communications is,
no doubt, beneficial to the whole society, and may, therefore, with-
out any injustice, be defrayed by the general contribution of the
whole society. This expence, however, is most immediately and di-
rectly beneficial to those who travel or carry goods from one place
to another, and to those who consume such goods. The turnpike
tolls in England, and the duties called peages in other countries, lay
it altogether upon those two different sets of people, and thereby
discharge the general revenue of the society from a very considerable
burden.

The expence of the institutions for education and religious instruc-
tion, is likewise, no doubt, beneficial to the whole society, and may,
therefore, without injustice, be defrayed by the general contribution
of the whole society. This expence, however, might perhaps with
equal propriety, and even with some advantage, be defrayed alto-
gether by those who receive the immediate benefit of such education
and instruction, or by the voluntary contribution of those who think
they have occasion for either the one or the other.

When the institutions or public works which are beneficial to the
whole society, either cannot be maintained altogether, or are not
maintained altogether by the contribution of such particular mem-

CONCLUSION 467

bers of the society as are most immediately benefited by them, the
deficiency must in most cases be made up by the general contribu-
tion of the whole society. The general revenue of the society, over
and above defraying the expence of defending the society, and of
supporting the dignity of the chief magistrate, must make up for
the deficiency of many particular branches of revenue. The sources
of this general or public revenue, I shall endeavour to explain in the
following chapter.

CHAPTER II
Of the Sources of the General or Public Revenue of the Society

THE revenue which must defray, not only the expence of
defending the society and of supporting the dignity of the
chief magistrate, but all the other necessary expences of
government, for which the constitution of the state has not provided
any particular revenue, may be drawn, either, first, from some fund
which peculiarly belongs to the sovereign or commonwealth, and
which is independent of the revenue of the people; or, secondly,
from the revenue of the people.

PART I

Of the Funds or Sources of Revenue Which May Pecuuarly Belong
TO THE Sovereign or Commonwealth

The funds or sources of revenue which may peculiarly belong to
the sovereign or commonwealth must consist, either in stock, or in
land.

The sovereign, like any other owner of stock, may derive a reve-
nue from it, either by employing it himself, or by lending it. His
revenue is in the one case profit, in the other interest.

The revenue of a Tartar or Arabian chief consists in profit. It
arises principally from the milk and increase of his own herds and
flocks, of which he himself superintends the management, and is
the principal shepherd or herdsman of his own horde or tribe. It
is, however, in this earliest and rudest state of civil government only
that profit has ever made the principal part of the public revenue of
a monarchical state.

Small republics have sometimes derived a considerable revenue
from the profit of mercantile projects. The republic of Hamburgh
is said to do so from the profits of a public wine cellar and apothe-
cary's shop. The state cannot be very great of which the sovereign

468

FUNDS OF THE SOVEREIGN 469

has leisure to carry on the trade of a wine merchant or apothecary.
The profit of a public bank has been a source of revenue to more
considerable states. It has been so not only to Hamburgh, but to
Venice and Amsterdam. A revenue of this kind has even by some
people been thought not below the attention of so great an empire
as that of Great Britain. Reckoning the ordinary dividend of the
bank of England at five and a half per cent., and its capital at ten
millions seven hundred and eighty thousand pounds, the neat an-
nual profit, after paying the expence of management, must amount,
it is said, to five hundred and ninety-two thousand nine hundred
pounds. Government, it is pretended, could borrow this capital at
three per cent, interest, and by taking the management of the bank
into its own hands, might make a clear profit of two hundred and
sixty-nine thousand five hundred pounds a year. The orderly, vigi-
lant, and parsimonious administration of such aristocracies as those
of Venice and Amsterdam, is extremely proper, it appears from ex-
perience, for the management of a mercantile project of this kind.
But whether such a government as that of England; which, what-
ever may be its virtues, has never been famous for good ceconomy;
which, in time of peace, has generally conducted itself with the
slothful and negligent profusion that is perhaps natural to mon-
archies; and in time of war has constantly acted with all the thought-
less extravagance that democracies are apt to fall into; could be safely
trusted with the management of such a project, must at least be a
good deal more doubtful.

The post office is properly a mercantile project. The government
advances the expence of establishing the different offices, and of
buying or hiring the necessary horses or carriages, and is repaid with
a large profit by the duties upon what is carried. It is perhaps the
only mercantile project which has been successfully managed by, I
believe, every sort of government. The capital to be advanced is not
very considerable. There is no mystery in the business. The returns
are not only certain, but immediate.

Princes, however, have frequently engaged in many other mercan-
tile projects, and have been willing, like private persons, to mend
their fortunes by becoming adventurers in the common branches of
trade. They have scarce ever succeeded. The profusion with which

470 WEALTH OF NATIONS

the affairs of princes are always managed, renders it almost im-
possible that they should. The agents of a prince regard the
wealth of their master as inexhaustible; are careless at what
price they buy; are careless at what price they sell; are careless
at what expence they transport his goods from one place to another.
Those agents frequently live with the profusion of princes, and some-
times too, in spite of that profusion, and by a proper method of
making up their accounts, acquire the fortunes of princes. It was
thus, as we are told by Machiavel, that the agents of Lorenzo of
Medicis, not a prince of mean abilities, carried on his trade. The
republic of Florence was several times obliged to pay the debt into
which their extravagance had involved him. He found it convenient,
accordingly, to give up the business of merchant, the business to
which his family had originally owed their fortune, and in the latter
part of his life to employ both what remained of that fortune, and
the revenue of the state of which he had the disposal, in projects and
expences more suitable to his station.

No two characters seem more inconsistent than those of trader
and sovereign. If the trading spirit of the English East India com-
pany renders them very bad sovereigns; the spirit of sovereignty
seems to have rendered them equally bad traders. While they were
traders only, they managed their trade successfully, and were able
to pay from their profits a moderate dividend to the proprietors of
their stock. Since they became sovereigns, with a revenue which, it
is said, was originally more than three millions sterling, they have
been obliged to beg the extraordinary assistance of government in
order to avoid immediate bankruptcy. In their former situation,
their servants in India considered themselves as the clerks of mer-
chants: in their present situation, those servants consider themselves
as the ministers of sovereigns.

A state may sometimes derive some part of its public revenue from
the interest of money, as well as from the profits of stock. If it has
amassed a treasure, it may lend a part of that treasure, either to
foreign states, or to its own subjects. The canton of Berne derives a
considerable revenue by lending a part of its treasure to foreign
states; that is, by placing it in the public funds of the different in-
debted nations of Europe, chiefly in those of France and England.

FUNDS OF THE SOVEREIGN 47I

The security of this revenue must depend, first, upon the security
of the funds in which it is placed, or upon the good faith of the
government which has the management of them; and, secondly,
upon the certainty or probability of the continuance of p)eace with
the debtor nation. In the case of a war, the very first act of hostility,
on the part of the debtor nation, might be the forfeiture of the funds
of its creditor. This f>olicy of lending money to foreign states is,
so far as I know, peculiar to the canton of Berne.

The city of Hamburgh has established a sort of public pawn-shop,
which lends money to the subjects of the state upon pledges at six
per cent, interest. This pawn-shop or Lombard, as it is called, affords
a revenue, it is pretended, to the state of a hundred and fifty thou-
sand crowns, which, at four-and-sixpence the crown, amounts to
33,75a/. sterling.

The government of Pensylvania, without amassing any treasure,
invented a method of lending, not money indeed, but what is equiva-
lent to money, to its subjects. By advancing to private people, at
interest, and upon land security to double the value, paper bills of
credit to be redeemed fifteen years after their date, and in the mean
time made transferable from hand to hand like bank notes, and de-
clared by act of assembly to be a legal tender in all payments from
one inhabitant of the province to another, it raised a moderate reve-
nue, which went a considerable way towards defraying an annual
expence of about 4,500/. the whole ordinary expence of that frugal
and orderly government. The success of an expedient of this kind
must have depended upon three different circumstances; first, upon
the demand for some other instrument of commerce, besides gold
and silver money; or upon the demand for such a quantity of con-
sumable stock, as could not be had without sending abroad the
greater part of their gold and silver money, in order to purchase
it; secondly, upon the good credit of the government which made
use of this expedient; and, thirdly, upon the moderation with which
it was used, the whole value of the paper bills of credit never ex-
ceeding that of the gold and silver money which would have been
necessary for carrying on their circulation, had there been no paper
bills of credit. The same expedient was upon different occasions
adopted by several other American colonies: but, from want of this

472 WEALTH OF NATIONS

moderation, it produced, in the greater part of them, much more
disorder than conveniency.

The unstable and perishable nature of stock and credit, however,
render them unfit to be trusted to, as the principal funds of that sure,
steady and permanent revenue, which can alone give security and
dignity to government. The government of no great nation, that
was advanced beyond the shepherd state, seems ever to have derived
the greater part of its public revenue from such sources.

Land is a fund of a more stable and permanent nature: and the
rent of public lands, accordingly, has been the principal source of
the public revenue of many a great nation that was much advanced
beyond the shepherd state. From the produce or rent of the public
lands, the ancient republics of Greece and Italy derived, for a long
time, the greater part of that revenue which defrayed the necessary
exp)ences of the commonwealth. The rent of the crown lands consti-
tuted for a long time the greater part of the revenue of the ancient
sovereigns of Europe.

War and the preparation for war, are the two circumstances which
in modern times occasion the greater part of the necessary expence
of all great states. But in the ancient republics of Greece and Italy
every citizen was a soldier, who both served and prepared himself
for service at his own expence. Neither of those two circumstances,
therefore, could occasion any very considerable exjience to the state.
The rent of a very moderate landed estate might be fully sufficient
for defraying all the other necessary expences of government.

In the ancient monarchies of Europe, the manners and customs of
the times sufficiently prepared the great body of the f)eople for war;
and when they took the field, they were, by the condition of their
feudal tenures, to be maintained, either at their own expence, or at
that of their immediate lords, without bringing any new charge upon
the sovereign. The other expences of government were, the greater
part of them, very moderate. The administration of justice, it has
been shown, instead of being a cause of expence, was a source of
revenue. The labour of the country people, for three days before
and for three days after harvest, was thought a fund sufficient for
making and maintaining all the bridges, highways, and other pub-
lic works which the commerce of the country was supposed to

FUNDS OF THE SOVEREIGN 473

require. In those days the principal expence of the sovereign seems
to have consisted in the maintenance of his own family and house-
hold. The officers of his household, accordingly, were then the great
officers of state. The lord treasurer received his rents. The lord
steward and lord chamberlain looked after the expence of his family.
The care of his stables was committed to the lord constable and the
lord marshal. His houses were all built in the form of castles, and
seem to have been the principal fortresses which he possessed. The
keepers of those houses or castles might be considered as a sort of
military governors. They seem to have been the only military officers
whom it was necessary to maintain in time of peace. In these cir-
cumstances the rent of a great landed estate might, upon ordinary
occasions, very well defray all the necessary expences of government.
In the present state of the greater part of the civilized monarchies
of Europe, the rent of all the lands in the country, managed as they
probably would be if they all belonged to one proprietor, would
scarce perhaps amount to the ordinary revenue which they levy
upon the people even in peaceable times. The ordinary revenue of
Great Britain, for example, including not only what is necessary for
defraying the current expence of the year, but for paying the interest
of the public debts, and for sinking a part of the capital of those
debts, amounts to upwards of ten millions a year. But the land tax,
at four shillings in the pound, falls short of two millions a year. This
land tax, as it is called, however, is supposed to be one-fifth, not only
of the rent of all the land, but of that of all the houses, and of the
interest of all the capital stock of Great Britain, that part of it only
excepted which is either lent to the public, or employed as farming
stock in the cultivation of land. A very considerable part of the
produce of this tax arises from the rent of houses, and the interest
of capital stock. The land-tax of the city of London, for example, at
four shillings in the pound, amounts to 123,399/. 6/. "jd. That of the
city of Westminster, to 63,092/. \s. 5^. That of the palaces of White-
hall and St. James's, to 30,754/. 6/. 3^. A certain proportion of the
land-tax is in the same manner assessed upon all the other cities and
towns corporate in the kingdom, and arises almost altogether, either
from the rent of houses, or from what is supposed to be the interest
of trading and capital stock. According to the estimation, therefore.

474 WEALTH OF NATIONS

by which Great Britain is rated to the land-tax, the whole mass of
revenue arising from the rent of all the lands, from that of all the
houses, and from the interest of all the capital stock, that part of
it only excepted which is either lent to the public, or employed in the
cultivation of land, does not exceed ten millions sterling a year, the
ordinary revenue which government levies upon the people even in
peaceable times. The estimation by which Great Britain is rated to
the land-tax is, no doubt, taking the whole kingdom at an average,
very much below the real value; though in several particular counties
and districts it is said to be nearly equal to that value. The rent of
the lands alone, exclusive of that of houses, and of the interest of
stock, has by many people been estimated at twenty millions, an
estimation made in a great measure at random, and which, I appre-
hend, is as likely to be above as below the truth. But if the lands of
Great Britain, in the present state of their cultivation, do not afford
a rent of more than twenty millions a year, they could not well afford
the half, most probably not the fourth part of that rent, if they all
belonged to a single proprietor, and were put under the negligent,
expensive, and oppressive management of his factors and agents.
The crown lands of Great Britain do not at present afford the fourth
part of the rent, which could probably be drawn from them if they
were the property of private persons. If the crown lands were more
extensive, it is probable they would be still worse managed.

The revenue which the great body of the people derives from land
is in proportion, not to the rent, but to the produce of the land. The
whole annual produce of the land of every country, if we except what
is reserved for seed, is either annually consumed by the great body of
the people, or exchanged for something else that is consumed by
them. Whatever keeps down the produce of the land below what
it would otherwise rise to, keeps down the revenue of the great body
of the p)eople, still more than it does that of the proprietors of land.
The rent of land, that portion of the produce which belongs to the
proprietors, is scarce anywhere in Great Britain supposed to be more
than a third part of the whole produce. If the land, which in one state
of cultivation affords a rent of ten millions sterling a year, would in
another afford a rent of twenty millions; the rent being, in both
cases, supposed a third part of the produce; the revenue of the pro-

FUNDS OF THE SOVEREIGN 475

prietors would be less than it otherwise might be by ten millions a
year only; but the revenue of the great body of the people would be
less than it otherwise might be by thirty millions a year, deducting
only what would be necessary for seed. The population of the coun-
try would be less by the number of people which thirty millions a
year, deducting always the seed, could maintain, according to the par-
ticular mode of living and expence which might take place in the
different ranks of men among whom the remainder was distributed.

Though there is not at present, in Europe, any civilized state of
any kind which derives the greater part of its public revenue from
the rent of lands which are the property of the state; yet, in all the
great monarchies of Europe, there are still many large tracts of land
which belong to the crown. They are generally forest; and some-
times forest where, after travelling several miles, you will scarce find
a single tree; a mere waste and loss of country in respect both of
produce and population. In every great monarchy of Europe the
sale of the crown lands would produce a very large sum of money,
which, if applied to the payment of the public debts, would deliver
from mortgage a much greater revenue than any which those lands
have ever afforded to the crown. In countries where lands, improved
and cultivated very highly, and yielding at the time of sale as great
a rent as can easily be got from them, commonly sell at thirty years
purchase; the unimproved, uncultivated, and low-rented crown lands
might well be expected to sell at forty, fifty, or sixty years purchase.
The crown might immediately enjoy the revenue which this great
price would redeem from mortgage. In the course of a few years it
would probably enjoy another revenue. When the crown lands had
become private property, they would, in the course of a few years,
become well improved and well cultivated. The increase of their
produce would increase the population of the country, by augment-
ing the revenue and consumption of the people. But the revenue
which the crown derives from the duties of customs and excise,
would necessarily increase with the revenue and consumption of the
people.

The revenue which, in any civilized monarchy, the crown derives
from the crown lands, though it appears to cost nothing to individu-
als, in reality costs more to the society than perhaps any other equal

476 WEALTH OF NATIONS

revenue which the crown enjoys. It would, in all cases, be for the
interest of the society to replace this revenue to the crown by some
other equal revenue, and to divide the lands among the people, which
could not well be done better, perhaps, than by exposing them to
public sale.

Lands, for the purposes of pleasure and magnificence, parks, gar-
dens, public walks, &c., possessions which are every where considered
as causes of expence, not as sources of revenue, seem to be the only
lands which, in a great and civilized monarchy, ought to belong to
the crown.

Public stock and public lands, therefore, the two sources of revenue
which may peculiarly belong to the sovereign or commonwealth,
being both improper and insufficient funds for defraying the neces-
sary expence of any great and civilized state; it remains that this
expence must, the greater part of it, be defrayed by taxes of one kind
or another; the people contributing a part of their own private reve-
nue in order to make up a public revenue to the sovereign or com-
monwealth.

PART I
Of Taxes

The private revenue of individuals, it has been shewn in the first
book of this Inquiry, arises ultimately from three different sources:
Rent, Profit, and Wages. Every tax must finally be paid from some
one or other of those three different sorts of revenue, or from all of
them indifferently. I shall endeavour to give the best account I can,
first, of those taxes which, it is intended, should fall upon rent; sec-
ondly, of those which, it is intended, should fall upon profit; thirdly,
of those which, it is intended, should fall upon wages; and, fourthly,
of those which, it is intended, should fall indifferently ujxjn all those
three different sources of private revenue. The particular considera-
tion of each of these four difTerent sorts of taxes will divide the second
part of the present chapter into four articles, three of which will re-
quire several other subdivisions. Many of those taxes, it will appear
from the following review, are not finally paid from the fund, or
source of revenue, upon which it was intended they should fall.

TAXES 477

Before I enter upon the examination of particular taxes, it is neces-
sary to premise the four following maxims with regard to taxes in
general.

I. The subjects of every state ought to contribute towards the sup-
port of the government, as nearly as possible, in proportion to their
respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state. The expence of
government to the individuals of a great nation, is like the expence
of management to the joint tenants of a great estate, who are all
obliged to contribute in proportion to their respective interests in the
estate. In the observation or neglect of this maxim consists, what
is called the equality or inequality of taxation. Every tax, it must be
observed once for all, which falls finally upon one only of the three
sorts of revenue above mentioned, is necessarily unequal, in so far
as it does not affect the other two. In the following examination of
different taxes I shall seldom take much further notice of this sort
of inequality, but shall, in most cases, confine my observations to that
inequality which is occasioned by a particular tax falling unequally
even upon that particular sort of private revenue which is affected
by it.

II. The tax which each individual is bound to pay ought to be cer-
tain, and not arbitrary. The time of payment, the manner of pay-
ment, the quantity to be paid, ought all to be clear and plain to the
contributor, and to every other person. Where it is otherwise, every
person subject to the tax is put more or less in the power of the tax-
gatherer, who can either aggravate the tax upon any obnoxious con-
tributor, or extort, by the terror of such aggravation, some present or
perquisite to himself. The uncertainty of taxation encourages the
insolence and favours the corruption of an order of men who are
naturally unpopular, even where they are neither insolent nor cor-
rupt. The certainty of what each individual ought to pay is, in taxa-
tion, a matter of so great importance, that a very considerable degree
of inequality, it appears, I believe, from the experience of all nations,
is not near so great an evil as a very small degree of uncertainty.

III. Every tax ought to be levied at the time, or in the manner,
in which it is most likely to be convenient for the contributor to pay
it. A tax upon the rent of land or of houses, payable at the same term

478 WEALTH OF NATIONS

at which such rents are usually paid, is levied at the time when it is
most likely to be convenient for the contributor to pay; or, when he
is most likely to have wherewithal to pay. Taxes upon such con-
sumable goods as are articles of luxury, are all finally paid by the
consumer, and generally in a manner that is very convenient for him.
He pays them by little and litde, as he has occasion to buy the goods.
As he is at liberty too, either to buy, or not to buy, as he pleases, it
must be his own fault if he ever suffers any considerable incon-
veniency from such taxes.

IV. Every tax ought to be so contrived as both to take out and to
keep out of the pockets of the people as little as possible, over and
above what it brings into the public treasury of the state. A tax may
either take out or keep out of the pockets of the people a great deal
more than it brings into the public treasury, in the four following
ways. First, the levying of it may require a great number of officers,
whose salaries may eat up the greater part of the produce of the tax,
and whose perquisites may impose another additional tax upon the
people. Secondly, it may obstruct the industry of the people, and
discourage them from applying to certain branches of business which
might give maintenance and employment to great multitudes. While
it obliges the people to pay, it may thus diminish, or perhaps destroy,
some of the funds which might enable them more easily to do so.
Thirdly, by the forfeitures and other penalties which those unfortu-
nate individuals incur who attempt unsuccessfully to evade the tax,
it may frequendy ruin them, and thereby put an end to the benefit
which the community might have received from the employment of
their capitals. An injudicious tax offers a great temptation to smug-
gling. But the penalties of smuggling must rise in proportion to the
temptation. The law, contrary to all the ordinary principles of justice,
first creates the temptation, and then punishes those who yield to it;
and it commonly enhances the punishment too in prop)ortion to the
very circumstance which ought certainly to alleviate it, the tempta-
tion to commit the crime. Fourthly, by subjecting the people to the
frequent visits and the odious examination of the tax-gatherers, it
may expose them to much unnecessary trouble, vexation, and oppres-
sion; and though vexation is not, strictly speaking, expence, it is cer-
tainly equivalent to the expence at which every man would be willing

TAXES ON THE RENT OF LAND 479

to redeem himself from it. It is in some one or other of these four
different ways that taxes are frequendy so much more burdensome to
the people than they are beneficial to the sovereign.
The evident justice and utility of the foregoing maxims have recom-
mended them more or less to the attention of all nations. All nations
have endeavoured, to the best of their judgment, to render their taxes
as equal as they could contrive; as certain, as convenient to the con-
tributor, both in the time and in the mode of payment, and in pro-
portion to the revenue which they brought to the prince, as litde
burdensome to the people. The following short review of some of
the principal taxes which have taken place in different ages and coun-
tries will show, that the endeavours of all nations have not in this
respect been equally successful.

ARTICLE I
Taxes upon Rent. Taxes upon the Rent of Land.

A TAX upon the rent of land may either be imposed according to
a certain canon, every district being valued at a certain rent, which
valuation is not afterwards to be altered; or it may be imposed in
such a manner as to vary with every variation in the real rent of the
land, and to rise or fall with the improvement or declension of its
cultivation.

A land-tax, which, like that of Great Britain, is assessed upon each
district according to a certain invariable canon, though it should be
equal at the time of its first establishment, necessarily becomes un-
equal in process of time, according to the unequal degrees of improve-
ment or neglect in the cultivation of the different parts of the country.
In England, the valuation according to which the different counties
and parishes were assessed to the land-tax by the 4th of William and
Mary was very unequal even at its first establishment. This tax,
therefore, so far offends against the first of the four maxims above-
mentioned. It is perfectly agreeable to the other three. It is per-
fectly certain. The time of payment for the tax, being the same as
that for the rent, is as convenient as it can be to the contributor.
Though the landlord is in all cases the real contributor, the tax is

480 WEALTH OF NATIONS

commonly advanced by the tenant, to whom the landlord is obliged
to allow it in the payment of the rent. This tax is levied by a much
smaller number of officers than any other which affords nearly the
same revenue. As the tax upon each district does not rise with the
rise of the rent, the sovereign does not share in the profits of the land-
lord's improvements. Those improvements sometimes contribute,
indeed, to the discharge of the other landlords of the district. But the
aggravation of the tax, which this may sometimes occasion uf>on a
particular estate, is always so very small, that it never can discourage
those improvements, nor keep down the produce of the land below
what it would otherwise rise to. As it has no tendency to diminish the
quantity, it can have none to raise the price of that produce. It does
not obstruct the industry of the people. It subjects the landlord to no
other inconveniency besides the unavoidable one of paying the tax.

The advantage, however, which the landlord has derived from the
invariable constancy of the valuation by which all the lands of Great
Britain are rated to the land-tax, has been principally owing to some
circumstances altogether extraneous to the nature of the tax.

It has been owing in part to the great prosperity of almost every
part of the country, the rents of almost all the estates of Great Britain
having, since the time when this valuation was first established, been
continually rising, and scarce any of them having fallen. The land-
lords, therefore, have almost all gained the difference between the tax
which they would have paid, according to the present rent of their
estates, and that which they actually pay according to the ancient
valuation. Had the state of the country been different, had rents been
gradually falling in consequence of the declension of cultivation, the
landlords would almost all have lost this difference. In the state of
things which has happened to take place since the revolution, the
constancy of the valuation has been advantageous to the landlord
and hurtful to the sovereign. In a different state of things it might
have been advantageous to the sovereign and hurtful to the landlord.

As the tax is made payable in money, so the valuation of the land
is expressed in money. Since the establishment of this valuation the
value of silver has been pretty uniform, and there has been no altera-
tion in the standard of the coin either as to weight or fineness. Had
silver risen considerably in its value, as it seems to have done in the

TAXES ON THE RENT OF LAND 48 1

course of the two centuries which preceded the discovery of the mines
of America, the constancy of the valuation might have proved very
oppressive to the landlord. Had silver fallen considerably in its value,
as it certainly did for about a century at least after the discovery of
those mines, the same constancy of valuation would have reduced
very much this branch of the revenue of the sovereign. Had any con-
siderable alteration been made in the standard of the money, either by
sinking the same quantity of silver to a lower denomination, or by
raising it to a higher; had an ounce of silver, for example, instead of
being coined into five shillings and twopence, been coined, either
into pieces which bore so low a denomination as two shillings and
seven-pence, or into pieces which bore so high a one as ten shillings
and four-pence, it would in the one case have hurt the revenue of
the proprietor, in the other that of the sovereign.

In circumstances, therefore, somewhat different from those which
have actually taken place, this constancy of valuation might have
been a very great inconveniency, either to the contributors, or to the
commonwealth. In the course of ages such circumstances, however,
must, at some time or other, happen. But though empires, like all
the other works of men, have all hitherto proved mortal, yet every
empire aims at immortality. Every constitution, therefore, which it is
meant should be as permanent as the empire itself, ought to be con-
venient, not in certain circumstances only, but in all circumstances;
or ought to be suited, not to those circumstances which are transitory,
occasional, or accidental, but to those which are necessary and there-
fore always the same.

A tax upon the rent of land which varies with every variation of
the rent, or which rises and falls according to the improvement or
neglect of cultivation, is recommended by that sect of men of letters
in France, who call themselves the oeconomists, as the most equitable
of all taxes. All taxes, they pretend, fall ultimately upon the rent of
land, and ought therefore to be imposed equally upon the fund which
must finally pay them. That all taxes ought to fall as equally as
possible upon the fund which must finally pay them, is certainly true.
But without entering into the disagreeable discussion of the meta-
physical arguments by which they support their very ingenious the-
ory, it will sufficiendy appear, from the following review, what are

482 WEALTH OF NATIONS

the taxes which fall finally upon the rent of the land, and what are
those which fall finally upon some other fund.

In the Venetian territory all the arable lands which are given in
lease to farmers are taxed at a tenth of the rent. The leases are
recorded in a public register which is kept by the officers of revenue
in each province or district. When the proprietor cultivates his own
lands, they are valued according to an equitable estimation, and he
is allowed a deduction of one-fifth of the tax, so that for such lands he
pays only eight instead of ten per cent, of the supposed rent.

A land-tax of this kind is certainly more equal than the land-tax of
England. It might not, perhaps, be altogether so certain, and the
assessment of the tax might frequendy occasion a good deal more
trouble to the landlord. It might too be a good deal more expensive
in the levying.

Such a system of administration, however, might perhaps be con-
trived as would, in a great measure, both prevent this uncertainty and
moderate this exp)ence.

The landlord and tenant, for example, might jointly be obliged to
record their lease in a public register. Proper penalties might be
enacted against concealing or misrepresenting any of the conditions;
and if part of those penalties were to be paid to either of the two
parties who informed against and convicted the other of such con-
cealment or misrepresentation, it would effectually deter them from
combining together in order to defraud the public revenue. All the
conditions of the lease might be sufficiently known from such a
record.

Some landlords, instead of raising the rent, take a fine for the
renewal of the lease. This practice is in most cases the expedient of
a spendthrift, who for a sum of ready money sells a future revenue
of much greater value. It is in most cases, therefore, hurtful to the
landlord. It is frequently hurtful to the tenant, and it is always hurt-
ful to the community. It frequendy takes from the tenant so great
a part of his capital, and thereby diminishes so much his ability to
cultivate the land, that he finds it more difficult to pay a small rent
than it would otherwise have been to pay a great one. Whatever
diminishes his ability to cultivate, necessarily keeps down, below
what it would otherwise have been, the most important part of the

TAXES ON THE RENT OF LAND 483

revenue of the community. By rendering the tax upon such fines a
good deal heavier than upon the ordinary rent, this hurtful practice
might be discouraged, to the no small advantage of all the different
parties concerned, of the landlord, of the tenant, of the sovereign, and
of the whole community.

Such a system of administration might, perhaps, free a tax of this
kind from any degree of uncertainty which could occasion either
oppression or inconveniency to the contributor; and might at the
same time serve to introduce into the common management of land
such a plan or policy, as might contribute a good deal to the general
improvement and good cultivation of the country.

The expence of levying a land-tax, which varied with every vari-
ation of the rent, would no doubt be somewhat greater than that of
levying one which was always rated according to a fixed valuation.
Some additional expence would necessarily be incurred both by the
different register offices which it would be proper to establish in the
different districts of the country, and by the different valuations
which might occasionally be made of the lands which the proprietor
chose to occupy himself. The expence of all this, however, might be
very moderate, and much below what is incurred in the levying of
many other taxes, which afford a very inconsiderable revenue in com-
parison of what might easily be drawn from a tax of this kind.

The discouragement which a variable land-tax of this kind might
give to the improvement of land, seems to be the most important
objection which can be made to it. The landlord would certainly be
less disposed to improve, when the sovereign, who contributed noth-
ing to the expence, was to share in the profit of the improvement.
Even this objection might perhaps be obviated by allowing the land-
lord, before he began his improvement, to ascertain, in conjunction
with the officers of revenue, the actual value of his lands, according
to the equitable arbitration of a certain number of landlords and
farmers in the neighbourhood, equally chosen by both parties; and
by rating him according to this valuation for such a number of years,
as might be fully sufficient for his complete indemnification. To
draw the attention of the sovereign towards the improvement of the
land, from a regard to the increase of his own revenue, is one of
the principal advantages proposed by this species of land-tax. The

484 WEALTH OF NATIONS

term, therefore, allowed for the indemnification of the landlord,
ought not to be a great deal longer than what was necessary for that
purpose; lest the remoteness of the interest should discourage too
much this attention. It had better, however, be somewhat too long
than in any respect too short. No incitement to the attention of the
sovereign can ever counterbalance the smallest discouragement to
that of the landlord. The attention of the sovereign can be at best
but a very general and vague consideration of what is likely to con-
tribute to the better cultivation of the greater part of his dominions.
The attention of the landlord is a particular and minute considera-
tion of what is likely to be the most advantageous application of every
inch of ground upon his estate. The principal attention of the sov-
ereign ought to be to encourage, by every means in his power, the
attention both of the landlord and of the farmer; by allowing both
to pursue their own interest in their own way, and accordingly to
their own judgment; by giving to both the most perfect security that
they shall enjoy the full recompence of their own industry; and by
procuring to both the most extensive market for every part of their
produce, in consequence of establishing the easiest and safest com-
munications both by land and by water, through every part of his
own dominions, as well as the most unbounded freedom of exporta-
tion to the dominions of all other princes.

If by such a system of administration a tax of this kind could be
so managed as to give, not only no discouragement, but, on the con-
trary, some encouragement to the improvement of land, it does not
appear likely to occasion any other inconveniency to the landlord,
except always the unavoidable one of being obliged to pay the tax.

In all the variations of the state of the society, in the improvement
and in the declension of agriculture; in all the variations in the value
of silver, and in all those in the standard of the coin, a tax of this
kind would, of its own accord and without any attention of govern-
ment, readily suit itself to the actual situation of things, and would
be equally just and equitable in all those different changes. It woiJd,
therefore, be much more proper to be established as a perpetual and
unalterable regulation, or as what is called a fundamental law of the
commonwealth, than any tax which was always to be levied accord-
ing to a certain valuation.

TAXES ON THE RENT OF LAND 485

Some states, instead of the simple and obvious expedient of a
register of leases, have had recourse to the laborious and expensive
one of an actual survey and valuation of all the lands in the country.
They have suspected, probably, that the lessor and lessee, in order to
defraud the public revenue, might combine to conceal the real terms
of the lease. Doomsday-book seems to have been the residt of a very
accurate survey of this kind.

In the ancient dominions of the king of Prussia, the land-tax is
assessed according to an actual survey and valuation, which is re-
viewed and altered from time to time. According to that valuation,
the lay proprietors pay from twenty to twenty-five per cent, of their
revenue. Ecclesiastics from forty to forty-five f)er cent. The survey
and valuation of Silesia was made by order of the present king; it is
said with great accuracy. According to that valuation, the lands
belonging to the bishop of Breslaw are taxed at twenty-five per cent,
of their rent. The other revenues of the ecclesiastics of both religions
at fifty per cent. The commanderies of the Teutonic order, and of
that of Malta, at forty per cent. Lands held by a noble tenure, at
thirty-eight and one-third per cent. Lands held by a base tenure, at
thirty-five and one-third per cent.

A land-tax assessed according to a general survey and valuation,
how equal soever it may be at first, must, in the course of a very
moderate period of time, become unequal. To prevent its becoming
so would require the continual and painful attention of government
to all the variations in the state and produce of every different farm
in the country. The governments of Prussia, of Bohemia, of Sardinia,
and of the dutchy of Milan, actually exert an attention of this kind;
an attention so unsuitable to the nature of government, that it is not
likely to be of long continuance, and which, if it is continued, will
probably in the long-run occasion much more trouble and vexation
than it can possibly bring relief to the contributors.

In 1666, the generality of Montauban was assessed to the Real
or predial taille according, it is said, to a very exact survey and valua-
tion. By 1727, this assessment had become altogether unequal. In
order to remedy this inconveniency, government has found no better
expedient than to impose upon the whole generality an additional
tax of a hundred and twenty thousand livres. This additional tax is

486 WEALTH OF NATIONS

rated upon all the different districts subject to the taille according to
the old assessment. But it is levied only upon those which in the
actual state of things are by that assessment under-taxed, and it is
applied to the relief of those which by the same assessment are over-
taxed. Two districts, for example, one of which ought in the actual
state of things to be taxed at nine hundred, the other at eleven hun-
dred livres, are by the old assessment both taxed at a thousand livres.
Both these districts are by the additional tax rated at eleven hundred
livres each. But this additional tax is levied only upon the district
under<harged, and it is applied altogether to the relief of that over-
charged, which consequendy pays only nine hundred livres. The
government neither gains nor loses by the additional tax, which is
applied altogether to remedy the inequalities arising from the old
assessment. The application is pretty much regulated according to
the discretion of the intendant of the generality, and must, therefore,
be in a great measure arbitrary.

TAXES WHICH ARE PROPORTIONED, NOT TO THE RENT, BUT TO THE
PRODUCE OF LAND

Taxes upon the produce of land are in reality taxes upon the rent;
and though they may be originally advanced by the farmer, are
finally paid by the landlord. When a certain portion of the produce
is to be paid away for a tax, the farmer computes, as well as he can,
what the value of this portion is, one year with another, likely to
amount to, and he makes a proportionable abatement in the rent
which he agrees to pay to the landlord. There is no farmer who does
not compute beforehand what the church tythe, which is a land-tax
of this kind, is, one year with another, likely to amount to.

The tythe, and every other land-tax of this kind, under the appear-
ance of perfect equality, are very unequal taxes; a certain portion
of the produce being, in different situations, equivalent to a very
different portion of the rent. In some very rich lands the produce is
so great, that the one half of it is fully sufficient to replace the farmer
his capital employed in cultivation, together with the ordinary profits
of farming stock in the neighbourhood. The other half, or what
comes to the same thing, the value of the other half, he could afford

TAXES ON THE PRODUCE OF LAND 487

to pay as rent to the landlord, if there was no tythe. But if a tenth
of the produce is taken from him in the way of tythe, he must require
an abatement of the fifth part of his rent, otherwise he cannot get
back his capital with the ordinary profit. In this case the rent of the
landlord, instead of amounting to a half, or five-tenths of the whole
produce, will amount only to four-tenths of it. In poorer lands, on
the contrary, the produce is sometimes so small, and the expence of
cultivation so great, that it requires four-fifths of the whole produce
to replace to the farmer his capital with the ordinary profit. In this
case, though there was no tythe, the rent of the landlord could
amount to no more than one-fifth or two-tenths of the whole produce.
But if the farmer pays one-tenth of the produce in the way of tythe,
he must require an equal abatement of the rent of the landlord,
which will thus be reduced to one-tenth only of the whole produce.
Upon the rent of rich lands, the tythe may sometimes be a tax of no
more than one-fifth part, or four shillings in the pound; whereas
upon that of poorer lands, it may sometimes be a tax of one-half, or
of ten shillings in the pound.

The tythe, as it is frequently a very unequal tax upon the rent, so
it is always a gfeat discouragement both to the improvements of the
landlord and to the cultivation of the farmer. The one cannot ven-
ture to make the most important, which are generally the most expen-
sive improvements; nor the other to raise the most valuable, which
are generally too the most expensive crops; when the church, which
lays out no part of the expence, is to share so very largely in the
profit. The cultivation of madder was for a long time confined by the
tythe to the United Provinces, which, being presbyterian countries,
and upon that account exempted from this destructive tax, enjoyed a
sort of monopoly of that useful dying drug against the rest of Europe.
The late attempts to introduce the culture of this plant into England,
have been made only in consequence of the statute which enacted that
five shillings an acre should be received in lieu of all manner of
tythe upon madder.

As through the greater part of Europe, the church, so in many
different countries of Asia, the state, is principally supported by a
land-tax, proportioned, not to the rent, but to the produce of the land.
In China the principal revenue of the sovereign consists in a tenth

488 WEALTH OF NATIONS

part of the produce of all the lands of the empire. This tenth part,
however, is estimated so very moderately, that, in many provinces,
it is said not to exceed a thirtieth part of the ordinary produce. The
land-tax or land-rent which used to be paid to the Mahometan gov-
ernment of Bengal, before that country fell into the hands of the
English East India company, is said to have amounted to about a fifth
part of the produce. The land-tax of ancient Egypt is said likewise
to have amounted to a fifth part. . . .

TAXES UPON THE RENT OF HOUSES

The rent of a house may be distinguished into two parts, of which
the one may very properly be called the Building rent; the other is
commonly called the Ground rent.

The building rent is the interest or profit of the capital expended
in building the house. In order to put the trade of a builder upon
a level with other trades, it is necessary that this rent should be suffi-
cient, first, to pay him the same interest which he would have got for
his capital if he had lent it upon good security; and, secondly, to
keep the house in constant repair, or, what comes to the same thing,
to replace, within a certain term of years, the capital which had been
employed in building it. The building rent, or the ordinary profit of
building, is, therefore, every where regulated by the ordinary interest
of money. Where the market rate of interest is four per cent, the rent
of a house which, over and above paying the ground rent, affords
six, or six and a half per cent, upon the whole expence of building,
may perhaps afford a sufficient profit to the builder. Where the mar-
ket rate of interest is five per cent., it may perhaps require seven or
seven and a half per cent. If, in proportion to the interest of money,
the trade of the builder affords at any time a much greater profit than
this, it will soon draw so much capital from other trades as will
reduce the profit to its proper level. If it affords at any time much
less than this, other trades will soon draw so much capital from it as
will again raise that profit.

Whatever part of the whole rent of a house is over and above what
is sufficient for affording this reasonable profit, naturally goes to the
ground-rent; and where the owner of the ground and the owner of
the building are two different persons, is, in most cases, completely

TAXES ON THE RENT OF HOUSES 489

paid to the former. This surplus rent is the price which the inhabi-
tant of the house pays for some real or supposed advantage of the
situation. In country houses, at a distance from any great town,
where there is plenty of ground to chuse upon, the ground-rent is
scarce any thing, or no more than what the ground which the house
stands upon would pay if employed in agriculture. In country villas
in the neighbourhood of some great town, it is sometimes a good
deal higher; and the peculiar conveniency or beauty of situation is
there frequently very well paid for. Ground-rents are generally
highest in the capital, and in those particular parts of it where there
happens to be the greatest demand for houses, whatever be the reason
of that demand, whether for trade and business, for pleasure and
society, or for mere vanity and fashion.

A tax upon house-rent, payable by the tenant and proportioned to
the whole rent of each house, could not, for any considerable time
at least, affect the building rent. If the builder did not get his reason-
able profit, he would be obliged to quit the trade; which, by raising
the demand for building, would in a short time bring back his profit
to its proper level with that of other trades. Neither would such a tax
fall altogether upon the ground-rent; but it would divide itself in
such a manner as to fall, partly up)on the inhabitants of the house, and
partly upon the owner of the ground.

Let us suppose, for example, that a particular person judges that
he can afford for house-rent an expence of sixty pounds a year; and
let us supf)ose too that a tax of four shillings in the pwund, or of one-
fifth, payable by the inhabitant, is laid upon house-rent. A house of
sixty pounds rent will in this case cost him seventy-two pounds a
year, which is twelve pounds more than he thinks he can afford. He
will, therefore, content himself with a worse house, or a house of fifty
pounds rent, which, with the additional ten pounds that he must
pay for the tax, will make up the sum of sixty pounds a year, the
expence which he judges he can afford; and in order to pay the
tax he will give up a part of the additional conveniency which he
might have had from a house of ten pounds a year more rent. He
will give up, I say, a part of this additional conveniency; for he will
seldom be obliged to give up the whole, but will, in consequence of
the tax, get a better house for fifty pounds a year, than he could have

490 WEALTH OF NATIONS

got if there had been no tax. For as a tax of this kind, by taking away
this particular competitor, must diminish the competition for houses
of sixty pounds rent, so it must Hkewise diminish it for those of fifty
pounds rent, and in the same manner for those of all other rents,
except the lowest rent, for which it would for some time increase the
competition. But the rents of every class of houses for which the
competition was diminished, would necessarily be more or less re-
duced. As no part of this reduction, however, could for any con-
siderable time at least, affect the building rent; the whole of it must
in the long-run necessarily fall upon the ground-rent. The final pay-
ment of this tax, therefore, would fall, partly upon the inhabitant of
the house, who, in order to pay his share, would be obliged to give up
a part of his conveniency; and partly upon the owner of the ground,
who, in order to pay his share, would be obliged to give up a part
of his revenue. In what proportion this final payment would be
divided between them, it is not perhaps very easy to ascertain. The
division would probably be very different in different circumstances,
and a tax of this kind might, according to those different circum-
stances, affect very unequally both the inhabitant of the house and
the owner of the ground.

The inequality with which a tax of this kind might fall upon the
owners of different ground-rents, would arise altogether from the
accidental inequality of this division. But the inequality with which
it might fall upon the inhabitants of different houses would arise,
not only from this, but from another cause. The proportion of the
expence of house-rent to the whole expence of living, is different in
the different degrees of fortune. It is perhaps highest in the highest
degree, and it diminishes gradually through the inferior degrees, so as
in general to be lowest in the lowest degree. The necessities of life
occasion the great expence of the poor. They find it difficult to get
food, and the greater part of their little revenue is spent in getting
it. The luxuries and vanities of life occasion the principal exp)ence of
the rich; and a magnificent house embellishes and sets off to the best
advantage all the other luxuries and vanities which they possess. A
tax upon house-rents, therefore, would in general fall heaviest upon
the rich; and in this sort of inequality there would not, perhaps,
be any thing very unreasonable. It is not very unreasonable that

TAXES ON THE RENT OF HOUSES 49 1

the rich should contribute to the public expence, not only in pro-
portion to their revenue, but something more than in that pro-
portion.

The rent of houses, though it in some respects resembles the rent
of land, is in one respect essentially different from it. The rent of
land is paid for the use of a productive subject. The land which pays
it produces it. The rent of houses is paid for the use of an unpro-
ductive subject. Neither the house nor the ground which it stands
upon produce any thing. The person who pays the rent, therefore,
must draw it from some other source of revenue, distinct from and
independent of this subject. A tax upon the rent of houses, so far
as it falls upon the inhabitants, must be drawn from the same source
as the rent itself, and must be paid from their revenue, whether
derived from the wages of labour, the profits of stock, or the rent
of land. So far as it falls upon the inhabitants, it is one of those taxes
which fall, not upon one only, but indifferently upon all the three
different sources of revenue; and is in every resf>ect of the same
nature as a tax upon any other sort of consumable commodities. In
general there is not, perhaps, any one article of expence or consump-
tion by which the liberality or narrowness of a man's whole expence
can be better judged of, than by his house-rent. A proportional tax
upon this particular article of expence might, perhaps, produce a more
considerable revenue than any which has hitherto been drawn from
it in any part of Europe. If the tax indeed was very high, the greater
part of people would endeavour to evade it, as much as they could,
by contenting themselves with smaller houses, and by turning the
greater part of their expence into some other channel.

The rent of houses might easily be ascertained with sufficient ac-
curacy, by a policy of the same kind with that which would be neces-
sary for ascertaining the ordinary rent of land. Houses not inhabited
ought to pay no tax. A tax upon them would fall altogether upon
the proprietor, who would thus be taxed for a subject which afforded
him neither conveniency nor revenue. Houses inhabited by the pro-
prietor ought to be rated, not according to the expence which they
might have cost in building, but according to the rent which an
equitable arbitration might judge them hkely to bring, if leased to a
tenant. If rated according to the expence which they may have cost

492 WEALTH OF NATIONS

in building, a tax of three or four shillings in the pound, joined with
other taxes, would ruin almost all the rich and great families of this,
and, I believe, of every other civilized country. Whoever will exam-
ine, with attention, the different town and country houses of some
of the richest and greatest families in this country, will find that, at
the rate of only six and a half, or seven per cent, upon the original
expence of building, their house-rent is nearly equal to the whole neat
rent of their estates. It is the accumulated expence of several suc-
cessive generations, laid out upon objects of great beauty and mag-
nificence, indeed; but, in proportion to what they cost, of very small
exchangeable value.

Ground-rents are a still more proper subject of taxation than the
rent of houses. A tax upon ground-rents would not raise the rents of
houses. It would fall altogether upon the owners of the ground-rent,
who acts always as a monof)olist, and exacts the greatest rent which
can be got for the use of his ground. More or less can be got for it
according as the comp)etitors happen to be richer or poorer, or can
afford to gratify their fancy for a particular spot of ground at a greater
or smaller expence. In every country the greatest number of rich
competitors is in the capital, and it is there accordingly that the high-
est ground-rents are always to be found. As the wealth of those com-
petitors would in no resp)ect be increased by a tax up)on ground-rents,
they would not probably be disf>osed to pay more for the use of the
ground. Whether the tax was to be advanced by the inhabitant, or
by the owner of the ground, would be of little importance. The more
the inhabitant was obliged to pay for the tax, the less he would incline
to pay for the ground; so that the final payment of the tax would fall
altogether upon the owner of the ground-rent. The ground-rents of
uninhabited houses ought to pay no tax.

Both ground-rents and the ordinary rent of land are a species of
revenue which the owner, in many cases, enjoys without any care
or attention of his own. Though a part of this revenue should be
taken from him in order to defray the exf)ences of the state, no dis-
couragement will thereby be given to any sort of industry. The
annual produce of the land and labour of the society, the real wealth
and revenue of the great body of the people, might be the same after
such a tax as before. Ground-rents, and the ordinary rent of land.

TAXES ON THE RENT OF HOUSES 493

are, therefore, perhaps, the species of revenue which can best bear
to have a f>ecuHar tax imposed upon them.

Ground-rents seem, in this respect, a more proper subject of pecul-
iar taxation than even the ordinary rent of land. The ordinary rent
of land is, in many cases, owing partly at least to the attention and
good management of the landlord. A very heavy tax might discour-
age too much this attention and good management. Ground-rents,
so far as they exceed the ordinary rent of land, are altogether owing
to the good government of the sovereign, which, by protecting the
industry either of the whole people, or of the inhabitants of some
particular place, enables them to pay so much more than its real
value for the ground which they build their houses upon; or to make
to its owner so much more than compensation for the loss which he
might sustain by this use of it. Nothing can be more reasonable than
that a fund which owes its existence to the good government of the
state, should be taxed peculiarly, or should contribute something more
than the greater part of other funds, towards the support of that
government.

Though, in many different countries of Europe, taxes have been
impKJsed uf)on the rent of houses, I do not know of any in which
ground-rents have been considered as a separate subject of taxation.
The contrivers of taxes have, probably, found some difficulty in ascer-
taining what part of the rent ought to be considered as ground-rent,
and what part ought to be considered as building-rent. It should not,
however, seem very difficult to distinguish those two parts of the rent
from one another.

In Great Britain the rent of houses is supposed to be taxed in the
same proportion as the rent of land, by what is called the annual land-
tax. The valuation, according to which each different parish and dis-
trict is assessed to this tax, is always the same. It was originally ex-
tremely unequal, and it still continues to be so. Through the greater
part of the kingdom this tax falls still more lightly upon the rent of
houses than upon that of land. In some few districts only, which
were originally rated high, and in which the rents of houses have
fallen considerably, the land-tax of three or four shillings in the
pound, is said to amount to an equal proportion of the real rent of
houses. Untenanted houses, though by law subject to the tax, are, in

494 WEALTH OF NATIONS

most districts, exempted from it by the favour of the assessors; and
this exemption sometimes occasions some Httle variation in the rate
of particular houses, though that of the district is always the same.
Improvements of rent, by new buildings, repairs, &c.; go to the dis-
charge of the district, which occasions still further variations in the
rate of particular houses.

In the province of Holland every house is taxed at two and a half
per cent, of its value, without any regard either to the rent which it
actually pays, or to the circumstance of its being tenanted or un-
tenanted. There seems to be a hardship in obliging the proprietor to
pay a tax for an untenanted house, from which he can derive no reve-
nue, especially so very heavy a tax. In Holland, where the market
rate of interest does not exceed three per cent, two and a half per
cent, upon the whole value of the house, must, in most cases, amount
to more than a third of the building-rent, f)erhaps of the whole rent.
The valuation, indeed, according to which the houses are rated,
though very unequal, is said to be always below the real value. When
a house is rebuilt, improved or enlarged, there is a new valuation,
and the tax is rated accordingly.

The contrivers of the several taxes which in England have at differ-
ent times, been imposed upon houses, seem to have imagined that
there was some great difficulty in ascertaining, with tolerable exact-
ness, what was the real rent of every house. They have regulated
their taxes, therefore, according to some more obvious circumstance,
such as they had probably imagined would, in most cases, bear some
proportion to the rent.

The first tax of this kind was hearth-money; or a tax of two shil-
lings upon every hearth. In order to ascertain how many hearths
were in the house, it was necessary that the tax-gatherer should enter
every room in it. This odious visit rendered the tax odious. Soon
after the revolution, therefore, it was abolished as a badge of slavery.

The next tax of this kind was, a tax of two shillings upon every
dwelling house inhabited. A house with ten windows to pay four
shillings more. A house with twenty windows and upwards to pay
eight shillings. This tax was afterwards so far altered, that houses
with twenty windows, and with less than thirty, were ordered to pay
ten shillings, and those with thirty windows and upwards to pay

TAXES ON THE RENT OF HOUSES 495

twenty shillings. The number o£ windows can, in most cases, be
counted from the outside, and, in all cases, without entering every
room in the house. The visit of the tax-gatherer, therefore, was less
offensive in this tax than in the hearth-money.

This tax was afterwards repealed, and in the room of it was estab-
lished the window-tax, which has undergone too several alterations
and augmentations. The window-tax, as it stands at present (Janu-
ary, 1775), over and above the duty of three shillings upon every
house in England, and of one shilling upon every house in Scotland,
lays a duty upon every window, which, in England, augments gradu-
ally from two-pence, the lowest rate, upon houses with not more than
seven windows; to two shillings, the highest rate, upon houses with
twenty-five windows and upwards.

The principal objection to all such taxes is their inequality, an in
equality of the worst kind, as they must frequently fall much heavier
upon the poor than upon the rich. A house of ten pounds rent in a
country town may sometimes have more windows than a house of
five hundred pounds rent in London; and though the inhabitant of
the former is likely to be a much poorer man than that of the latter,
yet so far as his contribution is regulated by the window-tax, he must
contribute more to the support of the state. Such taxes are, therefore,
directly contrary to the first of the four maxims above mentioned.
They do not seem to offend much against any of the other three.

The natural tendency of the window-tax, and of all other taxes
upon houses, is to lower rents. The more a man pays for the tax,
the less, it is evident, he can afford to pay for the rent. Since the
imposition of the window-tax, however, the rents of houses have
upon the whole risen, more or less, in almost every town and village
of Great Britain, with which I am acquainted. Such has been almost
everywhere the increase of the demand for houses, that it has raised
the rents more than the window-tax could sink them; one of the
many proofs of the great prosperity of the country, and of the increas-
ing revenue of its inhabitants. Had it not been for the tax, rents
would probably have risen still higher.

496 WEALTH OF NATIONS

ARTICLE II
Taxes upon Profit, or upon the Revenue arising from Stock

The revenue or profit arising from stock naturally divides itself
into two parts; that which pays the interest, and which belongs to
the owner of the stock; and that surplus part which is over and above
what is necessary for paying the interest.

This latter profit is evidently a subject not taxable directly. It is
the compensation, and in most cases it is no more than a very mod-
erate compensation, for the risk and trouble of employing the stock.
The employer must have this compensation, otherwise he cannot,
consistently with his own interest, continue the employment. If he
was taxed directly, therefore, in proportion to the whole profit, he
would be obliged either to raise the rate of his profit, or to charge
the tax upon the interest of money; that is, to pay less interest. If
he raised the rate of his profit in proportion to the tax, the whole
tax, though it might be advanced by him, would be finally paid by
one or other of two different sets of f)eople, according to the differ-
ent ways in which he might employ the stock of which he had the
management. If he employed it as a farming stock in the cultivation
of land, he could raise the rate of his profit only by retaining a greater
portion, or, what comes to the same thing, the price of a greater por-
tion of the produce of the land; and as this could be done only by a
reduction of rent, the final payment of the tax would fall upon the
landlord. If he employed it as a mercantile or manufacturing stock,
he could raise the rate of his profit only by raising the price of his
goods; in which case the final payment of the tax would fall alto-
gether upon the consumers of those goods. If he did not raise the
rate of his profit, he would be obliged to charge the whole tax upon
that part of it which was allotted for the interest of money. He
could afford less interest for whatever stock he borrowed, and the
whole weight of the tax would in this case fall ultimately upon the
interest of money. So far as he could not relieve himself from the
tax in the one way, he would be obliged to relieve himself in the
other.

The interest of money seems at first sight a subject equally capable
of being taxed direcdy as the rent of land. Like the rent of land, it

TAXES ON PROFITS IN GENERAL 497

is a neat produce which remains after completely compensating the
whole risk and trouble of employing the stock. As a tax upon the rent
of land cannot raise rents; because the neat produce which remains
after replacing the stock of the farmer, together with his reasonable
profit, cannot be greater after the tax than before it; so, for the same
reason, a tax upon the interest of money could not raise the rate of
interest; the quantity of stock or money in the country, like the
quantity of land, being supposed to remain the same after the tax as
before it. The ordinary rate of profit, it has been shewn in the first
book, is every where regulated by the quantity of stock to be em-
ployed in proportion to the quantity of the employment, or of the
business which must be done by it. But the quantity of the employ-
ment, or of the business to be done by stock, could neither be in-
creased nor diminished by any tax ufxjn the interest of money. If
the quantity of the stock to be employed, therefore, was neither in-
creased nor diminished by it, the ordinary rate of profit would neces-
sarily remain the same. But the portion of this profit necessary for
compensating the risk and trouble of the employer, would likewise
remain the same; that risk and trouble being in no resf)ect altered.
The residue, therefore, that portion which belongs to the owner of
the stock, and which pays the interest of money, would necessarily
remain the same too. At first sight, therefore, the interest of money
seems to be a subject as fit to be taxed directly as the rent of land.

There are, however, two different circumstances which render
the interest of money a much less proper subject of direct taxation
than the rent of land.

First, the quantity and value of the land which any man possesses
can never be a secret, and can always be ascertained with great exact-
ness. But the whole amount of the capital stock which he jxjssesses
is almost always a secret, and can scarce ever be ascertained with
tolerable exactness. It is liable, besides, to almost continual varia-
tions. A year seldom passes away, frequently not a month, sometimes
scarce a single day, in which it does not rise or fall more or less. An
inquisition into every man's private circumstances, and an inquisition
which, in order to accommodate the tax to them, watched over all
the fluctuations of his fortune, would be a source of such continual
and endless vexation as no people could support.

498 WEALTH OF NATIONS

Secondly, land is a subject which cannot be removed, whereas stock
easily may. The proprietor of land is necessarily a citizen o£ the par-
ticular country in which his estate lies. The proprietor of stock is
properly a citizen of the world, and is not necessarily attached to
any particular country. He would be apt to abandon the country in
which he was exposed to a vexatious inquisition, in order to be av
sessed to a burdensome tax, and would remove his stock to some
other country where he could either carry on his business, or enjoy
his fortune more at his ease. By removing his stock he would put an
end to all the industry which it had maintained in the country which
he left. Stock cultivates land; stock employs labour. A tax which
tended to drive away stock from any particular country, would so
far tend to dry up every source of revenue, both to the sovereign and
to the society. Not only the profits of stock, but the rent of land and
the wages of labour, would necessarily be more or less diminished
by its removal.

The nations, accordingly, who have attempted to tax the revenue
arising from stock, instead of any severe inquisition of this kind,
have been obliged to content themselves with some very loose, and,
therefore, more or less arbitrary estimation. The extreme inequality
and uncertainty of a tax assessed in this manner, can be comp)ensated
only by its extreme moderation, in consequence of which every man
finds himself rated so very much below his real revenue, that he gives
himself little disturbance though his neighbour should be rated
somewhat lower.

By what is called the land-tax in England, it was intended that
stock should be taxed in the same proportion as land. When the tax
upon land was at four shillings in the pound, or at one-fifth of the
supposed rent, it was intended that stock should be taxed at one-fifth
of the supposed interest. When the present annual land-tax was first
imposed, the legal rate of interest was six per cent. Every hundred
pounds stock, accordingly, was supposed to be taxed at twenty-four
shillings, the fifth part of six pounds. Since the legal rate of inter-
est has been reduced to five per cent, every hundred pounds stock
is supp)osed to be taxed at twenty shillings only. The sum to be raised,
by what is called the land-tax, was divided between the country and
the principal towns. The greater part of it was laid upon the country;

TAXES ON PROFITS IN GENERAL 499

and of what was laid upon the towns, the greater part was assessed
upon the houses. What remained to be assessed upon the stock or
trade of the towns (for the stock upon the land was not meant to be
taxed) was very much below the real value of that stock or trade.
Whatever inequalities, therefore, there might be in the original assess-
ment, gave little disturbance. Every parish and district still continues
to be rated for its land, its houses, and its stock, according to the origi-
nal assessment; and the almost universal prosperity of the country,
which in most places has raised very much the value of all these, has
rendered those inequalities of still less importance now. The rate too
upon each district continuing always the same, the uncertainty of
this tax, so far as it might be assessed upon the stock of any indi-
vidual, has been very much diminished, as well as rendered of much
less consequence. If the greater part of the lands of England are not
rated to the land-tax at half their actual value, the greater part of
the stock of England is, perhaps, scarce rated at the fiftieth part
of its actual value. In some towns the whole land-tax is assessed upon
houses; as in Westminster, where stock and trade are free. It is other-
wise in London.

In all countries a severe inquisition into the circumstances of pri-
vate persons has been carefully avoided.

At Hamburgh every inhabitant is obliged to pay to the state, one-
fourth per cent, of all that he possesses; and as the wealth of the
p)eople of Hamburgh consists principally in stock, this tax may be
considered as a tax upon stock. Every man assesses himself, and, in
the presence of the magistrate, puts annually into the public coffer a
certain sum of money, which he declares Uf)on oath to be one-fourth
per cent, of all that he possesses, but without declaring what it
amounts to, or being liable to any examination upon that subject.
This tax is generally supposed to be paid with great fidelity. In a
small republic, where the people have entire confidence in their
magistrates, are convinced of the necessity of the tax for the support
of the state, and believe that it will be faithfully applied to that
purpose, such conscientious and voluntary payment may sometimes
be expected. It is not peculiar to the people of Hamburgh.

The canton of Underwald in Switzerland is frequendy ravaged by
storms and inundations, and is thereby exposed to extraordinary

500 WEALTH OF NATIONS

exjjences. Upon such occasions the people assemble, and every one
is said to declare with the greatest frankness what he is worth, in
order to be taxed accordingly. At Zurich the law orders, that, in
cases of necessity, every one should be taxed in proportion to his
revenue; the amount of which, he is obliged to declare upon oath.
They have no suspicion, it is said, that any of their fellow-citizens
will deceive them. At Basil the principal revenue of the state arises
from a small custom upon goods exported. All the citizens make
oath that they will pay every three months all the taxes imposed by
the law. All merchants and even all inn-keepers are trusted with
keeping themselves the account of the goods which they sell either
within or without the territory. At the end of every three months
they send this account to the treasurer, with the amount of the tax
computed at the bottom of it. It is not suspected that the revenue
suffers by this confidence.

To oblige every citizen to declare publicly upon oath the amount
of his fortune, must not, it seems, in those Swiss cantons, be reckoned
a hardship. At Hamburgh it would be reckoned the greatest. Mer-
chants engaged in the hazardous projects of trade, all tremble at the
thoughts of being obliged at all times to expose the real state of their
circumstances. The ruin of their credit and the miscarriage of their
projects, they foresee, would too often be the consequence. A sober
and parsimonious people, who are strangers to all such projects, do
not feel that they have occasion for any such concealment.

In Holland, soon after the exaltation of the late prince of Orange
to the stadtholdership, a tax of two per cent, or the fiftieth penny, as
it was called, was imposed upon the whole substance of every citizen.
Every citizen assessed himself and paid his tax in the same manner as
at Hamburgh; and it was in general supposed to have been paid
with great fidelity. The people had at that time the greatest affection
for their new government, which they had just established by a gen-
eral insurrection. The tax was to be paid but once; in order to relieve
the state in a particular exigency. It was, indeed, too heavy to be per-
manent. In a country where the market rate of interest seldom ex-
ceeds three per cent., a tax of two per cent, amounts to thirteen shil-
lings and fourpence in the pound upon the highest neat revenue
which is commonly drawn from stock. It is a tax which very few

TAXES ON PARTICULAR PROFITS 5OI

people could pay without encroaching more or less upon their capi-
tals. In a particular exigency the people may, from great public zeal,
make a great effort, and give up even a part of their capital, in order
to relieve the state. But it is impossible that they should continue to
do so for any considerable time; and if they did, the tax would soon
ruin them so completely as to render them altogether incapable of
supporting the state.

The tax upon stock imposed by the land-tax bill in England,
though it is proportioned to the capital, is not intended to diminish
or take away any part of that capital. It is meant only to be a tax
upon the interest of money proportioned to that upon the rent of
land; so that when the latter is at four shillings in the pound, the
former may be at four shillings in the pound too. The tax at Ham-
burgh, and the still more moderate taxes of Underwald and Zurich,
are meant, in the same manner, to be taxes, not upon the capital,
but upon the interest or neat revenue of stock. That of Holland was
meant to be a tax upon the capital.

TAXES UPON THE PROFIT OF PARTICULAR EMPLOYMENTS

In some countries extraordinary taxes are imposed upon the profits
of stock; sometimes when employed in particular branches of trade,
and sometimes when employed in agriculture.

Of the former kind are in England the tax upon hawkers and
pedlars, that upon hackney coaches and chairs, and that which the
keepers of ale-houses pay for a licence to retail ale and spirituous
liquors. During the late war, another tax of the same kind was pro-
posed upon shops. The war having been undertaken, it was said,
in defence of the trade of the country, the merchants, who were to
profit by it, ought to contribute towards the support of it.

A tax, however, upon the profits of stock employed in any par-
ticular branch of trade, can never fall finally upon the dealers (who
must in all ordinary cases have their reasonable profit, and, where the
competition is free, can seldom have more than that profit), but
always upon the consumers, who must be obliged to pay in the price
of the goods the tax which the dealer advances; and generally with
some overcharge.

A tax of this kind when it is proportioned to the trade of the dealer,

502 WEALTH OF NATIONS

is finally paid by the consumer, and occasions no oppression to the
dealer. When it is not so proportioned, but is the same upon all
dealers, though in this case too it is finally paid by the consumer, yet
it favours the great, and occasions some oppression to the small
dealer. The tax of five shillings a week upon every hackney coach,
and that of ten shillings a year upon every hackney chair, so far as
it is advanced by the different keepers of such coaches and chairs, is
exactly enough proportioned to the extent of their respective dealings.
It neither favours the great, nor oppresses the smaller dealer. The
tax of twenty shillings a year for a license to sell ale; of forty shillings
for a licence to sell spirituous liquors; and of forty shillings more for
a licence to sell wine, being the same upon all retailers, must neces-
sarily give some advantage to the great, and occasion some oppression
to the small dealers. The former must find it more easy to get back
the tax in the price of their goods than the latter. The moderation
of the tax, however, renders this inequality of less importance, and
it may to many people appear not improper to give some discourage-
ment to the multiplication of little ale-houses. The tax upon shops,
it was intended, should be the same upon all shops. It could not well
have been otherwise. It would have been impossible to proportion
with tolerable exactness the tax upon a shop to the extent of the trade
carried on in it, without such an inquisition as would have been
altogether insupportable in a free country. If the tax had been con-
siderable, it would have oppressed the small, and forced almost the
whole retail trade into the hands of the great dealers. The compe-
tition of the former being taken away, the latter would have enjoyed
a monopoly of the trade; and like all other monopolists would soon
have combined to raise their profits much beyond what was necessary
for the payment of the tax. The final payment, instead of falling
upon the shopkeeper, would have fallen upon the consumer, with a
considerable overcharge to the profit of the shopkeeper. For these
reasons, the project of a tax upon shops was laid aside, and in the
room of it was substituted the subsidy 1759.

When a tax is imposed upon the profits of stock in a particular
branch of trade, the traders are all careful to bring no more goods to
market than what they can sell at a price sufficient to reimburse them
for advancing the tax. Some of them withdraw a part of their stocks

TAXES ON PARTICULAR PROFITS 503

from the trade, and the market is more sparingly supplied than be-
fore. The price of the goods rises, and the final payment of the tax
falls upon the consumer. But when a tax is imposed upon the profits
of stock employed in agriculture, it is not the interest of the farmers
to withdraw any part of their stock from that employment. Each
farmer occupies a certain quantity of land, for which he pays rent.
For the proper cultivation of this land a certain quantity of stock
is necessary, and by withdrawing any part of this necessary quantity,
the farmer is not likely to be more able to pay, either the rent or the
tax. In order to pay the tax, it can never be his interest to diminish
the quantity of his produce, nor consequently to supply the market
more sparingly than before. The tax, therefore, will never enable
him to raise the price of his produce, so as to reimburse himself by
throwing the final payment upon the consumer. The farmer, how-
ever, must have his reasonable profit as well as every other dealer,
otherwise he must give up the trade. After the imposition of a tax
of this kind, he can get this reasonable profit only by paying less rent
to the landlord. The more he is obliged to pay in the way of tax,
the less he can afford to pay in the way of rent. A tax of this kind
imposed during the currency of a lease may, no doubt, distress or ruin
the farmer. Upon the renewal of the lease it must always fall upon
the landlord.

What are called poll-taxes in the southern provinces of North
America, and in the West Indian islands, annual taxes of so much a
head up>on every negroe, are properly taxes upon the profits of a cer-
tain species of stock employed in agriculture. As the planters are,
the greater part of them, both farmers and landlords, the final pay-
ment of the tax falls upon them in their quality of landlords without
any retribution.

Taxes of so much a head upon the bondmen employed in cultiva-
tion, seem anciently to have been common all over Europ)e. There
subsists at present a tax of this kind in the empire of Russia. It is
probably upon this account that poll-taxes of all kinds have often
been represented as badges of slavery. Every tax, however, is to the
person who pays it a badge, not of slavery, but of liberty. It denotes
that he is subject to government, indeed, but that, as he has some
property, he cannot himself be the property of a master. A poll-tax

504 WEALTH OF NATIONS

upon slaves is altogether different from a poll-tax upon freemen.
The latter is paid by the persons upon whom it is impKjsed; the former
by a different set of persons. The latter is either altogether arbitrary
or altogether unequal, and in most cases is both the one and the
other; the former, though in some respects unequal, different slaves
being of different values, is in no respect arbitrary. Every master who
knows the number of his own slaves, knows exactly what he has to
pay. Those different taxes, however, being called by the same name,
have been considered as of the same nature.

The taxes which in Holland are imposed upon men and maid
servants, are taxes, not uf)on stock, but u{X)n expence; and so far
resemble the taxes upon consumable commodities. The tax of a
guinea a head for every man servant, which has lately been imposed
in Great Britain, is of the same kind. It falls heaviest upon the
middling rank. A man of two hundred a year may keep a single
man servant. A man of ten thousand a year will not keep fifty. It
does not affect the poor.

Taxes upon the profits of stock in particular employments can
never affect the interest of money. Nobody will lend his money for
less interest to those who exercise the taxed, than to those who exer-
cise the untaxed employments. Taxes upon the revenue arising from
stock in all employments, where the government attempts to levy
them with any degree of exactness, will, in many cases, fall upon
the interest of money. The Vingtieme, or twentieth penny, in France,
is a tax of the same kind with what is called the land-tax in England,
and is assessed, in the same manner, upon the revenue arising from
land, houses, and stock. So far as it affects stock it is assessed, though
not with great rigour, yet with much more exactness than that part
of the land-tax of England which is imposed upon the same fund.
It, in many cases, falls altogether upon the interest of money. Money
is frequently sunk in France upon what are called Contracts for the
constitution of a rent; that is, perpetual annuities redeemable at
any time by the debtor upon repayment of the sum originally ad-
vanced, but of which this redemption is not exigible by the creditor
except in particular cases. The Vingtieme seems not to have raised
the rate of those annuities, though it is exacdy levied upon them all.

TAXES ON CAPITAL VALUE 505

APPENDIX TO ARTICLES I AND II
Taxes upon the Capital Value of Land, Houses, and Stock

While property remains in the possession of the same person,
whatever permanent taxes may have been imposed upon it, they
have never been intended to diminish or take away any part of its
capital value, but only some part of the revenue arising from it. But
when property changes hands, when it is transmitted either from the
dead to the living, or from the living to the living, such taxes have
frequently been imposed upon it as necessarily take away some part
of its capital value.

The transference of all sorts of property from the dead to the living,
and that of immoveable property, of lands and houses, from the living
to the living, are transactions which are in their nature either public
and notorious, or such as cannot be long concealed. Such transac-
tions, therefore, may be taxed directly. The transference of stock or
moveable property, from the living to the living, by the lending of
money, is frequently a secret transaction, and may always be made so.
It cannot easily, therefore, be taxed directly. It has been taxed in-
directly in two different ways; first, by requiring that the deed, con-
taining the obligation to repay, should be written upon paper or
parchment which had paid a certain stampvduty, otherwise not to be
valid; secondly, by requiring, under the like penalty of invalidity,
that it should be recorded either in a public or secret register, and by
imposing certain duties upon such registration. Stamp-duties and
duties of registration have frequently been imposed likewise upon the
deeds transferring property of all kinds from the dead to the living,
and upon those transferring immoveable property from the living to
the living, transactions which might easily have been taxed directly.

The Vicesima Hereditatum, the twentieth penny of inheritances,
imposed by Augustus upon the ancient Romans, was a tax upon
the transference of property from the dead to the living. Dion
Cassius, the author who writes concerning it the least indistinctly,
says, that it was imposed upon all successions, legacies, and dona-
tions, in case of death, except upon those to the nearest relations, and
to the poor.

506 WEALTH OF NATIONS

Of the same kind is the Dutch tax upon successions. Collateral
successions are taxed, according to the degree of relation, from five to
thirty per cent., upon the whole value of the succession. Testa-
mentary donations, or legacies to collaterals, are subject to the like
duties. Those from husband to wife, or from wife to husband, to
the fifteenth penny. The Luctuosa Hereditas, the mournful succes-
sion of ascendents to descendants, to the twentieth penny only. Direa
successions, or those of descendents to ascendents, pay no tax. The
death of a father, to such of his children as live in the same house
with him, is seldom attended with any increase, and frequently with
a considerable diminution of revenue; by the loss of his industry, of
his office, or of some life-rent estate, of which he may have been in
possession. That tax would be cruel and oppressive which aggra-
vated their loss by taking from them any part of his succession. It
may, however, sometimes be otherwise with those children who, in
the language of the Roman law, are said to be emancipated; in that
of the Scotch law, to be foris-familiated; that is, who have received
their portion, have got families of their own, and are supported by
funds separate and independent of those of their father. Whatever
part of his succession might come to such children, would be a real
addition to their fortune, and might therefore, perhaps, without more
inconveniency than what attends all duties of this kind, be liable to
some tax.

The casualties of the feudal law were taxes upon the transfer-
ence of land, both from the dead to the living, and from the living
to the living. In ancient times they constituted in every part of
Europe one of the principal branches of the revenue of the crown.

The heir of every immediate vassal of the crown paid a certain
duty, generally a year's rent, upon receiving the investiture of the
estate. If the heir was a minor, the whole rents of the estate, during
the continuance of the minority, devolved to the superior without
any other charge, besides the maintenance of the minor, and the pay-
ment of the widow's dower, when there happened to be a dowager
upon the land. When the minor came to be of age, another tax,
called Relief, was still due to the superior, which generally amounted
likewise to a year's rent. A long minority, which in the present times
so frequently disburdens a great estate of all its incumbrances, and

TAXES ON CAPITAL VALUE 507

restores the family to their ancient splendour, could in those times
have no such effect. The waste, and not the disincumbrance of the
estate, was the common effect of a long minority.

By the feudal law the vassal could not alienate without the con-
sent of his superior, who generally extorted a fine or composition for
granting it. This fine, which was at first arbitrary, came in many
countries to be regulated at a certain portion of the price of the land-
In some countries, where the greater part of the other feudal cus-
toms have gone into disuse, this tax upon the alienation of land still
continues to make a very considerable branch of the revenue of the
sovereign. In the canton of Berne it is so high as a sixth part of the
price of all noble fiefs; and a tenth part of that of all ignoble ones.
In the canton of Lucerne the tax upon the sale of lands is not uni-
versal, and takes place only in certain districts. But if any person
sells his land, in order to remove out of the territory, he pays ten
per cent, upon the whole price of the sale. Taxes of the same kind
upon the sale either of all lands, or of lands held by certain tenures,
take place in many other countries, and make a more or less con-
siderable branch of the revenue of the sovereign.

Such transactions may be taxed indirecdy, by means either of
stamf>-duties, or of duties upon registration; and those duties either
may or may not be proportioned to the value of the subject which is
transferred.

In Great Britain the stamp-duties are higher or lower, not so much
according to the value of the projDerty transferred (an eighteen (jenny
or half crown stamp being sufficient upon a bond for the largest sum
of money) as according to the nature of the deed. The highest do
not exceed six pounds upon every sheet of paper, or skin of parch-
ment; and these high duties fall chiefly upon grants from the crown,
and upon certain law proceedings, without any regard to the value
of the subject. There are in Great Britain no duties on the registra-
tion of deeds or writings, except the fees of the officers who keep the
register; and these are seldom more than a reasonable recompence
for their labour. The crown derives no revenue from them.

In Holland there are both stamp-duties and duties upon registra-
tion; which in some cases are, and in some are not proportioned to
the value of the property transferred. All testaments must be writ-

508 WEALTH OF NATIONS

ten upon stamped paper of which the price is proportioned to the
property disposed of, so that there are stamps which cost from three
pence, or three stivers a sheet, to three hundred florins, equal to about
twenty-seven pounds ten shillings of our money. If the stamp is of
an inferior price to what the testator ought to have made use of,
his succession is confiscated. This is over and above all their other
taxes on succession. Except bills of exchange, and some other mer-
cantile bills, all other deeds, bonds, and contracts, are subject to a
stamp-duty. This duty, however, does not rise in proportion to the
value of the subject. All sales of land and of houses, and all mort-
gages upon either, must be registered, and, upon registration, pay a
duty to the state of two and a half per cent, upon the amount of the
price or of the mortgage. This duty is extended to the sale of all
ships and vessels of more than two tons burthen, whether decked or
undecked. These, it seems, are considered as a sort of houses upon
the water. The sale of moveables, when it is ordered by a court of
justice, is subject to the like duty of two and a half per cent.

In France there are both stamp-duties and duties upon registration.
The former are considered as a branch of the aides or excise, and in
the provinces where those duties take place, are levied by the excise
officers. The latter are considered as a branch of the domain of the
crown, and are levied by a different set of officers.

Those modes of taxation, by stamp-duties and by duties up)on regis-
tration, are of very modern invention. In the course of little more
than a century, however, stamp-duties have, in Europe, become al-
most universal, and duties upon registration extremely common.
There is no art which one government sooner learns of another, than
that of draining money from the fXKkets of the people.

Taxes upon the transference of property from the dead to the
living, fall finally as well as immediately upon the person to whom
the property is transferred. Taxes upon the sale of land fall alto-
gether upon the seller. The seller is almost always under the necessity
of selling, and must, therefore, take such a price as he can get. The
buyer is scarce ever under the necessity of buying, and will, there-
fore, only give such a price as he likes. He considers what the land
will cost him in tax and price together. The more he is obliged to
pay in the way of tax, the less he will be disposed to give in the way

TAXES ON CAPITAL VALUE 509

of price. Such taxes, therefore, fall almost always upon a necessitous
person, and must, therefore, be frequently very cruel and oppressive.
Taxes uf)on the sale of new-built houses, where the building is sold
without the ground, fall generally upon the buyer, because the builder
must generally have his profit; otherwise he must give up the trade.
If he advances the tax, therefore, the buyer must generally repay it to
him. Taxes upon the sale of old houses, for the same reason as those
upon the sale of land, fall generally upon the seller; whom in most
cases either conveniency or necessity obliges to sell. The number of
new-built houses that are annually brought to market, is more or less
regulated by the demand. Unless the demand is such as to afford the
builder his profit, after paying all expences, he will build no more
houses. The number of old houses which happen at any time to
come to market is regulated by accidents of which the greater part
have no relation to the demand. Two or three great bankruptcies in
a mercantile town, will bring many houses to sale, which must be
sold for what can be got for them. Taxes upon the sale of ground
rents fall altogether upon the seller; for the same reason as those
upon the sale of land. Stamp-duties, and duties upon the registra-
tion of bonds and contracts for borrowed money, fall altogether upon
the borrower, and, in fact, are always paid by him. Duties of the
same kind upon law proceedings fall upon the suitors. They reduce
to both the capital value of the subject in dispute. The more it costs
to acquire any property, the less must be the neat value of it when
acquired.

All taxes upon the transference of property of eVery kind, so far
as they diminish the capital value of that property, tend to diminish
the funds destined for the maintenance of productive labour. They
are all more or less unthrifty taxes that increase the revenue of the
sovereign, which seldom maintains any but unproductive labourers;
at the expence of the capital of the people, which maintains none but
productive.

Such taxes, even when they are proportioned to the value of the
property transferred, are still unequal; the frequency of transfer-
ence not being always equal in property of equal value. When they
are not proportioned to this value, which is the case with the greater
part of the stamp duties, and duties of registration, they are still

510 WEALTH OF NATIONS

more so. They are in no respect arbitrary, but are or may be in all
cases perfectly clear and certain. Though they sometimes fall upon
the person who is not very able to pay; the time of payment is in
most cases sufficiently convenient for him. When the payment be-
comes due, he must in most cases have the money to pay. They are
levied at very little expence, and in general subject the contributors
to no other inconveniency besides always the unavoidable one of
paying the tax.

In France the stamp-duties are not much complained of. Those
of registration, which they call the Controle, are. They give occasion,
it is pretended, to much extortion in the officers of the farmers-gen-
eral who collect the tax, which is in a great measure arbitrary and
uncertain. In the greater part of the libels which have been written
against the present system of finances in France, the abuses of the
controle make a principal article. Uncertainty, however, does not
seem to be necessarily inherent in the nature of such taxes. If the
popular complaints are well founded, the abuse must arise, not so
much from the nature of the tax, as from the want of precision and
distinctness in the words of the edicts or laws which impose it.

The registration of mortgages, and in general of all rights upon
immoveable property, as it gives great security both to creditors and
purchasers, is extremely advantageous to the public. That of the
greater part of deeds of other kinds is frequently inconvenient and
even dangerous to individuals, without any advantage to the public.
All registers which, it is acknowledged, ought to be kept secret,
ought certainly never to exist. The credit of individuals ought cer-
tainly never to depend upon so very slender a security as the probity
and religion of the inferior officers of revenue. But where the fees
of registration have been made a source of revenue to the sovereign,
register offices have commonly been multiplied without end, both
for the deeds which ought to be registered, and for those which ought
not. In France there are several different sorts of secret registers.
This abuse, though not perhaps a necessary, it must be acknowledged,
is a very natural ef?ect of such taxes.

Such stamp-duties as those in England upon cards and dice, upon
news-papers and periodical pamphlets, &c. are properly taxes upon
consumption; the final payment falls upon the persons who use or

TAXES ON WAGES 5II

consume such commodities. Such stamp-duties as those upon licences
to retail ale, wine, and spirituous liquors, though intended, perhaps,
to fall upon the profits of the retailers, are likewise finally paid by the
consumers of those liquors. Such taxes, though called by the same
name, and levied by the same officers and in the same manner with
the stamp-duties above mentioned upon the transference of prop>-
erty, are however of a quite different nature, and fall upon quite
different funds.

ARTICLE III
Taxes upon the Wages of Labour

The wages of the inferior classes of workmen, I have endeavoured
to show in the first book, are every where necessarily regulated by
two different circumstances; the demand for labour, and the ordi-
nary or average price of provisions. The demand for labour, accord-
ing as it happens to be either increasing, stationary, or declining; or
to require an increasing, stationary, or declining population, regu-
lates the subsistence of the labourer, and determines in what degree
it shall be, either liberal, moderate, or scanty. The ordinary or aver-
age price of provisions determines the quantity of money which
must be paid to the workman in order to enable him, one year with
another, to purchase this liberal, moderate, or scanty subsistence.
While the demand for labour and the price of provisions, therefore,
remain the same, a direct tax upon the wages of labour can have no
other effect than to raise them somewhat higher than the tax. Let
us suppose, for example, that in a particular place the demand for
labour and the price of provisions were such, as to render ten shillings
a week the ordinary wages of labour; and that a tax of one-fifth, or
four shillings in the pound, was imposed upon wages. If the demand
for labour and the price of provisions remained the same, it would
still be necessary that the labourer should in that place earn such a
subsistence as could be bought only for ten shillings a week, or that
after paying the tax he should have ten shillings a week free wages.
But in order to leave him such free wages after paying such a tax,
the price of labour must in that place soon rise, not to twelve shillings
a week only, but to twelve and sixpence; that is, in order to enable

512 WEALTH OF NATIONS

him to pay a tax of one-fifth, his wages must necessarily soon rise,
not one-fifth part only, but one-fourth. Whatever was the propor-
tion of the tax, the wages of labour must in all cases rise, not only
in that proportion, but in a higher proportion. If the tax, for example,
was one-tenth, the wages of labour must necessarily soon rise, not one-
tenth part only, but one-eighth.

A direct tax upon the wages of labour, therefore, though the
labourer might perhaps pay it out of his hand, could not properly
be said to be even advanced by him; at least if the demand for labour
and the average price of provisions remained the same after the tax
as before it. In all such cases, not only the tax, but something more
than the tax, would in reality be advanced by the person who im-
mediately employed him. The final payment would in different
cases fall upon different persons. The rise which such a tax might
occasion in the wages of manufacturing labour would be advanced by
the master manufacturer, who would both be entitled and obliged to
charge it, with a profit, upon the price of his goods. The final pay-
ment of this rise of wages, therefore, together with the additional
profit of the master manufacturer, would fall upon the consumer.
The rise which such a tax might occasion in the wages of country
labour would be advanced by the farmer, who, in order to maintain
the same number of labourers as before, would be obliged to employ
a greater capital. In order to get back this greater capital, together
with the ordinary profits of stock, it would be necessary that he
should retain a larger portion, or what comes to the same thing, the
price of a larger portion, of the produce of the land, and consequently
that he should pay less rent to the landlord. The final payment of
this rise of wages, therefore, would in this case fall uf)on the landlord,
together with the additional profit of the farmer who had advanced
it. In all cases a direct tax upon the wages of labour must, in the
long-run, occasion both a greater reduction in the rent of land, and
a greater rise in the price of manufactured goods, than would have
followed from the proper assessment of a sum equal to the produce
of the tax, partly upon the rent of land, and pardy upon consum-
able commodities.

If direct taxes upon the wages of labour have not always occa-
sioned a proportionable rise in those wages, it is because they have

TAXES ON WAGES 513

generally occasioned a considerable fall in the demand for labour.
The declension of industry, the decrease of employment for the poor,
the diminution of the annual produce of the land and labour of the
country, have generally been the effects of such taxes. In consequence
of them, however, the price of labour must always be higher than
it otherwise would have been in the actual state of the demand: and
this enhancement of price, together with the profit of those who
advance it, must always be finally paid by the landlords and con-
sumers.

A tax upon the wages of country labour does not raise the price
of the rude produce of land in proportion to the tax; for the same
reason that a tax upon the farmer's profit does not raise that price
in that proportion.

Absurd and destructive as such taxes are, however, they take place
in many countries. In France that part of the taille which is
charged upon the industry of workmen and day-labourers in country
villages, is properly a tax of this kind. Their wages are computed
according to the common rate of the district in which they reside,
and that they may be as litde liable as possible to any over<harge,
their yearly gains are estimated at no more than two hundred work-
ing days in the year. The tax of each individual is varied from
year to year according to different circumstances, of which the col-
lector or the commissary, whom the intendant appoints to assist
him, are the judges. In Bohemia, in consequence of the alteration
in the system of finances which was begun in 1748, a very heavy
tax is imposed upon the industry of artificers. They are divided into
four classes. The highest class pay a hundred florins a year; which,
at two-and-twenty-pence halfpenny a florin, amounts to 9/. "js. 6d.
The second class are taxed at seventy; the third at fifty; and the
fourth, comprehending artificers in villages, and the lowest class of
those in towns, at twenty-five florins.

The recompence of ingenious artists and of men of liberal pro-
fessions, I have endeavoured to show in the first book, necessarily
keeps a certain proportion to the emoluments of inferior trades. A
tax upon this recompence, therefore, could have no other effect than
to raise it somewhat higher than in proportion to the tax. If it did not
rise in this manner, the ingenious arts and the liberal professions,

514 WEALTH OF NATIONS

being no longer upon a level with other trades, would be so much de-
serted that they would soon return to that level.

The emoluments of offices are not, like those of trades and pro-
fessions, regulated by the free competition of the market, and do
not, therefore, always bear a just proportion to what the nature of
the employment requires. They are perhaps, in most countries,
higher than it requires; the persons who have the administration
of government being generally disposed to reward both themselves
and their immediate dependents rather more than enough. The
emoluments of offices, therefore, can in most cases very well bear
to be taxed. The persons, besides, who enjoy public offices, espe-
cially the more lucrative, are in all countries the objects of general
envy; and a tax upon their emoluments, even though it should be
somewhat higher than upon any other sort of revenue, is always a
very popular tax. In England, for example, when by the land-tax
every other sort of revenue was supposed to be assessed at four
shillings in the [xjund, it was very popular to lay a real tax of five
shillings and sixpence in the pound upon the salaries of offices which
exceeded a hundred pounds a year; the pensions of the younger
branches of the royal family, the pay of the officers of the army and
navy, and a few others less obnoxious to envy excepted. There are
in England no other direct taxes upon the wages of labour.

ARTICLE IV
Taxes which, it is intended, should fall indifferently upon every

DIFFERENT SpECIES OF REVENUE

The taxes which, it is intended, should fall indifferendy upon
every different species of revenue, are capitation taxes, and taxes
upon consumable commodities. These must be paid indifferendy
from whatever revenue the contributors may possess; from the rent
of their land, from the profits of their stock, or from the wages of
their labour.

CAPITATION TAXES

Capitation taxes, if it is attempted to proportion them to the for-
tune or revenue of each contributor, become altogether arbitrary.
The state of a man's fortune varies from day to day, and without

CAPITATION TAXES 515

an inquisition more intolerable than any tax, and renewed at least
once every year, can only be guessed at. His assessment, therefore,
must in most cases depend upon the good or bad humour of his
assessors, and must, therefore, be altogether arbitrary and uncer-
tain.

Capitation taxes, if they are proportioned not to the supposed
fortune, but to the rank of each contributor, become altogether un-
equal; the degrees of fortune being frequently unequal in the same
degree of rank.

Such taxes, therefore, if it is attempted to render them equal, be-
come altogether arbitrary and uncertain; and if it is attempted to
render them certain and not arbitrary, become altogether unequal.
Let the tax be light or heavy, uncertainty is always a great grievance.
In a light tax a considerable degree of inequality may be supported;
in a heavy one it is altogether intolerable.

In the different poll-taxes which took place in England during the
reign of William III. the contributors were, the greater part of them,
assessed according to the degree of their rank; as dukes, marquisses,
earls, viscounts, barons, esquires, gentlemen, the eldest and youngest
sons of peers, &c. All shopkeepers and tradesmen worth more than
three hundred pounds, that is, the better sort of them, were subject
to the same assessment; how great soever might be the difference
in their fortunes. Their rank was more considered than their for-
tune. Several of those who in the first poll-tax were rated according
to their supposed fortune, were afterwards rated according to their
rank. Serjeants, attornies, and proctors at law, who in the first poll-
tax were assessed at three shillings in the pound of their supposed
income, were afterwards assessed as gentlemen. In the assessment
of a tax which was not very heavy, a considerable degree of inequal-
ity had been found less insupportable than any degree of uncer-
tainty.

In the capitation which has been levied in France without any
interruption since the beginning of the present century, the highest
orders of pwople are rated according to their rank, by an invariable
tariff; the lower orders of p)eople, according to what is supposed to
be their fortune, by an assessment which varies from year to year.
The officers of the king's court, the judges and other officers in the

5l6 WEALTH OF NATIONS

superior courts of justice, the officers of the troops, &c. are assessed
in the first manner. The inferior ranks of people in the provinces are
assessed in the second. In France the great easily submit to a con-
siderable degree of inequality in a tax which, so far as it affects
them, is not a very heavy one; but could not brook the arbitrary
assessment of an intendant. The inferior ranks of people must, in
that country suffer patiendy the usage which their superiors think
proper to give them.

In England the different poll-taxes never produced the sum which
had been expected from them, or which, it was supposed, they might
have produced, had they been exacdy levied. In France the capi-
tation always produces the sum expected from it. The mild gov-
ernment of England, when it assessed the different ranks of people
to the p)oll-tax, contented itself with what that assessment hapf)ened
to produce; and required no compensation for the loss which the
state might sustain either by those who could not pay, or by those
who would not pay (for there were many such), and who, by the
indulgent execution of the law, were not forced to pay. The more
severe government of France assesses upon each generality a cer-
tain sum, which the intendant must find as he can. If any province
complains of being assessed too high, it may, in the assessment of
next year, obtain an abatement proportioned to the over-charge of
the year before. But it must pay in the mean time. The intendant,
in order to be sure of finding the sum assessed upon his generality,
was impowered to assess it in a larger sum, that the failure or in-
ability of some of the contributors might be compensated by the
over-charge of the rest; and till 1765, the fixation of this surplus as-
sessment was left altogether to his discretion. In that year indeed the
council assumed this power to itself. In the capitation of the prov-
inces, it is observed by the perfectly well-informed author of the
Memoirs upon the impositions in France, the proportion which falls
upon the nobility, and upon those whose privileges exempt them
from the taille, is the least considerable. The largest falls upon those
subject to the taille, who are assessed to the capitation at so much a
pound of what they pay to that other tax.

Capitation taxes, so far as they are levied upon the lower ranks
of people, are direct taxes upon the wages of labour, and are attended
with all the inconveniences of such taxes.

TAXES UPON CONSUMABLE COMMODITIES 517

Capitation taxes are levied at little expence; and, where they are
rigorously exacted, afford a very sure revenue to the state. It is upon
this account that in countries where the ease, comfort, and security
of the inferior ranks of p)eople are little attended to, capitation taxes
are very common. It is in general, however, but a small part of the
public revenue, which, in a great empire, has ever been drawn from
such taxes; and the greatest sum which they have ever afforded,
might always have been found in some other way much more con-
venient to the people.

TAXES UPON CONSUMABLE COMMODITIES

The impossibility of taxing the people, in proportion to their reve-
nue, by any capitation, seems to have given occasion to the invention
of taxes Uf)on consumable commodities. The state not knowing how
to tax, directly and proportionably, the revenue of its subjects, en-
deavours to tax it indirectly by taxing their expence, which, it is
supposed, will in most cases be nearly in proportion to their reve-
nue. Their expence is taxed by taxing the consumable commodities
upon which it is laid out.

Consumable commodities are either necessaries or luxuries.

By necessaries I understand, not only the commodities which are
indispensably necessary for the support of life, but whatever the
custom of the country renders it indecent for creditable people, even
of the lowest order, to be without. A linen shirt, for example, is,
stricdy speaking, not a necessary of life. The Greeks and Romans
lived, I supfKJse, very comfortably, though they had no linen. But
in the present times, through the greater part of Europe, a creditable
day-labourer would be ashamed to appear in public without a linen
shirt, the want of which would be supposed to denote that disgraceful
degree of poverty, which, it is presumed, no body can well fall into
without extreme bad conduct. Custom, in the same manner, has
rendered leather shoes a necessary of life in England. The poorest
creditable person of either sex would be ashamed to app)ear in public
without them. In Scodand, custom has rendered them a necessary
of life to the lowest order of men; but not to the same order of
women, who may, without any discredit, walk about bare-footed.
In France, they are necessaries neither to men nor to women; the
lowest rank of both sexes appearing there publicly, without any dis-

5l8 WEALTH OF NATIONS

credit, sometimes in wooden shoes, and sometimes bare-footed.
Under necessaries therefore, I comprehend, not only those things
which nature, but those things which the estabUshed rules of decency
have rendered necessary to the lowest rank of people. All other
things I call luxuries; without meaning by this appellation, to throw
the smallest degree of reproach ufM)n the temperate use of them.
Beer and ale, for example, in Great Britain, and wine, even in the
wine countries, I call luxuries. A man of any rank may, without any
reproach, abstain totally from tasting such liquors. Nature does not
render them necessary for the suppxart of life; and custom nowhere
renders it indecent to live without them.

As the wages of labour are every where regulated, pardy by the
demand for it, and partly by the average price of the necessary arti-
cles of subsistence; whatever raises this average price must necessarily
raise those wages, so that the labourer may still be able to purchase
that quantity of those necessary articles which the state of the de-
mand for labour, whether increasing, stationary, or declining, re-
quires that he should have. A tax upon those articles necessarily
raises their price somewhat higher than the amount of the tax, be-
cause the dealer who advances the tax, must generally get it back
with a profit. Such a tax must, therefore, occasion a rise in the wages
of labour proportionable to this rise of price.

It is thus that a tax upon the necessaries of life, ojierates exacdy
in the same manner as a direct tax upon the wages of labour. The
labourer, though he may pay it out of his hand, cannot, for any con-
siderable time at least, be properly said even to advance it. It must
always in the long-run be advanced to him by his immediate em-
ployer in the advanced rate of his wages. His employer, if he is
a manufacturer, will charge upon the price of his goods this rise of
wages, together with a profit; so that the final payment of the tax,
together with this over-charge, will fall upon the consumer. If his
employer is a farmer, the final payment, together with a like over-
charge, will fall upon the rent of the landlord.

It is otherwise with taxes upon what I call luxuries; even upon
those of the poor. The rise in the price of the taxed commodities,
will not necessarily occasion any rise in the wages of labour. A tax
upon tobacco, for example, though a luxury of the poor as well as

TAXES UPON CONSUMABLE COMMODITIES 519

of the rich, will not raise wages. Though it is taxed in England at
three times, and in France at fifteen times its original price, those
high duties seem to have no effect upon the wages of labour. The
same thing may be said of the taxes upon tea and sugar; which in
England and Holland have become luxuries of the lowest ranks of
people; and of those upon chocolate, which in Spain is said to have
become so. The different taxes which in Great Britain have in the
course of the present century been imposed upon spirituous liquors,
are not supposed to have had any effect upon the wages of labour.
The rise in the price of porter, occasioned by an additional tax of
three shillings upon the barrel of strong beer, has not raised the
wages of common labour in London. These were about eighteen
pence and twenty-pence a day before the tax, and they are not more
now.

The high price of such commodities does not necessarily diminish
the ability of the inferior ranks of people to bring up families. Upon
the sober and industrious poor, taxes upon such commodities act as
sumptuary laws, and dispose them either to moderate, or to refrain
altogether from the use of superfluities which they can no longer
easily afford. Their ability to bring up families, in consequence of
this forced frugality, instead of being diminished, is frequendy,
perhaps, increased by the tax. It is the sober and industrious poor
who generally bring up the most numerous families, and who prin-
cipally supply the demand for useful labour. All the poor indeed are
not sober and industrious, and the dissolute and disorderly might
continue to indulge themselves in the use of such commodities after
this rise of price in the same manner as before; without regarding
the distress which this indulgence might bring upon their families.
Such disorderly persons, however, seldom rear up numerous fami-
lies; their children generally perishing from neglect, mismanage-
ment, and the scantiness or unwholesomeness of their food. If by
the strength of their constitution they survive the hardships to which
the bad conduct of their parents exposes them; yet the example of
that bad conduct commonly corrupts their morals; so that, instead
of being useful to society by their industry, they become public nui-
sances by their vices and disorders. Though the advanced price of the
luxuries of the poor, therefore, might increase somewhat the distress

520 WEALTH OF NATIONS

of such disorderly families, and thereby diminish somewhat their
ability to bring up children; it would not probably diminish much
the useful population of the country.

Any rise in the average price of necessaries, unless it is compen-
sated by a proportionable rise in the wages of labour, must neces-
sarily diminish more or less the ability of the poor to bring up nu-
merous families, and consequently to supply the demand for useful
labour; whatever may be the state of that demand, whether increas-
ing, stationary, or declining; or such as requires an increasing, sta-
tionary, or declining population.

Taxes upon luxuries have no tendency to raise the price of any
other commodities except that of the commodities taxed. Taxes upon
necessaries, by raising the wages of labour, necessarily tend to raise
the price of all manufactures, and consequently to diminish the ex-
tent of their sale and consumption. Taxes upon luxuries are finally
paid by the consumers of the commodities taxed, without any retri-
bution. They fall indifferently upon every species of revenue, the
wages of labour, the profits of stock, and the rent of land. Taxes
upon necessaries, so far as they affect the labouring poor, are finally
paid, partly by landlords in the diminished rent of their lands, and
partly by rich consumers, whether landlords or others, in the ad-
vanced price of manufactured goods; and always with a consider-
able over<harge. The advanced price of such manufactures as are
real necessaries of life, and are destined for the consumption of the
poor, of coarse woollens, for example, must be compensated to the
poor by a farther advancement of their wages. The middling and
superior ranks of people, if they understood their own interest, ought
always to oppose all taxes upon the necessaries of life, as well as all
direct taxes upon the wages of labour. The final payment of both
the one and the other falls altogether upon themselves, and always
with a considerable over-charge. They fall heaviest upon the land-
lords, who always pay in a double capacity; in that of landlords,
by the reduction of their rent; and in that of rich consumers, by
the increase of their expence. The observation of Sir Matthew
Decker, that certain taxes are, in the price of certain goods, some-
times repeated and accumulated four or five times, is perfectly just
with regard to taxes upon the necessaries of life. In the price of

TAXES UPON CONSUMABLE COMMODITIES 52 1

leather, for example, you must pay, not only for the tax upon the
leather of your own shoes, but for a part of that upon those of the
shoemaker and the tanner. You must pay too for the tax upon the
salt, upon the soap, and upon the candles which those workmen
consume while employed in your service, and for the tax upon the
leather, which the salt-maker, the soap-maker, and the candle-maker
consume while employed in their service.

In Great Britain, the principal taxes upon the necessaries of life
are those upon the four commodities just now mentioned, salt,
leather, soap, and candles.

Salt is a very ancient and a very universal subject of taxation. It
was taxed among the Romans, and it is so at present in, I believe,
every part of Europe. The quantity annually consumed by any in-
dividual is so small, and may be purchased so gradually, that no-
body, it seems to have been thought, could feel very sensibly even
a pretty heavy tax upon it. It is in England taxed at three shillings
and fourpence a bushel; about three times the original price of the
commodity. In some other countries the tax is still higher. Leather
is a real necessary of life. The use of linen renders soap such. In
countries where the winter nights are long, candles are a necessary
instrument of trade. Leather and soap are in Great Britain taxed at
three halfpence a pound; candles at a penny; taxes which, upon the
original price of leather, may amount to about eight or ten per cent.;
upon that of soap about twenty or five and twenty per cent., and
upon that of candles to about fourteen or fifteen per cent.; taxes
which, though lighter than that upon salt, are still very heavy. As all
those four commodities are real necessaries of life, such heavy taxes
upon them must increase somewhat the expence of the sober and in-
dustrious poor, and must consequently raise more or less the wages
of their labour.

In a country where the winters are so cold as in Great Britain,
fuel is, during that season, in the strictest sense of the word, a neces-
sary of life, not only for the purpose of dressing victuals, but for
the comfortable subsistence of many different sorts of workmen who
work within doors; and coals are the cheapest of all fuel. The price
of fuel has so important an influence upon that of labour, that all
over Great Britain manufactures have confined themselves princi-

522 WEALTH OF NATIONS

pally to the coal countries; other parts of the country, on account of
the high price of this necessary article, not being able to work so
cheap. In some manufactures, besides, coal is a necessary instrument
of trade; as in those of glass, iron, and all other metals. If a bounty
could in any case be reasonable, it might perhaps be so upon the
transportation of coals from those parts of the country in which
they abound, to those in which they are wanted. But the legislature,
instead of a bounty, has imposed a tax of three shillings and three-
pence a ton upon coal carried coastways; which upon most sorts of
coal is more than sixty per cent, of the original price at the coal-
pit. Coals carried either by land or by inland navigation pay
no duty. Where they are naturally cheap, they are consumed duty
free; where they are naturally dear, they are loaded with a heavy
duty.

Such taxes, though they raise the price of subsistence, and con-
sequently the wages of labour, yet they afford a considerable reve-
nue to government, which it might not be easy to find in any other
way. There may, therefore, be good reasons for continuing them.
The bounty upon the exportation of corn, so far as it tends in the
actual state of tillage to raise the price of that necessary article, pro-
duces all the like bad effects; and instead of affording any revenue,
frequently occasions a very great expense to government. The high
duties upon the importation of foreign corn, which in years of mod-
erate plenty amount to a prohibition; and the absolute prohibition
of the importation either of live cattle or of salt provisions, which
takes place in the ordinary state of the law, and which, on account
of the scarcity, is at present suspended for a limited time with regard
to Ireland and the British plantations, have all the bad effects of
taxes upon the necessaries of life, and produce no revenue to gov-
ernment. Nothing seems necessary for the repeal of such regulations,
but to convince the public of the futility of that system in conse-
quence of which they have been established.

Taxes upon the necessaries of life are much higher in many other
countries than in Great Britain. Duties upon flour and meal when
ground at the mill, and upon bread when baked at the oven, take
place in many countries. In Holland the money price of the bread
consumed in towns is supposed to be doubled by means of such taxes.

TAXES UPON CONSUMABLE COMMODITIES 523

In lieu of a part of them, the people who live in the country pay
every year so much a head, according to the sort of bread they are
supposed to consume. Those who consume wheaten bread, pay
three guilders fifteen stivers; about six shillings and ninepence half-
penny. These, and some other taxes of the same kind, by raising
the price of labour, are said to have ruined the greater part of the
manufactures of Holland. Similar taxes, though not quite so heavy,
take place in the Milanese, in the states of Genoa, in the dutchy of
Modena, in the dutchies of Parma, Placentia, and Guastalla, and in
the ecclesiastical state. A French author of some note has proposed
to reform the finances of his country, by substituting in the room
of the greater part of other taxes, this most ruinous of all taxes.
There is nothing so absurd, says Cicero, which has not sometimes
been asserted by some philosophers.

Taxes upon butchers meat are still more common than those upon
bread. It may indeed be doubted whether butchers meat is any
where a necessary of life. Grain and other vegetables, with the help
of milk, cheese, and butter, or oil, where butter is not to be had,
it is known from experience, can, without any butchers meat, afford
the most plentiful, the most wholesome, the most nourishing, and
the most invigorating diet. Decency no where requires that any
man should eat butchers meat, as it in most places requires that he
should wear a linen shirt or a pair of leather shoes.

Consumable commodities, whether necessaries or luxuries, may
be taxed in two different ways. The consumer may either pay an
annual sum on account of his using or consuming goods of a certain
kind; or the goods may be taxed while they remain in the hands of
the dealer, and before they are delivered to the consumer. The con-
sumable goods which last a considerable time before they are con-
sumed altogether, are most properly taxed in the one way. Those
of which the consumption is either immediate or more speedy, in the
other. The coach-tax and plate-tax are examples of the former
method of imposing: the greater part of the other duties of excise
and customs, of the latter.

The duties of excise are imposed chiefly upon goods of home
produce destined for home consumption. They are imposed only
upon a few sorts of goods of the most general use. There can never

524 WEALTH OF NATIONS

be any doubt either concerning the goods which are subject to those
duties, or concerning the particular duty which each species of goods
is subject to. They fall almost altogether upon what I call luxuries,
excepting always the four duties above mentioned, upon salt, soap,
leather, candles, and, perhaps, that upon green glass.

The duties of customs are much more ancient than those of excise.
They seem to have been called customs, as denoting customary pay-
ments which had been in use from time immemorial. They appear
to have been originally considered as taxes upon the profits of mer-
chants. During the barbarous times of feudal anarchy, merchants,
like all the other inhabitants of burghs, were considered so litde
better than emancipated bondmen, whose jjersons were despised, and
whose gains were envied. The great nobility, who had consented
that the king should tallage the profits of their own tenants, were
not unwilling that he should tallage likewise those of an order of
men whom it was much less their interest to protect. In those igno-
rant times, it was not understood, that the profits of merchants are a
subject not taxable directly; or that the final payment of all such taxes
must fall, with a considerable over<harge, upon the consumers.

The gains of alien merchants were looked upon more unfavour-
ably than those of English merchants. It was natural, therefore, that
those of the former should be taxed more heavily than those of the
latter. This distinction between the duties upon aliens and those
upon English merchants, which was begun from ignorance, has been
continued from the spirit of monopoly, or in order to give our own
merchants an advantage both in the home and in the foreign market.

With this distinction, the ancient duties of customs were imposed
equally upon all sorts of goods, necessaries as well as luxuries, goods
exported as well as goods imported. Why should the dealers in one
sort of goods, it seems to have been thought, be more favoured than
those in another? or why should the merchant exporter be more
favoured than the merchant importer?

The ancient customs were divided into three branches. The first,
and perhaps the most ancient of all those duties, was that up)on wool
and leather. It seems to have been chiefly or altogether an exportation
duty. When the woollen manufacture came to be established in Eng-
land, lest the king should lose any part of his customs upon wool by

TAXES UPON CONSUMABLE COMMODITIES 525

the exportation of woollen cloths, a like duty was imposed upon them.
The other two branches were, first, a duty upon wine, which, being
imposed at so much a ton, was called a tonnage; and, secondly, a
duty upon all other goods, which, being imposed at so much a pound
of their supposed value, was called a poundage. In the forty-seventh
year of Edward III. a duty of sixpence in the pound was imposed
upon all goods exported and imported, except wools, wool-fells,
leather, and wines, which were subject to particular duties. In the
fourteenth of Richard II. this duty was raised to one shilling in the
pound; but three years afterwards, it was again reduced to sixf)ence.
It was raised to eight-pence in the second year of Henry IV.; and in
the fourth year of the same prince, to one shilling. From this time
to the ninth year of William III. this duty continued at one shilling in
the pound. The duties of tonnage and poundage were generally
granted to the king by one and the same act of parliament, and were
called the Subsidy of Tonnage and Poundage. The subsidy of pound-
age having continued for so long a time at one shilling in the pound,
or at five per cent.; a subsidy came, in the language of the customs,
to denote a general duty of this kind of five per cent. The subsidy,
which is now called the Old Subsidy, still continues to be levied
according to the book of rates established in the twelfth of Charles
II. The method of ascertaining, by a book of rates, the value of goods
subject to this duty, is said to be older than the time of James I. The
new subsidy imposed by the ninth and tenth of William III., was an
additional five per cent, upon the greater part of goods. The one-
third and the two-third subsidy made up between them another five
per cent, of which they were proportionately parts. The subsidy of
1747 made a fourth five per cent, upon the greater part of goods; and
that of 1759, a fifth upon some particular sorts of goods. Besides those
five subsidies, a great variety of other duties have occasionally been
imposed upon particular sorts of goods, in order sometimes to relieve
the exigencies of the state, and sometimes to regulate the trade of
the country, according to the principles of the mercantile system.

That system has come gradually more and more into fashion. The
old subsidy was imposed indifferently upon exportation as well as
imjX)rtation. The four subsequent subsidies, as well as the other
duties which have since been occasionally imposed upon particular

526 WEALTH OF NATIONS

sorts of goods, have, with a few exceptions, been laid ahogether upon
importation. The greater part of the ancient duties which had been
imposed upon the exportation of the goods of home produce and
manufacture, have either been lightened or taken away altogether.
In most cases they have been taken away. Bounties have even been
given upon the exportation of some of them. Drawbacks too, some-
times of the whole, and, in most cases, of a part of the duties which
are paid upon the importation of foreign goods, have been granted
upon their exportation. Only half the duties imposed by the old sub-
sidy upon importation are drawn back upon exportation: but the
whole of those imposed by the latter subsidies and other imposts are,
upon the greater part of goods, drawn back in the same manner. This
growing favour of exportation, and discouragement of importation,
have suffered only a few exceptions, which chiefly concern the mate-
rials of some manufactures. These, our merchants and manufac-
turers are willing should come as cheap as possible to themselves, and
as dear as possible to their rivals and competitors in other countries.
Foreign materials are, upon this account, sometimes allowed to be
imported duty free; Spanish wool, for example, flax, and raw linen
yarn. The exportation of the materials of home produce, and of those
which are the particular produce of our colonies, has sometimes been
prohibited, and sometimes subjected to higher duties. The exporta-
tion of English wool has been prohibited. That of beaver skins, of
beaver wool, and of gum Senega, has been subjected to higher duties;
Great Britain, by the conquest of Canada and Senegal, having got
almost the monopoly of those commodities.

That the mercantile system has not been very favourable to the
revenue of the great body of the people, to the annual produce of
the land and labour of the country, I have endeavoured to shew in
the fourth book of this Inquiry. It seems not to have been more
favourable to the revenue of the sovereign; so far at least as that
revenue depends upon the duties of customs.

In consequence of that system, the importation of several sorts of
goods has been prohibited altogether. This prohibition has in some
cases entirely prevented, and in others has very much diminished the
importation of those commodities, by reducing the importers to the
necessity of smuggling. It has entirely prevented the importation of

TAXES UPON CONSUMABLE COMMODITIES 527

foreign woollens; and it has very much diminished that of foreiga
silks and velvets. In both cases it has entirely annihilated the reve-
nue of customs which might have been levied upon such importation.

The high duties which have been imposed upwn the importation of
many different sorts of foreign goods, in order to discourage their
consumption in Great Britain, have in many cases served only tO'
encourage smuggling; and in all cases have reduced the revenue of
the customs below what more moderate duties would have afforded.
The saying of Dr. Swift, that in the arithmetic of the customs two
and two, instead of making four, make sometimes only one, holds,
perfecdy true with regard to such heavy duties, which never could
have been imposed, had not the mercantile system taught us, in many
cases, to employ taxation as an instrument, not of revenue, but of
monopoly.

In order that the greater part of the members of any society should
contribute to the public revenue in proportion to their respective
expence, it does not seem necessary that every single article of that
expence should be taxed. The revenue, which is levied by the duties
of excise, is supposed to fall as equally upon the contributors as that
which is levied by the duties of customs; and the duties of excise are
imposed upon a few articles only of the most general use and con-
sumption. It has been the opinion of many {jeople, that, by proper
management, the duties of customs might likewise, without any loss-
to the public revenue, and with great advantage to foreign tiade, be
confined to a few articles only.

The foreign articles, of the most general use and consumption in
Great Britain, seem at present to consist chiefly in foreign wines and
brandies; in some of the productions of America and the West Indies,
sugar, rum, tobacco, cocoanuts, &c. and in some of those of the East
Indies, tea, coffee, china-ware, spiceries of all kinds, several sorts of
piece-goods, &c. These different articles afford, perhaps, at present, the
greater part of the revenue which is drawn from the duties of cus-
toms. The taxes which at present subsist upon foreign manufactures,
if you except those upon the few contained in the foregoing enumera-
tion, have the greater part of them been imposed for the purjx)se, not
of revenue, but of monopoly, or to give our own merchants an advan-
tage in the home market. By removing all prohibitions, and by sub-

528 WEALTH OF NATIONS

jecting all foreign manufactures to such moderate taxes, as it was
found from experience afforded upon each article the greatest revenue
to the public, our own workmen might still have a considerable
advantage in the home market, and many articles, some of which
at present afford no revenue to government, and others a very incon-
siderable one, might afford a very great one.

High taxes, sometimes by diminishing the consumption of the
taxed commodities, and sometimes by encouraging smuggling, fre-
quently afford a smaller revenue to government than what might be
drawn from more moderate taxes.

When the diminution of revenue is the effect of the diminution of
consumption, there can be but one remedy, and that is the lowering
of the tax.

When the diminution of the revenue is the effect of the encour-
agement given to smuggling, it may perhaps be remedied in two
ways; either by diminishing the temptation to smuggle, or by in-
creasing the difficulty of smuggling. The temptation to smuggle can
be diminished only by the lowering of the tax; and the difficulty of
smuggling can be increased only by establishing that system of
administration which is most proper for preventing it.

The excise laws, it appears, I believe, from experience, obstruct and
embarrass the operations of the smuggler much more effectually
than those of the customs. By introducing into the customs a system
of administration as similar to that of the excise as the nature of the
different duties will admit, the difficulty of smuggling might be very
much increased. This alteration, it has been supposed by many
people, might very easily be brought about.

The importer of commodities liable to any duties of customs, it
has been said, might at his option be allowed either to carry them to
his own private warehouse, or to lodge them in a warehouse pro-
vided either at his own expence or at that of the public, but under
the key of the customhouse officer, and never to be opened but in his
presence. If the merchant carried them to his own private warehouse,
the duties to be immediately paid, and never afterwards to be drawn
back; and that warehouse to be at all times subject to the visit and
examination of the customhouse officer, in order to ascertain how
far the quantity contained in it corresponded with that for which

TAXES UPON CONSUMABLE COMMODITIES 529

the duty had been paid. If he carried them to the pubUc warehouse,
no duty to be paid till they were taken out for home consumption.
If taken out for exportation, to be duty-free; proper security being
always given that they should be so exported. The dealers in those
particular commodities, either by wholesale or retail, to be at all times
subject to the visit and examination of the customhouse officer; and
to be obliged to justify by proper certificates the payment of the duty
upon the whole quantity contained in their shops or warehouses.
What are called the excise-duties upon rum imported are at present
levied in this manner, and the same system of administration might
perhaps be extended to all duties up)on goods imported; provided
always that those duties were, like the duties of excise, confined to
a few sorts of goods of the most general use and consumption. If
they were extended to almost all sorts of goods, as at present, public
warehouses of sufficient extent could not easily be provided, and
goods of a very delicate nature, or of which the preservation required
much care and attention, could not safely be trusted by the merchant
in any warehouse but his own.

If by such a system of administration smuggling, to any con-
siderable extent, could be prevented even under pretty high duties;
and if every duty was occasionally either heightened or lowered
according as it was most likely, either the one way or the other, to
afford the greatest revenue to the state; taxation being always em-
ployed as an instrument of revenue and never of monojx)ly; it seems
not improbable that a revenue, at least equal to the present neat reve-
nue of the customs, might be drawn from duties upon the importa-
tion of only a few sorts of goods of the most general use and con-
sumption; and that the duties of customs might thus be brought to
the same degree of simplicity, certainty, and precision, as those of
excise. What the revenue at present loses, by drawbacks upon the
re-exportation of foreign goods which are afterwards relanded and
consumed at home, would under this system be saved altogether.
If to this saving, which would alone be very considerable, were added
the abolition of all bounties upon the exportation of home-produce;
in all cases in which those bounties were not in reality drawbacks
of some duties of excise which had before been advanced; it cannot
well be doubted but that the neat revenue of customs might, after

530 WEALTH OF NATIONS

an alteration of this kind, be fully equal to what it had ever been
before.

If by sucn a change of system the public revenue suffered no loss,
the trade and manufactures of the country would certainly gain a
very considerable advantage. The trade in the commodities not
taxed, by far the greatest number, would be perfectly free, and
might be carried on to and from all parts of the world with every
possible advantage. Among those commodities would be compre-
hended all the necessaries of life, and all the materials of manufacture.
So far as the free importation of the necessaries of life reduced their
average money price in the home market, it would reduce the money
price of labour, but without reducing in any respect its real recom-
pence. The value of money is in proportion to the quantity of the
necessaries of life which it will purchase. That of the necessaries of
life is altogether independent of the quantity of money which can be
had for them. The reduction in the money price of labour would
necessarily be attended with a proportionable one in that of all home-
manufactures, which would thereby gain some advantage in all for-
eign markets. The price of some manufactures would be reduced in
a still greater proportion by the free importation of the raw materials.
If raw silk could be imported from China and Indostan duty-free, the
silk manufacturers in England could greatly undersell those of both
France and Italy. There would be no occasion to prohibit the impor-
tation of foreign silks and velvets. The cheapness of their goods
would secure to our own workmen, not only the possession of the
home, but a very great command of the foreign market. Even the
trade in the commodities taxed would be carried on with much more
advantage than at present. If those commodities were delivered out
of the public warehouse for foreign exportation, being in this case
exempted from all taxes, the trade in them would be perfectly free.
The carrying trade in all sorts of goods would under this system enjoy
every possible advantage. If those commodities were delivered out for
home<onsumption, the importer not being obliged to advance the
tax till he had an opportunity of selling his goods, either to some
dealer, or to some consumer, he could always afford to sell them
cheaper than if he had been obliged to advance it at the moment of
importation. Under the same taxes, the foreign trade of consumption

TAXES UPON CONSUMABLE COMMODITIES 53 1

even in the taxed commodities, might in this manner be carried on
with much more advantage than it can at present.

It was the object of the famous excise scheme of Sir Robert Walpole
to estabhsh, with regard to wine and tobacco, a system not very un-
hke that which is here proposed. But though the bill which was then
brought into parliament, comprehended those two commodities only;
it was generally supposed to be meant as an introduction to a more
extensive scheme of the same kind. Faction, combined with the inter-
est of smuggling merchants, raised so violent, though so unjust, a
clamour against that bill, that the minister thought proper to drop it;
and from a dread of exciting a clamour of the same kind, none of
his successors have dared to resume the project.

The duties uf)on foreign luxuries imported for home-consumption,
though they sometimes fall Uf)on the fxxir, fall principally uf)on
people of middling or more than middling fortune. Such are, for
example, the duties upon foreign wines, upon coffee, chocolate, tea,
sugar, &c.

The duties upon the cheaper luxuries of home-produce destined
for home<onsumption, fall pretty equally upon jjeople of all ranks
in proportion to their respective expence. The poor pay the duties
upon malt, hops, beer, and ale, upon their own consumption: The
rich, upon both their own consumption and that of their servants.

The whole consumption of the inferior ranks of people, or of
those below the middling rank, it must be observed, is in every coun-
try much greater, not only in quantity, but in value, than that of the
middling and of those above the middling rank. The whole expence
of the inferior is much greater than that of the superior ranks. In
the first place, almost the whole capital of every country is annually
distributed among the inferior ranks of people, as the wages of pro-
ductive labour. Secondly, a great part of the revenue arising from
both the rent of land and the profits of stock, is annually distributed
among the same rank, in the wages and maintenance of menial
servants, and other unproductive labourers. Thirdly, some part of
the profits of stock belongs to the same rank, as a revenue arising
from the employment of their small capitals. The amount of the
profits annually made by small shopkeepers, tradesmen, and retailers
of all kinds, is every where very considerable, and makes a very con-

532 WEALTH OF NATIONS

siderable p)ortion of the annual produce. Fourthly, and lasdy, some
part even of the rent of land belongs to the same rank; a considerable
part to those who are somewhat below the middling rank, and a
small part even to the lowest rank; common labourers sometimes
possessing in property an acre or two of land. Though the expence
of those inferior ranks of people, therefore, taking them individually,
is very small, yet the whole mass of it, taking them collectively,
amounts always to by much the largest portion of the whole expence
of the society; what remains, of the annual produce of the land and
labour of the country for the consumption of the superior ranks,
being always much less, not only in quantity but in value. The taxes
upon expence, therefore, which fall chiefly upon that of the superior
ranks of people, upon the smaller portion of the annual produce, are
likely to be much less productive than either those which fall indif-
ferendy upon the expence of all ranks, or even those which fall chiefly
upon that of the inferior ranks; than either those which fall indiffer-
endy upon the whole annual produce, or those which fall chiefly upon
the larger portion of it. The excise upon the materials and manufac-
ture of home-made fermented and spirituous liquors is accordingly,
of all the different taxes upon expence, by far the most productive;
and this branch of the excise falls very much, perhaps principally,
upon the expence of the common people. In the year which ended on
the 5th of July 1775, the gross produce of this branch of the excise
amounted to 3,341,837/. 9/. gd.

It must always be remembered, however, that it is the luxurious
and not the necessary expence of the inferior ranks of people that
ought ever to be taxed. The final payment of any tax upon their
necessary expence would fall altogether upon the superior ranks of
people; upon the smaller portion of the annual produce, and not
upon the greater. Such a tax must in all cases either raise the wages
of labour, or lessen the demand for it. It could not raise the wages
of labour, without throwing the final payment of the tax upon the
superior ranks of people. It could not lessen the demand for labour,
without lessening the annual produce of the land and labour of the
country, the fund from which all taxes must be finally paid. What-
ever might be the state to which a tax of this kind reduced the de-
mand for labour, it must always raise wages higher than they other-

TAXES UPON CONSUMABLE COMMODITIES 533

wise would be in that state; and the final payment of this enhance-
ment of wages must in all cases fall upon the superior ranks of people.

Fermented liquors brewed, and spirituous liquors distilled, not for
sale, but for private use, are not in Great Britain liable to any duties
of excise. This exemption, of which the object is to save private
families from the odious visit and examination of the tax-gatherer,
occasions the burden of those duties to fall frequently much lighter
upon the rich than upon the pwor. It is not, indeed, very common to
distil for private use, though it is done sometimes. But in the coun-
try, many middling and almost all rich and great families brew their
own beer. Their strong beer, therefore, costs them eight shillings a
barrel less than it costs the common brewer, who must have his
profit ujX)n the tax, as well as upon all the other expence which he
advances. Such families, therefore, must drink their beer at least nine
or ten shillings a barrel cheaper than any liquor of the same quality
can be drunk by the common people, to whom it is every where more
convenient to buy their beer, by little and litde, from the brewery
or the alehouse. Malt, in the same manner, that is made for the use
of a private family, is not liable to the visit or examination of the
tax-gatherer; but in this case the family must compound at seven
shillings and sixpence a head for the tax. Seven shillings and six-
pence are equal to the excise ufx)n ten bushels of malt; a quantity
fully equal to what all the different members of any sober family,
men, women, and children, are at an average likely to consume.
But in rich and great families, where country hospitality is much
practised, the malt liquors consumed by the members of the family
make but a small part of the consumption of the house. Either on
account of this composition, however, or for other reasons, it is not
near so common to malt as to brew for private use. It is difficult to
imagine any equitable reason why those who either brew or distil
for private use, should not be subject to a composition of the same
kind.

A greater revenue than what is at present drawn from all the
heavy taxes upon malt, beer, and ale, might be raised, it has frequendy
been said, by a much lighter tax upon malt; the opportunities of de-
frauding the revenue being much greater in a brewery than in a
malt-house; and those who brew for private use being exempted

534 WEALTH OF NATIONS

from all duties or composition for duties, which is not the case with
those who malt for private use.

Besides such duties as those of customs and excise above-mentioned,
there are several others which affect the price of goods more un-
equally and more indirectly. Of this kind are the duties which in
French are called Peages, which in old Saxon times were called
Duties of Passage, and which seem to have been originally estab-
lished for the same purpose as our turnpike tolls, or the tolls upon
our canals and navigable rivers, for the maintenance of the road or
of the navigation. Those duties, when applied to such purp)oses, are
most properly imposed according to the bulk of weight of the goods.
As they were originally local and provincial duties, applicable to local
and provincial purposes, the administration of them was in most
cases entrusted to the particular town, parish, or lordship, in which
they were levied; such communities being in some way or other su[v
posed to be accountable for the application. The sovereign, who is
altogether unaccountable, has in many countries assumed to himself
the administration of those duties; and though he has in most cases
enhanced very much the duty, he has in many entirely neglected the
application. If the turnpike tolls of Great Britain should ever become
one of the resources of government, we may learn, by the example of
many other nations, what would probably be the consequence. Such
tolls are no doubt finally paid by the consumer; but the consumer
is not taxed in proportion to his expence when he pays, not according
to the value, but according to the bulk or weight of what he con-
sumes. When such duties are imposed, not according to the bulk
or weight, but according to the supposed value of the goods, they
become properly a sort of inland customs or excises, which obstruct
very much the most important of all branches of commerce, the
interior commerce of the country.

In some small states duties similar to those passage duties are im-
posed upon goods carried across the territory, either by land or by
water, from one foreign country to another. These are in some coun-
tries called transit-duties. Some of the little Italian states, which are
situated upon the Po, and the rivers which run into it, derive some
revenue from duties of this kind, which are paid altogether by for-

TAXES UPON CONSUMABLE COMMODITIES 535

eigners, and which, perhaps, are the only duties that one state can
impose upon the subjects of another, without obstructing in any
respect the industry or commerce of its own. The most important
transit-duty in the world is that levied by the king of Denmark upon
all merchant ships which pass through the Sound.

Such taxes upon luxuries as the greater part of the duties of cus-
toms and excise, though they all fall indifferently uf)on every differ-
ent species of revenue, and are paid finally, or without any retribu-
tion, by whoever consumes the commodities upon which they are
imposed, yet they do not always fall equally or proportionably upon
the revenue of every individual. As every man's humour regulates
the degree of his consumption, every man contributes rather accord-
ing to his humour than in proportion to his revenue; the profuse con-
tribute more, the parsimonious less, than their proper proportion.
During the minority of a man of great fortune, he contributes com-
monly very little, by his consumption, towards the support of that
state from whose protection he derives a great revenue. Those who
live in another country contribute nothing, by their consumption,
towards the support of the government of that country, in which is
situated the source of their revenue. If in this latter country there
should be no land-tax, nor any considerable duty upon the trans-
ference either of moveable or of immoveable property, as is the case
in Ireland, such absentees may derive a great revenue from the pro-
tection of a government to the support of which they do not con-
tribute a single shilling. This inequality is likely to be greatest in a
country of which the government is in some respects subordinate and
dependent upon that of some other. The people who possess the
most extensive projjerty in the dejjendent, will in this case generally
chuse to live in the governing country. Ireland is precisely in this
situation, and we cannot therefore wonder that the proposal of a tax
upon absentees should be so very popular in that country. It might,
perhaps, be a little difficult to ascertain either what sort, or what
degree of absence would subject a man to be taxed as an absentee, or
at what precise time the tax should either begin or end. If you except,
however, this very particular situation, any inequality in the contribu-
tion of individuals, which can arise from such taxes, is much more
than compensated by the very circumstance which occasions that in-

536 WEALTH OF NATIONS

equality; the circumstance that every man's contribution is altogether
voluntary; it being altogether in his power either to consume or not
to consume the commodity taxed. Where such taxes, therefore, are
properly assessed and upon proper commodities, they are paid with
less grumbling than any other. When they are advanced by the
merchant or manufacturer, the consumer, who finally pays them,
soon comes to confound them with the price of the commodities,
and almost forgets that he pays any tax.

Such taxes are or may be perfecdy certain, or may be assessed so
as to leave no doubt concerning either what ought to be paid, or
when it ought to be paid; concerning either the quantity or the time
of payment. Whatever uncertainty there may sometimes be, either
in the duties of customs in Great Britain, or in other duties of the
same kind in other countries, it cannot arise from the nature of those
duties, but from the inaccurate or unskilful manner in which the law
that imposes them is expressed.

Taxes upon luxuries generally are, and always may be, paid piece-
meal, or in proportion as the contributors have occasion to purchase
the goods upon which they are imposed. In the time and mode of
payment they are, or may be, of all taxes the most convenient. Upon
the whole, such taxes, therefore, are, perhaps, as agreeable to the three
first of the four general maxims concerning taxation, as any other.
They offend in every respect against the fourth.

Such taxes, in proportion to what they bring into the public treas-
ury of the state, always take out or keep out of the pockets of the
people more than almost any other taxes. They seem to do this in
all the four different ways in which it is possible to do it.

First, the levying of such taxes, even when imposed in the most
judicious manner, requires a great number of custom-house and
excise officers, whose salaries and perquisites are a real tax upon the
people, which brings nothing into the treasury of the state. This ex-
pence, however, it must be acknowledged, is more moderate in Great
Britain than in most other countries. In the year which ended on the
fifth of July 1775, the gross produce of the different duties, under the
management of the commissioners of excise in England, amounted
to 5,507,308/. iSs. S%d. which was levied at an expence of litde more
than five and a half per cent. From this gross produce, however.

TAXES UPON CONSUMABLE COMMODITIES 537

there must be deducted what was paid away in bounties and draw-
backs uf)on the exfxjrtation of exciseable goods, which will reduce the
neat produce below five millions. The levying of the salt duty, an
excise duty, but under a different management, is much more expen-
sive. The neat revenue of the customs does not amount to two
millions and a half, which is levied at an expense of more than ten
per cent, in the salaries of officers, and other incidents. But the per-
quisites of customhouse officers are every where much greater than
their salaries; at some ports more than double or triple those salaries.
If the salaries of officers, and other incidents, therefore, amount to
more than ten per cent, upon the neat revenue of the customs; the
whole expence of levying that revenue may amount, in salaries and
perquisites together, to more than twenty or thirty per cent. The
officers of excise receive few or no perquisites: and the administra-
tion of that branch of the revenue being of more recent establishment,
is in general less corrupted than that of the customs, into which
length of time has introduced and authorized many abuses. By
charging upon malt the whole revenue which is at present levied by
the different duties upon malt and malt liquors, a saving, it is sup-
posed, of more than fifty thousand pounds might be made in the
annual expence of the excise. By confining the duties of customs to a
few sorts of goods, and by levying those duties according to the excise
laws, a much greater saving might probably be made in the annual
expence of the customs.

Secondly, such taxes necessarily occasion some obstruction or dis-
couragement to certain branches of industry. As they always raise
the price of the commodity taxed, they so far discourage its consump-
tion, and consequendy its production. If it is a commodity of home
growth or manufacture, less labour comes to be employed in raising
and producing it. If it is a foreign commodity of which the tax
increases in this manner, the price, the commodities of the same kind
which are made at home may thereby, indeed, gain some advantage
in the home market, and a greater quantity of domestic industry may
thereby be turned toward preparing them. But though this rise of
price in a foreign commodity may encourage domestic industry in
one particular branch, it necessarily discourages that industry in al-
most every other. The dearer the Birmingham manufacturer buys

538 WEALTH OF NATIONS

his foreign wine, the cheaper he necessarily sells that part of his
hardware with which, or, what comes to the same thing, with the
price of which he buys it. That part of his hardware, therefore, be-
comes of less value to him, and he has less encouragement to work
at it. The dearer the consumers in one country pay for the surplus
produce of another, the cheaper they necessarily sell that part of
their own surplus produce with which, or, what comes to the same
thing, with the price of which they buy it. That part of their own
surplus produce becomes of less value to them, and they have less
encouragement to increase its quantity. All taxes upon consumable
commodities, therefore, tend to reduce the quantity of productive
labour below what it otherwise would be, either in preparing the
commodities taxed, if they are home commodities; or in preparing
those with which they are purchased, if they are foreign commodities.
Such taxes too always alter, more or less, the natural direction of
national industry, and turn it into a channel always different from,
and always less advantageous than that in which it would have run
of its own accord.

Thirdly, the hope of evading such taxes by smuggling gives fre-
quent occasion to forfeitures and other penalties, which entirely ruin
the smuggler; a person who, though no doubt highly blameable for
violating the laws of his country, is frequently incapable of violating
those of natural justice, and would have been, in every respect, an
excellent citizen, had not the laws of his country made that a crime
which nature never meant to be so. In those corrupted governments
where there is at least a general suspicion of much unnecessary ex-
pence, and great misapplication of the public revenue, the laws which
guard it are little respected. Not many people are scrupulous about
smuggling, when, without perjury, they can find easy and safe opf)or-
tunity of doing so. To pretend to have any scruple about buying
smuggled goods, though a manifest encouragement to the violation
of the revenue laws, and to the perjury which almost always attends
it, would in most countries be regarded as one of those f)edantic pieces
of hypocrisy which, instead of gaining credit with any body, serve
only to expose the person who affects to practise them, to the suspi-
cion of being a greater knave than most of his neighbours. By this
indulgence of the public, the smuggler is often encouraged to con-

TAXES UPON CONSUMABLE COMMODITIES 539

tinue a trade which he is thus taught to consider as in some measure
innocent; and when the severity of the revenue laws is ready to fall
upon him, he is frequently disposed to defend with violence, what
he has been accustomed to regard as his just projjerty. From being
at first, perhaps, rather imprudent than criminal, he at last too often
becomes one of the hardiest and most determined violators of the
laws of society. By the ruin of the smuggler, his capital, which had
before been employed in maintaining productive labour, is absorbed
either in the revenue of the state or in that of the revenue-officer, and
is employed in maintaining unproductive, to the diminution of the
general capital of the society, and of the useful industry which it
might otherwise have maintained.

Fourthly, such taxes, by subjecting at least the dealers in the taxed
commodities to the frequent visits and odious examination of the
tax-gatherers, expose them sometimes, no doubt, to some degree of
oppression, and always to much trouble and vexation; and though
vexation, as has already been said, is not strictly speaking expence, it
is certainly equivalent to the exp)ence at which every man would be
willing to redeem himself from it. The laws of excise, though more
effectual for the purpose for which they were instituted, are, in this
respect, more vexatious than those of the customs. When a merchant
has imported goods subject to certain duties of customs, when he has
paid those duties, and lodged the goods in his warehouse, he is not
in most cases liable to any further trouble or vexation from the cus-
tomhouse officer. It is otherwise with goods subject to duties of
excise. The dealers have no respite from the continual visits and
examination of the excise officers. The duties of excise are, uf)on this
account, more unpopular than those of the customs; and so are the
officers who levy them. Those officers, it is pretended, though in gen-
eral, perhaps, they do their duty fully as well as those of the customs;
yet, as that duty obliges them to be frequendy very troublesome to
some of their neighbours, commonly contract a certain hardness of
character which the others frequently have not. This observation,
however, may very probably be the mere suggestion of fraudulent
dealers, whose smuggling is either prevented or detected by their
diligence.

The inconveniencies, however, which are, perhaps, in some degree

540 WEALTH OF NATIONS

inseparable from taxes upon consumable commodities, fall as light
upon the people of Great Britain as upon those of any other country
of which the government is nearly as expensive. Our state is not per-
fect, and might be mended; but it is as good or better than that of
most of our neighbours.

In consequence of the notion that duties up>on consumable goods
were taxes upon the profits of merchants, those duties have, in some
countries, been repeated upon every successive sale of the goods. If
the profits of the merchant importer or merchant manufacturer were
taxed, equality seemed to require that those of all the middle buyers,
who intervened between either of them and the consumer, should
likewise be taxed. The famous Alcavala of Spain seems to have
been established upon this principle. It was at first a tax of ten per
cent., afterwards of fourteen per cent., and is at present of only six
per cent, upon the sale of every sort of property, whether moveable or
immoveable; and it is repeated every time the prop)erty is sold. The
levying of this tax requires a multitude of revenue officers sufficient
to guard the transportation of goods, not only from one province
to another, but from one shop to another. It subjects, not only the
dealers in some sorts of goods, but those in all sorts, every farmer,
every manufacturer, every merchant and shop-keeper, to the continual
visits and examination of the tax-gatherers. Through the greater
part of a country in which a tax of this kind is established, nothing
can be produced for distant sale. The produce of every part of the
country must be proportioned to the consumption of the neighbour-
hood. It is to the Alcavala, accordingly, that Ustaritz imputes the
ruin of the manufactures of Spain. He might have imputed to it like-
wise the declension of agriculture, it being imposed not only upon
manufactures, but upon the rude produce of the land.

In the kingdom of Naples there is a similar tax of three per cent,
upon the value of all contracts, and consequently upon that of all
contracts of sale. It is both lighter than the Spanish tax, and the
greater part of towns and parishes are allowed to pay a composition
in lieu of it. They levy this composition in what manner they please,
generally in a way that gives no interruption to the interior commerce
of the place. The Neapolitan tax, therefore, is not near so ruinous
as the Spanish one.

TAXES UPON CONSUMABLE COMMODITIES 54 1

The uniform system of taxation, which, with a few exceptions of
no great consequence, takes place in all the different parts of the
united kingdom of Great Britain, leaves the interior commerce of
the country, the inland and coasting trade, almost entirely free. The
inland trade is almost perfecdy free, and the greater part of goods
may be carried from one end of the kingdom to the other, without
requiring any permit or let-pass, without being subject to question,
visit, or examination from the revenue officers. There are a few ex-
ceptions, but they are such as can give no interruption to any impor-
tant branch of the inland commerce of the country. Goods carried
coastwise, indeed, require certificates or coast cockets. If you except
coals, however, the rest are almost all duty-free. This freedom of
interior commerce, the effect of the uniformity of the system of
taxation, is perhaps one of the principal causes of the prosperity of
Great Britain; every great country being necessarily the best and most
extensive market for the greater part of the productions of its own
industry. If the same freedom, in consequence of the same uniform-
ity, could be extended to Ireland and the plantations, both the
grandeur of the state and the prosperity of every part of the empire,
would probably be still greater than at present.

In France, the different revenue laws which take place in the differ-
ent provinces, require a multitude of revenue-officers to surround,
not only the frontiers of the kingdom, but those of almost each par-
ticular province, in order either to prevent the importation of certain
goods, or to subject it to the payment of certain duties, to the no
small interruption of the interior commerce of the country. Some
provinces are allowed to compound for the gabelle or salt-tax. Others
are exempted from it altogether. Some provinces are exempted from
the exclusive sale of tobacco, which the farmers-general enjoy through
the greater part of the kingdom. The aids, which correspond to the
excise in England, are very different in different provinces. Some
provinces are exempted from them, and pay a composition or equiva-
lent. In those in which they take place and are in farm, there are
many local duties which do not extend beyond a particular town or
district. The traites, which correspond to our customs, divide the
kingdom into three great parts; first, the provinces subject to the
tarif of 1664, which are called the provinces of the five great farms.

542 WEALTH OF NATIONS

and under which are comprehended Picardy, Normandy, and the
greater part of the interior provinces of the kingdom; secondly, the
provinces subject to the tarif of 1667, which are called the provinces
reckoned foreign, and under which are comprehended the greater
part of the frontier provinces; and thirdly, those provinces which are
said to be treated as foreign, or which, because they are allowed a
free commerce with foreign countries, are in their commerce with
the other provinces of France subjected to the same duties as other
foreign countries. These are Alsace, the three bishopricks of Metz,
Toul, and Verdun, and the three cities of Dunkirk, Bayonne, and
Marseilles. Both in the provinces of the five great farms (called so
on account of an ancient division of the duties of customs into five
great branches, each of which was originally the subject of a particu-
lar farm, though they are now all united into one), and in those
which are said to be reckoned foreign, there are many local duties
which do not extend beyond a particular town or district. There
are some such even in the provinces which are said to be treated as
foreign, particularly in the city of Marseilles. It is unnecessary to
observe how much, both the restraints upon the interior commerce
of the country, and the number of the revenue officers must be multi-
plied, in order to guard the frontiers of those different provinces and
districts, which are subject to such different systems of taxation.

Over and above the general restraints arising from this compli-
cated system of revenue laws, the commerce of wine, after corn per-
haps the most important production of France, is in the greater part
of the provinces subject to particular restraints, arising from the
favour which has been shewn to the vineyards of particular prov-
inces and districts, above those of others. The provinces most fa-
mous for their wines, it will be found, I believe, are those in which
the trade in that article is subject to the fewest restraints of this kind.
The extensive market which such provinces enjoy, encourages good
management both in the cultivation of their vineyards, and in the
subsequent preparation of their wines.

Such various and complicated revenue laws are not peculiar to
France. The little dutchy of Milan is divided into six provinces, in
each of which there is a different system of taxation with regard to
several different sorts of consumable goods. The still smaller terri-

TAXES UPON CONSUMABLE COMMODITIES 543

tories of the duke of Parma are divided into three or four, each of
which has, in the same manner, a system of its own. Under such
absurd management, nothing, but the great fertiUty of the soil and
happiness of the cUmate, could preserve such countries from soon
relapsing into the lowest state of poverty and barbarism.

Taxes upon consumable commodities may either be levied by an
administration of which the officers are appointed by government and
are immediately accountable to government, of which the revenue
must in this case vary from year to year, according to the occasional
variations in the produce of the tax; or they may be let in farm for a
rent certain, the farmer being allowed to appoint his own officers,
who, though obliged to levy the tax in the manner directed by the
law, are under his immediate inspection, and are immediately ac-
countable to him. The best and most frugal way of levying a tax
can never be by farm. Over and above what is necessary for paying
the stipulated rent, the salaries of the officers, and the whole expence
of administration, the farmer must always draw from the produce
of the tax a certain profit proportioned at least to the advance which
he makes, to the risk which he runs, to the trouble which he is at, and
to the knowledge and skill which it requires to manage so very com-
plicated a concern. Government, by establishing an administration
under their own immediate inspection, of the same kind with that
which the farmer establishes, might at least save this profit, which is
almost always exorbitant. To farm any considerable branch of the
public revenue, requires either a great capital or a great credit; cir-
cumstances which would alone restrain the competition for such an
undertaking to a very small number of people. Of the few who have
this capital or credit, a still smaller number have the necessary
knowledge or experience; another circumstance which restrains the
competition still further. The very few, who are in condition to be-
come competitors, find it more for their interest to combine together;
to become co-partners instead of competitors, and when the farm is
set up to auction, to offer no rent, but what is much below the real
value. In countries where the public revenues are in farm, the
farmers are generally the most opulent people. Their wealth would
alone excite the public indignation, and the vanity which almost
always accompanies such upstart fortunes, the foolish ostentation

544 WEALTH OF NATIONS

with which they commonly display that wealth, excites that indigna-
tion still more.

The farmers of the public revenue never find the laws too severe,
which punish any attempt to evade the payment of a tax. They have
no bowels for the contributors, who are not their subjects, and whose
universal bankruptcy, if it should happen the day after their farm is
expired, would not much affect their interest. In the greatest exigen-
cies of the state, when the anxiety of the sovereign for the exact pay-
ment of his revenue is necessarily the greatest, they seldom fail to
complain that without laws more rigorous than those which actually
take place, it will be impossible for them to pay even the usual rent.
In those moments of public distress their demands cannot be dis-
puted. The revenue laws, therefore, become gradually more and
more severe. The most sanguinary are always to be found in coun-
tries where the greater part of the public revenue is in farm. The
mildest, in countries where it is levied under the immediate inspec-
tion of the sovereign. Even a bad sovereign feels more compassion
for his people than can be expected from the farmers of his revenue.
He knows that the permanent grandeur of his family depends upon
the prosperity of his people, and he will never knowingly ruin that
prosperity for the sake of any momentary interest of his own. It is
otherwise with the farmers of his revenue, whose grandeur may fre-
quendy be the effect of the ruin, and not of the prosperity of his
people.

A tax is sometimes, not only farmed for a certain rent, but the
farmer has, besides, the monopoly of the commodity taxed. In
France, the duties upon tobacco and salt are levied in this manner.
In such cases the farmer, instead of one, levies two exorbitant profits
upon the people; the profit of the farmer, and the still more exor-
bitant one of the monopolist. Tobacco being a luxury, every man
is allowed to buy or not to buy as he chuses. But salt being a neces-
sary, every man is obliged to buy of the farmer a certain quantity of
it; because, if he did not buy this quantity of the farmer, he would, it
is presumed, buy it of some smuggler. The taxes upon both com-
modities are exorbitant. The temptation to smuggle consequently
is to many people irresistible, while at the same time the rigour of
the law, and the vigilance of the farmer's officers, render the yielding

TAXES UPON CONSUMABLE COMMODITIES 545

to that temptation almost certainly ruinous. The smuggling of salt
and tobacco sends every year several hundred people to the gallies,
besides a very considerable number whom it sends to the gibbet.
Those taxes levied in this manner yield a very considerable revenue
to government. In 1767, the farm of tobacco was let for twenty-two
millions five hundred and forty-one thousand two hundred and
seventy-eight livres a year. That of salt, for thirty-six millions four
hundred and nine-two thousand four hundred and four livres. The
farm in both cases was to commence in 1768, and to last for six years.
Those who consider the blood of the people as nothing in compari-
son with the revenue of the prince, may perhaps approve of this
method of levying taxes. Similar taxes and monopolies of salt and
tobacco have been established in many other countries; particularly
in the Austrian and Prussian dominions, and in the greater part of
the states of Italy.

In France, the greater part of the actual revenue of the crown is
derived from eight different sources; the taille, the capitation, the
two vingtiemes, the gabelles, the aides, the traites, the domaine, and
the farm of tobacco. The five last are, in the greater part of the
provinces, under farm. The three first are every where levied by an
administration under the immediate inspection and direction of gov-
ernment, and it is universally acknowledged that, in propxjrtion to
what they take out of the pockets of the people, they bring more into
the treasury of the prince than the other five, of which the administra-
tion is much more wasteful and expensive.

The finances of France seem, in their present state, to admit of
three very obvious reformations. First, by abolishing the taille and
the capitation, and by encreasing the number of vingtiemes, so as to
produce an additional revenue equal to the amount of those other
taxes, the revenue of the crown might be preserved; the expence of
collection might be much diminished; the vexation of the inferior
ranks of people, which the taille and capitation occasion, might be
entirely prevented; and the superior ranks might not be more bur-
dened than the greater part of them are at present. The vingtieme,
I have already observed, is a tax very nearly of the same kind with
what is called the land-tax of England. The burden of the taille, it
is acknowledged, falls finally upon the proprietors of land, and as

546 WEALTH OF NATIONS

the greater part of the capitation is assessed upon those who are sub-
ject to the taille at so much a pound of that other tax, the final pay-
ment of the greater part of it must hkewise fall upon the same order
of people. Though the number of the vingtiemes, therefore, was
increased so as to produce an additional revenue equal to the amount
of both those taxes, the superior ranks of people might not be more
burdened than they are at present. Many individuals no doubt
would, on account of the great inequalities with which the taille is
commonly assessed upon the estates and tenants of different indi-
viduals. The interest and opposition of such favoured subjects are
the obstacles most likely to prevent this or any other reformation of
the same kind. Secondly, by rendering the gabelle, the aides, the
traites, the taxes upon tobacco, all the different customs and excises,
uniform in all the different parts of the kingdom, those taxes might
be levied at much less expence, and the interior commerce of the
kingdom might be rendered as free as that of England. Thirdly,
and lastly, by subjecting all those taxes to an administration under
the immediate inspection and direction of government, the exorbitant
profits of the farmers general might be added to the revenue of the
state. The opposition arising from the private interest of individuals,
is likely to be as effectual for preventing the two last as the first
mentioned scheme of reformation.

The French system of taxation seems, in every respect, inferior to
the British. In Great Britain ten million sterling are annually levied
upon less than eight millions of people, without its being possible to
say that any particular order is oppressed. From the collections of
the Abbe Expilly, and the observations of the author of the Essay
upon the legislation and commerce of corn, it appears probable, that
France, including the provinces of Lorraine and Bar, contains about
twenty-three or twenty-four millions of people; three times the num-
ber perhaps contained in Great Britain. The soil and climate of
France are better than those of Great Britain. The country has been
much longer in a state of improvement and cultivation, and is, upon
that account, better stocked with all those things which it requires a
long time to raise up and accumulate, such as great towns, and con-
venient and well-built houses, both in town and country. With these
advantages, it might be expected that in France a revenue of thirty

TAXES UPON CONSUMABLE COMMODITIES 547

millions might be levied for the support of the state, with as little
inconveniency as a revenue of ten millions is in Great Britain. In
1765 and 1766, the whole revenue paid into the treasury of France,
according to the best, though, I acknowledge, very imperfect, ac-
counts which I could get of it, usually run between 308 and 325
millions of livres; that is, it did not amourrt to fifteen millions ster-
ling; not the half of what might have been expected, had the f)eople
contributed in the same proportion to their numbers as the f>eople
of Great Britain. The people of France, however, it is generally
acknowledged, are much more oppressed by taxes than the people of
Great Britain. France, however, is certainly the great empire in Eu-
rope which, after that of Great Britain, enjoys the mildest and most
indulgent government.

In Holland the heavy taxes upon the necessaries of life have ruined,
it is said, their principal manufactures, and are likely to discourage
gradually even their fisheries and their trade in ship-building. The
taxes up)on the necessaries of life are inconsiderable in Great Britain,
and no manufacture has hitherto been ruined by them. The British
taxes which bear hardest on manufaaures are some duties upon the
importation of raw materials, particularly upon that of raw silk.
The revenue of the states general and of the different cities, however,
is said to amount to more than five millions two hundred and fifty
thousand pounds sterling; and as the inhabitants of the United Prov-
inces cannot well be supposed to amount to more than a third part
of those of Great Britain, they must, in proportion to their number,
be much more heavily taxed.

After all the proper subjects of taxation have been exhausted, if the
exigencies of the state still continue to require new taxes, they must
be imposed upon improper ones. The taxes upon the necessaries of
life, therefore, may be no impeachment of the wisdom of that re-
public, which, in order to acquire and to maintain its independency,
has, in spite of its great frugality, been involved in such expensive
wars as have obliged it to contract great debts. The singular coun-
tries of Holland and Zealand, besides, require a considerable exp)ence
even to preserve their existence, or to prevent their being swallowed
up by the sea, which must have contributed to increase considerably
the load of taxes in those two provinces. The republican form of gov-

548 WEALTH OF NATIONS

ernment seems to be the principal support of the present grandeur of
Holland. The owners of great capitals, the great mercantile families,
have generally either some direct share, or some indirect influence,
in the administration of that government. For the sake of the respect
and authority which they derive from this situation, they are willing
to live in a country where their capital, if they employ it themselves,
will bring them less profit, and if they lend it to another, less interest;
and where the very moderate revenue which they can draw from it
will purchase less of the necessaries and conveniences of life than in
any other part of Europe. The residence of such wealthy people
necessarily keeps alive, in spite of all disadvantages, a certain degree
of industry in the country. Any public calamity which should destroy
the republican form of government, which should throw the whole
administration into the hands of nobles and of soldiers, which should
annihilate altogether the importance of those wealthy merchants,
would soon render it disagreeable to them to live in a country where
they were no longer likely to be much respected. They would remove
both their residence and their capital to some other country, and the
industry and commerce of Holland would soon follow the capitals
which supported them.

CHAPTER III
Of Public Debts

IN that rude state of society which precedes the extension o£
commerce and the improvement of manufactures, when those
expensive luxuries which commerce and manufactures can alone
introduce, are altogether unknown, the person who possesses a large
revenue, I have endeavoured to show in the third book of this In-
quiry, can spend or enjoy that revenue in no other way than by
maintaining nearly as many people as it can maintain. A large reve-
nue may at all times be said to consist in the command of a large
quantity of the necessaries of life. In that rude state of things it is
commonly paid in a large quantity of those necessaries, in the mate-
rials of plain food and coarse clothing, in corn and cattle, in wool
and raw hides. When neither commerce nor manufactures furnish
any thing for which the owner can exchange the greater part of those
materials which are over and above his own consumption, he can
do nothing with the surplus but feed and clothe nearly as many
people as it will feed and clothe. A hospitality in which there is no
luxury, and a liberality in which there is no ostentation, occasion, in
this situation of things, the principal expences of the rich and the
great. But these, I have likewise endeavoured to show in the same
book, are expences by which people are not very apt to ruin them-
selves. There is not, perhaps, any selfish pleasure so frivolous, of
which the pursuit has not sometimes ruined even sensible men. A
passion for cock-fighting has ruined many. But the instances, I be-
lieve, are not very numerous of people who have been ruined by a
hospitality or liberality of this kind; though the hospitality of lux-
ury and the liberality of ostentation have ruined many. Among our
feudal ancestors, the long time during which estates used to continue
in the same family, sufficiently demonstrates the general disposition
of people to live within their income. Though the rustic hospitality,
constandy exercised by the great land-holders, may not, to us in the

549

550 WEALTH OF NATIONS

present times, seem consistent with that order, which we are apt to
consider as inseparably connected with good oeconomy, yet we must
certainly allow them to have been at least so far frugal as not com-
monly to have spent their whole income. A part of their wool and
raw hides they had generally an opportunity of selling for money.
Some part of this money, perhaps, they sf)ent in purchasing the few
objects of vanity and luxury, with which the circumstances of the
times could furnish them; but some part of it they seem commonly
to have hoarded. They could not well indeed do any thing else but
hoard whatever money they saved. To trade was disgraceful to a
gentleman, and to lend money at interest, which at that time was
considered as usury and prohibited by law, would have been still
more so. In those times of violence and disorder, besides, it was con-
venient to have a hoard of money at hand, that in case they should
be driven from their own home, they might have something of
known value to carry with them to some place of safety. The same
violence, which made it convenient to hoard, made it equally con-
venient to conceal the hoard. The frequency of treasure-trove, or of
treasure found of which no owner was known, sufficiently demon-
strates the frequency in those times both of hoarding and of con-
cealing the hoard. Treasure-trove was then considered as an impor-
tant branch of the revenue of the sovereign. All the treasure-trove of
the kingdom would scarce perhaps in the present times make an im-
portant branch of the revenue of a private gentleman of a good estate.
The same disposition to save and to hoard prevailed in the sov-
ereign, as well as in the subjects. Among nations to whom commerce
and manufactures are little known, the sovereign, it has already been
observed in the fourth book, is in a situation which naturally dis-
poses him to the parsimony requisite for accumulation. In that situ-
ation the expence even of a sovereign cannot be directed by that
vanity which delights in the gaudy finery of a court. The ignorance
of the times affords but few of the trinkets in which that finery con-
sists. Standing armies are not then necessary, so that the exf>ence
even of a sovereign, like that of any other great lord, can be employed
in scarce any thing but bounty to his tenants, and hospitality to his
retainers. But bounty and hospitality very seldom lead to extrava-
gance; though vanity almost always does. All the ancient sovereigns

PUBLIC DEBTS 55 1

of Eurof)e accordingly, it has already been observed, had treasures.
Every Tartar chief in the present times is said to have one.

In a commercial country abounding with every sort of expensive
luxury, the sovereign, in the same manner as almost all the great
proprietors in his dominions, naturally spends a great part of his
revenue in purchasing those luxuries. His own and the neighbouring
countries supply him abundantly with all the costly trinkets which
compose the splendid, but insignificant pageantry of a court. For the
sake of an inferior pageantry of the same kind, his nobles dismiss
their retainers, make their tenants independent, and become gradu-
ally themselves as insignificant as the greater part of the wealthy
burghers in his dominions. The same frivolous passions, which influ-
ence their conduct, influence his. How can it be supposed that he
should be the only rich man in his dominions who is insensible to
pleasures of this kind ? If he does not, what he is very likely to do,
spend upon those pleasures so great a part of his revenue as to
debilitate very much the defensive power of the state, it cannot well
be expected that he should not spend upon them all that part of it
which is over and above what is necessary for supporting that de-
fensive power. His ordinary expence becomes equal to his ordinary
revenue, and it is well if it does not frequently exceed it. The
amassing of treasure can no longer be expected, and when extraordi-
nary exigencies require extraordinary exf)ences, he must necessarily
call upon his subjects for an extraordinary aid. The present and the
late king of Prussia are the only great princes of Europe, who, since
the death of Henry IV. of France in 1610, are supposed to have
amassed any considerable treasure. The parsimony which leads to
accumulation has become almost as rare in republican as in monar-
chial governments. The Italian republics, the United Provinces of
the Netherlands, are all in debt. The canton of Berne is the single
republic in Europe which has amassed any considerable treasure.
The other Swiss republics have not. The taste for some sort of pa-
geantry, for splendid buildings, at least, and other public ornaments,
frequently prevails as much in the apparently sober senate-house of
a little republic, as in the dissipated court of the greatest king.

The want of parsimony in time of peace, imposes the necessity of
contracting debt in time of war. When war comes, there is no

552 WEALTH OF NATIONS

money in the treasury but what is necessary for carrying on the ordi-
nary expence of the peace establishment. In war an establishment of
three or four times that expence becomes necessary for the defence
of the state, and consequendy a revenue three or four times greater
than the peace revenue. Supposing that the sovereign should have,
what he scarce ever has, the immediate means of augmenting his
revenue in proportion to the augmentation of his expence, yet still
the produce of the taxes, from which this increase of revenue must
be drawn, will not begin to come into the treasury till perhaps ten
or twelve months after they are imposed. But the moment in which
war begins, or rather the moment in which it appears likely to
begin, the army must be augmented, the fleet must be fitted out, the
garrisoned towns must be put into a posture of defence; that army,
that fleet, those garrisoned towns must be furnished with arms, am-
munition, and provisions. An immediate and great expence must be
incurred in that moment of immediate danger, which will not wait
for the gradual and slow returns of the new taxes. In this exigency
government can have no other resource but in borrowing.

The same commercial state of society which, by the operation of
moral causes, brings government in this manner into the necessity
of borrowing, produces in the subjects both an ability and an in-
clination to lend. If it commonly brings along with it the neces-
sity of borrowing, it likewise brings along with it the facility of
doing so.

A country abounding with merchants and manufacturers, neces-
sarily abounds with a set of people through whose hands not only
their own capitals, but the capitals of all those who either lend them
money, or trust them with goods, pass as frequently, or more fre-
quendy, than the revenue of a private man, who, without trade or
business, lives upwn his income, passes through his hands. The reve-
nue of such a man can regularly pass through his hands only once
in a year. But the whole amount of the capital and credit of a mer-
chant, who deals in a trade in which the returns are very quick, may
sometimes pass through his hands two, three, or four times in a year.
A country abounding with merchants and manufacturers, therefore,
necessarily abounds with a set of people who have at all times in
their power to advance, if they chuse to do so, a very large sum of

PUBLIC DEBTS 553

money to government. Hence the ability in the subjects of a com-
mercial state to lend.

Commerce and manufartures can seldom flourish long in any
state which does not enjoy a regular administration of justice, in
which the people do not feel themselves secure in the fxjssession of
their property, in which the faith of contracts is not supported by
law, and in which the authority of the state is not supposed to be
regularly employed in enforcing the payment of debts from all those
who are able to pay. Commerce and manufactures, in short, can sel-
dom flourish in any state in which there is not a certain degree of
confidence in the justice of government. The same confidence which
disposes great merchants and manufacturers, upon ordinary occa-
sions, to trust their property to the protection of a particular govern-
ment; disposes them, upon extraordinary occasions, to trust that gov-
ernment with the use of their property. By lending money to govern-
ment, they do not even for a moment diminish their ability to carry
on their trade and manufactures. On the contrary, they commonly
augment it. The necessities of the state render government ufwn
most occasions willing to borrow upon terms extremely advan-
tageous to the lender. The security which it grants to the original
creditor, is made transferable to any other creditor, and, from the
universal confidence in the justice of the state, generally sells in the
market for more than was originally paid for it. The merchant or
monied man makes money by lending money to government, and in-
stead of diminishing, increases his trading capital. He generally con-
siders it as a favour, therefore, when the administration admits him
to a share in the first subscription for a new loan. Hence the inclina-
tion or willingness in the subjects of a commercial state to lend.

The government of such a state is very apt to repose itself upon this
ability and willingness of its subjects to lend it their money on
extraordinary occasions. It foresees the facility of borrowing, and
therefore dispenses itself from the duty of saving.

In a rude state of society there are no great mercantile or manu-
facturing capitals. The individuals, who hoard whatever money they
can save, and who conceal their hoard, do so from a distrust of the
justice of government, from a fear that if it was known that they
had a hoard, and where that hoard was to be found, they would

554 WEALTH OF NATIONS

quickly be plundered. In such a state of things few people would be
able, and no body would be willing, to lend their money to govern-
ment on extraordinary exigencies. The sovereign feels that he must
provide for such exigencies by saving, because he foresees the abso-
lute impossibility of borrowing. This foresight increases still further
his natural disf>osition to save.

The progress of the enormous debts which at present oppress, and
will in the long-run probably ruin, all the great nations of Europe,
has been pretty uniform. Nations, like private men, have generally
begun to borrow upon what may be called personal credit, without
assigning or mortgaging any particular fund for the payment of the
debt; and when this resource has failed them, they have gone on to
borrow upon assignments or mortgages of particular funds.

What is called the unfunded debt of Great Britain, is contracted
in the former of those two ways. It consists partly in a debt which
bears, or is supposed to bear, no interest, and which resembles the
debts that a private man contracts upon account; and pardy in a
debt which bears interest, and which resembles what a private man
contracts upon his bill or promissory note. The debts which are due
either for extraordinary services, or for services either not provided
for, or not paid at the time when they are performed; part of the
extraordinaries of the army, navy, and ordnance, the arrears of sub-
sidies to foreign princes, those of seamen's wages, &c. usually consti-
tute a debt of the first kind. Navy and Exchequer bills, which are
issued sometimes in payment of a part of such debts and sometimes
for other purfxjses, constitute a debt of the second kind; Exchequer
bills bearing interest from the day on which they are issued, and
navy bills six months after they are issued. The bank of England,
either by voluntarily discounting those bills at their current value, or
by agreeing with government for certain considerations to circulate
Exchequer bills, that is, to receive them at par, paying the interest
which happens to be due upon them, keeps up their value and facili-
tates their circulation, and thereby frequently enables government
to contract a very large debt of this kind. In France, where there is
no bank, the state bills (billets d'etat) have sometimes sold at sixty
and seventy per cent, discount. During the great re<oinage in King
William's time, when the bank of England thought proper to put a

PUBLIC DEBTS 555

Stop to its usual transactions, Exchequer bills and tallies are said to
have sold from twenty-five to sixty per cent, discount; owing partly,
no doubt, to the supposed instability of the new government estab-
lished by the Revolution, but pardy too to the want of the support of
the bank of England.

When this resource is exhausted, and it becomes necessary, in order
to raise money, to assign or mortgage some particular branch of the
public revenue for the payment of the debt, government has ufxin
different occasions done this in two different ways. Sometimes it has
made this assignment or mortgage for a short f)eriod of time only,
a year, or a few years, for example; and sometimes for perjjetuity. In
the one case, the fund was supposed sufficient to pay, within the
limited time, both principal and interest of the money borrowed. In
the other, it was supposed sufficient to pay the interest only, or a
perpetual annuity equivalent to the interest, government being at
liberty to redeem at any time this annuity, up)on paying back the
principal sum borrowed. When money was raised in the one way,
it was said to be raised by anticipation; when in the other, by per-
petual funding, or, more shordy, by funding.

The ordinary expence of the greater part of modern governments
in time of peace being equal or nearly equal to their ordinary reve-
nue, when war comes, they are both unwilling and unable to increase
their revenue in proportion to the increase of their expence. They
are unwilling, for fear of offending the people, who by so great and
so sudden an increase of taxes, would soon be disgusted with the war;
and they are unable, from not well knowing what taxes would be
sufficient to produce the revenue wanted. The facility of borrowing
delivers them from the embarrassment which this fear and inability
would otherwise occasion. By means of borrowing they are enabled,
with a very moderate increase of taxes, to raise, from year to year,
money sufficient for carrying on the war, and by the practice of f)er-
petual funding they are enabled, with the smallest possible increase
of taxes, to raise annually the largest possible sum of money. In great
empires the people who live in the capital, and in the provinces re-
mote from the scene of action, feel, many of them, scarce any incon-
veniency from the war; but enjoy, at their ease, the amusement of

556 WEALTH OF NATIONS

reading in the newspapers the exploits of their own fleets and armies.
To them this amusement compensates the small difference between
the taxes which they pay on account of the war, and those which they
had been accustomed to pay in time of peace. They are commonly
dissatisfied with the return of peace, which puts an end to their
amusement, and to a thousand visionary hopes of conquest and
national glory, from a longer continuance of the war.

The return of peace, indeed, seldom relieves them from the greater
part of the taxes imposed during the war. These are mortgaged for
the interest of the debt contracted in order to carry it on. If, over
and above paying the interest of this debt, and defraying the ordinary
expence of government, the old revenue, together with the new taxes,
produce some surplus revenue, it may perhaps be converted into a
sinking fund for paying off the debt. But, in the first place, this sink-
ing fund, even supposing it should be applied to no other purpose,
is generally altogether inadequate for paying, in the course of any
period during which it can reasonably be expected that peace should
continue, the whole debt contracted during the war; and, in the
second place, this fund is almost always applied to other purposes.

The new taxes were impwsed for the sole purpose of paying the
interest of the money borrowed upon them. If they produce more,
it is generally something which was neither intended nor expected,
and is therefore seldom very considerable. Sinking funds have gen-
erally arisen, not so much from any surplus of the taxes which was
over and above what was necessary for paying the interest or annuity
originally charged upon them, as from a subsequent reduction of
that interest. That of Holland in 1655, and that of the ecclesiastical
state in 1685, were both formed in this manner. Hence the usual
insufficiency of such funds.

During the most profound peace, various events occur which re-
quire an extraordinary expence, and government finds it always
more convenient to defray this expence by misapplying the sinking
fund than by imposing a new tax. Every new tax is immediately felt
more or less by the people. It occasions always some murmur, and
meets with some opposition. The more taxes may have been multi-
plied, the higher they may have been raised upon every different
subject of taxation; the more loudly the people complain of every

PUBLIC DEBTS 557

new tax, the more difficult it becomes too either to find out new sub-
jects of taxation, or to raise much higher the taxes already imposed
upon the old. A momentary suspension of the payment of debt
is not immediately felt by the people, and occasions neither murmur
nor complaint. To borrow of the sinking fund is always an obvious
and easy expedient for getting out of the present difficulty. The more
the public debts may have been accumulated, the more necessary it
may have become to study to reduce them, the more dangerous, the
more ruinous it may be to misapply any part of the sinking fund;
the less likely is the public debt to be reduced to any considerable
degree, the more likely, the more certainly is the sinking fund to be
misapplied towards defraying all the extraordinary exf)ences which
occur in time of peace. When a nation is already overburdened with
taxes, nothing but the necessities of a new war, nothing but either
the animosity of national vengeance, or the anxiety for national se-
curity, can induce the people to submit, with tolerable patience, to a
new tax. Hence the usual misapplication of the sinking fund.

The public funds of the different indebted nations of Europe, par-
ticularly those of England, have by one author been represented as
the accumulation of a great capital suf)er-added to the other capital
of the country, by means of which its trade is extended, its manu-
factures multiplied, and its lands cultivated and improved much
beyond what they could have been by means of that other capital
only. He does not consider that the capital which the first creditors
of the public advanced to government, was, from the moment in
which they advanced it, a certain portion of the annual produce
turned away from serving in the function of a capital, to serve in
that of a revenue; from maintaining productive labourers to maintain
unproductive ones, and to be spent and wasted, generally in the
course of the year, without even the hope of any future reproduction.
In return for the capital which they advanced they obtained, indeed,
an annuity in the public funds in most cases of more than equal
value. This annuity, no doubt, replaced to them their capital, and
enabled them to carry on their trade and business to the same or per-
haps to a greater extent than before; that is, they were enabled either
to borrow of other people a new capital upon the credit of this an-

558 WEALTH OF NATIONS

nuity, or by selling it to get from other people a new capital of their
own, equal or superior to that which they had advanced to govern-
ment. This new capital, however, which they in this manner either
bought or borrowed of other people, must have existed in the country
before, and must have been employed as all capitals are, in main-
taining productive labour. When it came into the hands of those
who had advanced their money to government, though it was in
some resf)ects a new capital to them, it was not so to the country;
but was only a capital withdrawn from certain employments in
order to be turned towards others. Though it replaced to them
what they had advanced to government, it did not replace it to the
country. Had they not advanced this capital to government, there
would have been in the country two capitals, two portions of the
annual produce, instead of one, employed in maintaining productive
labour.

When for defraying the expence of government a revenue is raised
within the year from the produce of free or unmortgaged taxes, a
certain portion of the revenue of private people is only turned away
from maintaining one sf)ecies of unproductive labour, towards main-
taining another. Some part of what they pay in those taxes might
no doubt have been accumulated into capital, and consequently em-
ployed in maintaining productive labour; but the greater part would
probably have been spent and consequently employed in maintaining
unproductive labour. The public expence, however, when defrayed
in this manner, no doubt hinders more or less the further accumula-
tion of new capital; but it does not necessarily occasion the destruction
of any actually existing capital.

When the public expence is defrayed by funding, it is defrayed by
the annual destruction of some capital which had before existed in
the country; by the perversion of some portion of the annual produce
which had before been destined for the maintenance of productive
labour, towards that of unproductive labour. As in this case, how-
ever, the taxes are lighter than they would have been, had a reve-
nue sufficient for defraying the same expence been raised within the
year; the private revenue of individuals is necessarily less burdened,
and consequently their ability to save and accumulate some part of
that revenue into capital is a good deal less impaired. If the method

PUBLIC DEBTS 559

of funding destroy more old capital, it at the same time hinders less
the accumulation or acquisition of new capital, than that of defray-
ing the public expence by a revenue raised within the year. Under
the system of funding, the frugality and industry of private jjeople
can more easily repair the breaches which the waste and extravagance
of government may occasionally make in the general capital of the
society.

It is only during the continuance of war, however, that the system
of funding has this advantage over the other system. Were the ex-
pence of war to be defrayed always by a revenue raised within the
year, the taxes from which that extraordinary revenue was drawn
would last no longer than the war. The ability of private people to
accumulate, though less during the war, would have been greater
during the peace than under the system of funding. War would not
necessarily have occasioned the destruction of any old capitals, and
f)eace would have occasioned the accumulation of many more new.
Wars would in general be more speedily concluded, and less wan-
tonly undertaken. The p)eople feeling, during the continuance of the
war, the complete burden of it, would soon grow weary of it, and
government, in order to humour them, would not be under the neces-
sity of carrying it on longer than it was necessary to do so. The fore-
sight of the heavy and unavoidable burdens of war would hinder the
people from wantonly calling for it when there was no real or solid
interest to fight for. The seasons during which the ability of private
people to accumulate was somewhat impaired, would occur more
rarely, and be of shorter continuance. Those on the contrary, dur-
ing which that ability was in the highest vigour, would be of much
longer duration than they can well be under the system of funding.

When funding, besides, has made a certain progress, the multipli-
cation of taxes which it brings along with it sometimes impairs as
much the ability of private people to accumulate even in time of
peace, as the other system would in time of war. The peace revenue
of Great Britain amounts at present to more than ten millions a year.
If free and unmortgaged, it might be sufficient, with proper manage-
ment and without contracting a shilling of new debt, to carry on the
most vigorous war. The private revenue of the inhabitants of Great
Britain is at present as much encumbered in time of peace, their

560 WEALTH OF NATIONS

ability to accumulate is as much impaired as it would have been in
the time of the most expensive war, had the pernicious system of
funding never been adopted.

In the payment of the interest of the public debt, it has been said,
it is the right hand which pays the left. The money does not go out
of the country. It is only a part of the revenue of one set of the
inhabitants which is transferred to another; and the nation is not a
farthing the poorer. This apology is founded altogether in the soph-
istry of the mercantile system, and after the long examination which
I have already bestowed upon that system, it may jxirhaps be unnec-
essary to say any thing further about it. It supposes, besides, that
the whole public debt is owing to the inhabitants of the country,
which happens not to be true; the Dutch, as well as several other
foreign nations, having a very considerable share in our public
funds. But though the whole debt were owing to the inhabitants
of the country, it would not upon that account be less pernicious.

Land and capital stock are the two original sources of all revenue
both private and public. Capital stock pays the wages of productive
labour, whether employed in agriculture, manufactures, or commerce.
The management of those two original sources of revenue belongs
to two different sets of people; the proprietors of land, and the owners
or employers of capital stock.

The proprietor of land is interested for the sake of his own revenue
to keep his estate in as good condition as he can, by building and
repairing his tenants houses, by making and maintaining the neces-
sary drains and enclosures, and all those other exjjensive improve-
ments which it properly belongs to the landlord to make and main-
tain. But by different land-taxes the revenue of the landlord may
be so much diminished; and by different duties upon the necessaries
and conveniences of life, that diminished revenue may be rendered
of so little real value, that he may find himself altogether unable to
make or maintain those expensive improvements. When the land-
lord, however, ceases to do his part, it is altogether impossible that
the tenant should continue to do his. As the distress of the landlord
increases, the agriculture of the country must necessarily decline.

When, by different taxes upon the necessaries and conveniences
of life, the owners and employers of capital stock find, that whatever

PUBLIC DEBTS 561

revenue they derive from it, will not, in a particular country, pur-
chase the same quantity of those necessaries and conveniences which
an equal revenue would in almost any other, they will be disposed
to remove to some other. And when, in order to raise those taxes,
all or the greater part of merchants and manufacturers, that is, all
or the greater part of the employers of great capitals, come to be con-
tinually exposed to the mortifying and vexatious visits of the tax-
gatherers, this disposition to remove will soon be changed into an
actual removal. The industry of the country will necessarily fall with
the removal of the capital which supported it, and the ruin of trade
and manufactures will follow the declension of agriculture.

To transfer from the owners of those two great sources of revenue,
land and capital stock, from the persons immediately interested in the
good condition of every particular portion of land, and in the good
management of every particular portion of capital stock, to another
set of persons (the creditors of the public, who have no such par-
ticular interest), the greater part of the revenue arising from either,
must, in the long-run, occasion both the neglect of land, and the
waste or removal of capital stock. A creditor of the public has no
doubt a general interest in the prosperity of the agriculture, manu-
factures, and commerce of the country; and consequently in the good
condition of its lands, and in the good management of its capital
stock. Should there be any general failure or declension in any of
these things, the produce of the different taxes might no longer be
sufficient to pay him the annuity or interest which is due him. But
a creditor of the public, considered merely as such, has no interest
in the good condition of any particular portion of land, or in the
good management of any particular portion of capital stock. As a
creditor of the public he has no knowledge of any such particular
portion. He has no inspection of it. He can have no care about it.
Its ruin may in some cases be unknown to him, and cannot direcdy
affect him.

The practice of funding has gradually enfeebled every state which
has adopted it. The Italian republics seem to have begun it. Genoa
and Venice, the only two remaining which can pretend to an inde-
pendent existence, have both been enfeebled by it. Spain seems to
have learned the practice from the Italian republics, and (its taxes

562 WEALTH OF NATIONS

being probably less judicious than theirs) it has, in proportion to its
natural strength, been still more enfeebled. The debts of Spain are
of very old standing. It was deeply in debt before the end of the
sixteenth century, about a hundred years before England owed a
shilling. France, notwithstanding all its natural resources, languishes
under an oppressive load of the same kind. The republic of the
United Provinces is as much enfeebled by its debts as either Genoa
or Venice. Is it likely that in Great Britain alone a practice, which has
brought either weakness or desolation into every other country,
should prove altogether innocent?

The system of taxation established in those different countries, it
may be said, is inferior to that of England. I believe it is so. But it
ought to be remembered, that when the wisest government has ex-
hausted all the proper subjects of taxation, it must, in cases of urgent
necessity, have recourse to improper ones. The wise republic of
Holland has upon some occasions been obliged to have recourse to
taxes as inconvenient as the greater part of those of Spain. Another
war begun before any considerable liberation of the public revenue
had been brought about, and growing in its progress as expensive as
the last war, may, from irresistible necessity, render the British sys-
tem of taxation as oppressive as that of Holland, or even as that of
Spain. To the honour of our present system of taxation, indeed, it
has hitherto given so little embarrassment to industry, that, during
the course even of the most exjiensive wars, the frugality and good
conduct of individuals seem to have been able, by saving and accu-
mulation, to repair all the breaches which the waste and extravagance
of government had made in the general capital of the society. At
the conclusion of the late war, the most expensive that Great Britain
ever waged, her agriculture was as flourishing, her manufacturers as
numerous and as fully employed, and her commerce as extensive, as
they had ever been before. The capital, therefore, which supported
all those different branches of industry, must have been equal to what
it had ever been before. Since the peace, agriculture has been still
further improved, the rents of houses have risen in every town and
village of the country, a proof of the increasing wealth and revenue
of the people; and the annual amount of the greater part of the old
taxes, of the principal branches of the excise and customs in particu-

PUBLIC DEBTS 563

lar, has been continually increasing, an equally clear proof of an
increasing consumption, and consequently of an increasing produce,
which could alone support that consumption. Great Britain seems
to support with ease a burden which, half a century ago, nobody be-
lieved her capable of suppwrting. Let us not, however, upon this
account rashly conclude that she is capable of supporting any burden;
nor even be too confident that she could support, without great dis-
tress, a burden a little greater than what has already been laid
upon her.

When national debts have once been accumulated to a certain
degree, there is scarce, I believe, a single instance of their having
been fairly and completely paid. The liberation of the public revenue,
if it has ever been brought about at all, has always been brought
about by a bankruptcy; sometimes by an avowed one, but always
by a real one, though frequendy by a pretended payment.

The raising of the denomination of the coin has been the most
usual expedient by which a real public bankruptcy has been dis-
guised under the app>earance of a pretended payment. If a sixpence,
for example, should either by act of parliament or royal proclama-
tion be raised to the denomination of a shilling, and twenty six-
pences to that of a pound sterling; the person who under the old
denomination had borrowed twenty shillings, or near four ounces of
silver, would, under the new, pay with twenty sixpjences, or with
something less than two ounces. A national debt of about a hundred
and twenty-eight millions, nearly the capital of the funded and un-
funded debt of Great Britain, might in this manner be paid with
about sixty-four millions of our present money. It would indeed be
a pretended payment only, and the creditors of the public would
really be defrauded of ten shillings in the pound of what was due to
them. The calamity, too, would extend much further than to the
creditors of the public, and those of every private person would suffer
a proportionable loss; and this without any advantage, but in most
cases with a great additional loss, to the creditors of the public. If
the creditors of the public indeed were generally much in debt to
other f)eople, they might in some measure compensate their loss by
paying their creditors in the same coin in which the public had paid
them. But in most countries the creditors of the public are, the

564 WEALTH OF NATIONS

greater part of them, wealthy people, who stand more in the relation
of creditors than in that of debtors towards the rest of their fellow-
citizens. A pretended payment of this kind, therefore, instead of
alleviating, aggravates in most cases the loss of the creditors of the
public; and without any advantage to the public, extends the calamity
to a great number of other innocent people. It occasions a general
and most pernicious subversion of the fortunes of private people;
enriching in most cases the idle and profuse debtor at the expense of
the industrious and frugal creditor, and transporting a great part
of the national capital from the hands which were likely to increase
and improve it, to those which are likely to dissipate and destroy it.
When it becomes necessary for a state to declare itself bankrupt, in
the same manner as when it becomes necessary for an individual to
do so, a fair, open, and avowed bankruptcy is always the measure
which is both least dishonourable to the debtor, and least hurtful to
the creditor. The honour of a state is surely very poorly provided
for, when, in order to cover the disgrace of a real bankruptcy, it has
recourse to a juggling trick of this kind, so easily seen through, and
at the same time so extremely pernicious.