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Chapter 1



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
purchase. In consequence of its being the measure of value, we
estimate that of all other commodities by the quantity of money
which they will exchange for. We say of a rich man, that he is
worth a great deal, and of a poor man, that he is worth very
little money. A frugal man, or a man eager to be rich, is said to
love money ; and a careless, a generous, or a profuse man, is
said to be indifferent about it. To grow rich is to get money ;
and wealth and money, in short, are, in common language,
considered as in every respect synonymous.

A rich country, in the same manner as a rich man, is supposed to
be a country abounding in money ; and to heap up gold and silver
in any country is supposed to be the readiest way to enrich it.
For some time after the discovery of America, the first inquiry
of the Spaniards, when they arrived upon 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 settlement there, or
if the country was worth the conquering. Plano Carpino, a monk
sent ambassador from the king of France to one of the sons of the
famous 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 inquiry had the same object with that of the
Spaniards. They wanted to know if the country was rich enough to
be worth the conquering. Among the Tartars, as among all other
nations of shepherds, who are generally ignorant of the use of
money, cattle are the instruments of commerce and the measures of
value. Wealth, therefore, according to them, consisted in cattle,
as, according to the Spaniards, it consisted in gold and silver.
Of the two, the Tartar notion, perhaps, was the nearest to the

Mr Locke remarks a distinction between money and other moveable
goods. All other moveable goods, he says, are of so consumable a
nature, that the wealth which consists in them cannot be much
depended on; and a nation which abounds in them one year may,
without any exportation, but merely by their own waste and
extravagance, be in great want of them the next. Money, on the
contrary, is a steady friend, which, though it may travel about
from hand to hand, yet if it can be kept from going out of the
country, is not very liable to be wasted and consumed. Gold and
silver, therefore, are, according to him, the must 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 economy.

Others admit, that if a nation could be separated from all the
world, it would be of no consequence how much or how little money
circulated in it. The consumable goods, which were circulated by
means of this money, would only be exchanged for a greater or a
smaller number of pieces; but the real wealth or poverty of the
country, they allow, would depend altogether upon the abundance
or scarcity of those consumable goods. But it is otherwise, they
think, with countries which have connections with foreign
nations, and which are obliged to carry on foreign wars, and to
maintain fleets and armies in distant countries. This, they say,
cannot be done, but by sending abroad money to pay them with ;
and a nation cannot send much money abroad, unless it has a good
deal at home. Every such nation, therefore, must endeavour, in
time of peace, to accumulate gold and silver, that when occasion
requires, it may have wherewithal to carry on foreign wars.

In consequence of those popular notions, all the different
nations of Europe have studied, though to little purpose, every
possible means of accumulating gold and silver in their
respective countries. Spain and Portugal, the proprietors of the
principal mines which supply Europe with those metals, have
either prohibited their exportation under the severest penalties,
or subjected it to a considerable duty. The like prohibition
seems anciently to have made a part of the policy of most other
European nations. It is even to be found, where we should least
of all expect to find it, in some old Scotch acts of Parliament,
which forbid, under heavy penalties, the carrying gold or silver
forth of the kingdom. The like policy anciently took place both
in France and England.

When those countries became commercial, the merchants found this
prohibition, upon many occasions, extremely inconvenient. They
could frequently buy more advantageously with gold and silver,
than with any other commodity, the foreign goods which they
wanted, either to import into their own, or to carry to some
other foreign country. They remonstrated, therefore, against this
prohibition as hurtful to trade.

They represented, first, that the exportation of gold and silver,
in order to purchase foreign goods, did not always diminish the
quantity of those metals in the kingdom ; that, on the contrary,
it might frequently increase the quantity ; because, if the
consumption of foreign goods was not thereby increased in the
country, those goods might be re-exported to foreign countries,
and being there sold for a large profit, might bring back much
more treasure than was originally sent out to purchase them. Mr
Mun compares this operation of foreign trade to the seed-time and
harvest of agriculture. "If we only behold," says he, "the
actions of the husbandman in the seed. time, when he casteth away
much good corn into the ground, we shall account him rather a
madman than a husbandman. But when we consider his labours in the
harvest, which is the end of his endeavours, we shall find the
worth and plentiful increase of his actions."

They represented, secondly, that this prohibition could not
hinder the exportation of gold and silver, which, on account of
the smallness of their bulk in proportion to their value, could
easily be smuggled abroad. That this exportation could only be
prevented by a proper attention to what they called the balance
of trade. That when the country exported to a greater value than
it imported, a balance became due to it from foreign nations,
which was necessarily paid to it in gold and silver, and thereby
increased the quantity of those metals in the kingdom. But that
when it imported to a greater value than it exported, a contrary
balance became due to foreign nations, which was necessarily paid
to them in the same manner, and thereby diminished that quantity
: that in this case, to prohibit the exportation of those metals,
could not prevent it, but only, by making it more dangerous,
render it more expensive: that the exchange was thereby turned
more against the country which owed the balance, than it
otherwise might have been; the merchant who purchased a bill upon
the foreign country being obliged to pay the banker who sold it,
not only for the natural risk, trouble, and expense of sending
the money thither, but for the extraordinary risk arising from
the prohibition; but that the more the exchange was against any
country, the more the balance of trade became necessarily against
it; the money of that country becoming necessarily of so much
less value, in comparison with that of the country to which the
balance was due. That if the exchange between England and
Holland, for example, was five per cent. against England, it
would require 105 ounces of silver in England to purchase a bill
for 100 ounces of silver in Holland: that 105 ounces of silver in
England, therefore, would be worth only 100 ounces of silver in
Holland, and would purchase only a proportionable quantity of
Dutch goods ; but that 100 ounces of silver in Holland, on the
contrary, would be worth 105 ounces in England, and would
purchase a proportionable quantity of English goods; that the
English goods which were sold to Holland would be sold so much
cheaper, and the Dutch goods which were sold to England so much
dearer, by the difference of the exchange : that the one would
draw so much less Dutch money to England, and the other so much
more English money to Holland, as this difference amounted to:
and that the balance of trade, therefore, would necessarily be so
much more against England, and would require a greater balance of
gold and silver to be exported to Holland.

Those arguments were partly solid and partly sophistical. They
were solid, so far as they asserted that the exportation of gold
and silver in trade might frequently be advantageous to the
country. They were solid, too, in asserting that no prohibition
could prevent their exportation, when private people found any
advantage in exporting them. But they were sophistical, in
supposing, that either to preserve or to augment the quantity of
those metals required more the attention of government, than to
preserve or to augment the quantity of any other useful
commodities, which the freedom of trade, without any such
attention, never fails to supply in the proper quantity. They
were sophistical, too, perhaps, in asserting that the high price
of exchange necessarily increased what they called the
unfavourable balance of trade, or occasioned the exportation of a
greater quantity of gold and silver. That high price, indeed, was
extremely disadvantageous to the merchants who had any money to
pay in foreign countries. They paid so much dearer for the bills
which their bankers granted them upon those countries. But though
the risk arising from the prohibition might occasion some
extraordinary expense to the bankers, it would not necessarily
carry any more money out of the country. This expense would
generally be all laid out in the country, in smuggling the money
out of it, and could seldom occasion the exportation of a single
sixpence beyond the precise sum drawn for. The high price of
exchange, too, would naturally dispose the merchants to endeavour
to make their exports nearly balance their imports, in order that
they might have this high exchange to pay upon as small a sum as
possible. The high price of exchange, besides, must necessarily
have operated as a tax, in raising the price of foreign goods,
and thereby diminishing their consumption. It would tend,
therefore, not to increase, but to diminish, what they called the
unfavourable balance of trade, and consequently the exportation
of gold and silver.

Such as they were, however, those arguments convinced the people
to whom they were addressed. They were addressed by merchants to
parliaments and to the councils of princes, to nobles, and to
country gentlemen; by those who were supposed to understand
trade, to those who were conscious to them selves that they knew
nothing about the matter. That foreign trade enriched the
country, experience demonstrated to the nobles and country
gentlemen, as well as to the merchants ; but how, or in what
manner, none of them well knew. The merchants knew perfectly in
what manner it enriched themselves, it was their business to know
it. But to know in what manner it enriched the country, was no
part of their business. The subject never came into their
consideration, but when they had occasion to apply to their
country for some change in the laws relating to foreign trade. It
then became necessary to say something about the beneficial
effects of foreign trade, and the manner in which those effects
were obstructed by the laws as they then stood. To the judges who
were to decide the business, it appeared a most satisfactory
account of the matter, when they were told that foreign trade
brought money into the country, but that the laws in question
hindered it from bringing so much as it otherwise would do. Those
arguments, therefore, produced the wished-for effect. The
prohibition of exporting gold and silver was, in France and
England, confined to the coin of those respective countries. The
exportation of foreign coin and of bullion was made free. In
Holland, and in some other places, this liberty was extended even
to the coin of the country. The attention of government was
turned away from guarding against the exportation of gold and
silver, to watch over the balance of trade, as the only cause
which could occasion any augmentation or diminution of those
metals. From one fruitless care, it was turned away to another
care much more intricate, much more embarrassing, and just
equally fruitless. The title of Mun's book, England's Treasure in
Foreign Trade, became a fundamental maxim in the political
economy, not of England only, but of all other commercial
countries. The inland or home trade, the most important of all,
the trade in which an equal capital affords the greatest revenue,
and creates the greatest employment to the people of the country,
was considered as subsidiary only to foreign trade. It neither
brought money into the country, it was said, nor carried any out
of it. The country, therefore, could never become either richer
or poorer by means of it, except so far as its prosperity or
decay might indirectly influence the state of foreign trade.

A country that has no mines of its own, must undoubtedly draw its
gold and silver from foreign countries, in the same manner as one
that has no vineyards of its own must draw its wines. It does not
seem necessary, however, that the attention of government should
he more turned towards the one than towards the other object. A
country that has wherewithal to buy wine, will always get the
wine which it has occasion for ; and a country that has
wherewithal to buy gold and silver, will never be in want of
those metals. They are to be bought for a certain price, like all
other commodities; and as they are the price of all other
commodities, so all other commodities are the price of those
metals. We trust, with perfect security, that the freedom of
trade, without any attention of government, will always supply us
with the wine which we have occasion for; and we may trust, with
equal security, that it will always supply us with all the gold
and silver which we can afford to purchase or to employ, either
in circulating our commodities or in other uses.

The quantity of every commodity which human industry can either
purchace or produce, naturally regulates itself in every country
according to the effectual demand, or according to the demand of
those who are willing to pay the whole rent, labour, and profits,
which must be paid in order to prepare and bring it to market.
But no commodities regulate themselves more easily or more
exactly, according to this effectual demand, than gold and silver
; because, on account of the small bulk and great value of those
metals, no commodities can be more easily transported from one
place to another ; from the places where they are cheap, to those
where they are dear ; from the places where they exceed, to those
where they fall short of this effectual demand. If there were in
England, for example, an effectual demand for an additional
quantity of gold, a packet-boat could bring from Lisbon, or from
wherever else it was to be had, fifty tons of gold, which could
be coined into more than five millions of guineas. But if there
were an effectual demand for grain to the same value, to import
it would require, at five guineas a-ton, a million of tons of
shipping, or a thousand ships of a thousand tons each. The navy
of England would not be sufficient.

When the quantity of gold and silver imported into any country
exceeds the effectual demand, no vigilance of government can
prevent their exportation. All the sanguinary laws of Spain and
Portugal are not able to keep their gold and silver at home. The
continual importations from Peru and Brazil exceed the effectual
demand of those countries, and sink the price of those metals
there below that in the neighbouring countries. If, on the
contrary, in any particular country, their quantity fell short of
the effectual demand, so as to raise their price above that of
the neighbouring countries, the government would have no occasion
to take any pains to import them. If it were even to take pains
to prevent their importation, it would not be able to effectuate
it. Those metals, when the Spartans had got wherewithal to
purchase them, broke through all the barriers which the laws of
Lycurgus opposed to their entrance into Lacedaemon. All the
sanguinary laws of the customs are not able to prevent the
importation of the teas of the Dutch and Gottenburg East India
comnpanies; because somewhat cheaper than those of the British
company. A pound of tea, however, is about a hundred times the
bulk of one of the highest prices, sixteen shillings, that is
commonly paid for it in silver, and more than two thousand times
the bulk of the same price in gold, and, consequently, just so
many times more difficult to smuggle.

It is partly owing to the easy transportation of gold and silver,
from the places where they abound to those where they are wanted,
that the price of those metals does not fluctuate continually,
like that of the greater part of other commodities, which are
hindered by their bulk from shifting their situation, when the
market happens to be either over or under-stocked with them. The
price of those metals, indeed, is not altogether exempted from
variation ; but the changes to which it is liable are generally
slow, gradual, and uniform. In Europe, for example, it is
supposed, without much foundation, perhaps, that during the
course of the present and preceding century, they have been
constantly, but gradually, sinking in their value, on account of
the continual importations from the Spanish West Indies. But to
make any sudden change in the price of gold and silver, so as to
raise or lower at once, sensibly and remarkably, the money price
of all other commodities, requires such a revolution in commerce
as that occasioned by the discovery of America.

If, not withstanding all this, gold and silver should at any time
fall short in a country which has wherewithal to purchase them,
there are more expedients for supplying their place, than that of
almost any other commodity. If the materials of manufacture are
wanted, industry must stop. If provisions are wanted, the people
must starve. But if money is wanted, barter will supply its
place, though with a good deal of inconveniency. Buying and
selling upon credit, and the different dealers compensating their
credits with one another, once a-month, or once a-year, will
supply it with less inconveniency. A well-regulated paper-money
will supply it not only without any inconveniency, but, in some
cases, with some advantages. Upon every account, therefore, the
attention of government never was so unnecessarily employed, as
when directed to watch over the preservation or increase of the
quantity of money in any country.

No complaint, however, is more common than that of a scarcity of
money. Money, like wine, must always be scarce with those who
have neither wherewithal to buy it, nor credit to borrow it.
Those who have either, will seldom be in want either of the
money, or of the wine which they have occasion for. This
complaint, however, of the scarcity of money, is not always
confined to improvident spendthrifts. It is sometimes general
through a whole mercantile town and the country in its
neighbourhood. 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 expense has been disproportioned
to their revenue. Before their projects can be brought to bear,
their stock is gone, and their credit with it. They run about
everywhere to borrow money, and everybody tells them that they
have none to lend. Even such general complaints of the scarcity
of money do not always prove that the usual number of gold and
silver pieces are not circulating in the country, but that many
people want those pieces who have nothing to give for them. When
the profits of trade happen to be greater than ordinary
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
hopes that the returns will come in before the demand for
payment. The demand comes before the returns, and they have
nothing at hand with which they can either purchase money or give
solid security for borrowing. It is not any scarcity of gold and
silver, but the difficulty which such people find in borrowing,
and which their creditor find in getting payment, that occasions
the general complaint of the scarcity of money.

It would be too ridiculous to go about seriously to prove, that
wealth does not consist in money, or in gold and silver ; but in
what money purchases, and is valuable only for purchasing. Money,
no doubt, makes always a part of the national capital ; but it
has already been shown that it generally makes but a small part,
and always the most unprofitable part of it.

It is not because wealth consists more essentially in money than
in goods, that the merchant 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 frequently sustain a much greater loss by
keeping them. When his goods are upon hand, too, he is more
liable to such demands for money as he may not be able to answer,
than when he has got their price in his coffers. Over and above
all this, his profit arises more directly from selling than from
buying; and he is, upon all these accounts, generally much more
anxious to exchange his goods for money than his money for goods.
But though a particular merchant, with abundance of goods in his
warehouse, may sometimes be ruined by not being able to sell them
in time, a nation or country is not liable to the same accident,
The whole capital of a merchant frequently consists in perishable
goods destined for purchasing money. But it is but a very small
part of the annual produce of the land and lahour of a country,
which can ever be destined for purchasing gold and silver from
their neighbours. The far greater part is circulated and consumed
among themselves; and even of the surplus which is sent abroad,
the greater part is generally destined for the purchase of other
foreign goods. Though gold and silver, therefore, could not be
had in exchange for the goods destined to purchase them, the
nation would not be ruined. It might, indeed, suffer some loss
and inconveniency, and be forced upon some of those expedients
which are necessary for supplying the place of money. The annual
produce of its land and labour, however, would be the same, or
very nearly the same as usual ; because the same, or very nearly
the same consumable capital would be employed in maintaining it.
And though goods do not always draw money so readily as money
draws goods, in the long-run they draw it more necessarily than
even it draws them. Goods can serve many other purposes besides
purchasing money, but money can serve no other purpose besides
purchasing goods. Money, therefore, necessarily runs after goods,
but goods do not always or necessarily run after money. The man
who buys, does not always mean to sell again, but frequently to
use or to consume ; whereas he who sells always means to buy
again. The one may frequently have done the whole, but the other
can never have done more than the one half of his business. It is
not for its own sake that men desire money, but for the sake of
what they can purchase with it.

Consumable commodities, it is said, are soon destroyed; whereas
gold and silver are of a more durable nature, and were it not for
this continual exportation, might be accumulated for ages
together, to the incredible augmentation of the real wealth of
the country. Nothing, therefore, it is pretended, can be more
disadvantageous to any country, than the trade which consists in
the exchange of such lasting for such perishable commodities. We
do not, however, reckon that trade disadvatageous, which consists
in the exchange of the hardware of England for the wines of
France, and yet hardware is a very durable commodity, and were it
not for this continual exportation, might too be accumulated for
ages together, to the incredible augmentation of the pots and
pans of the country. But it readily occurs, that the number of
such utensils is in every country necessarily limited by the use
which there is for them ; that it would be absurd to have more
pots and pans than were necessary for cooking the victuals
usually consumed there; and that, if the quantity of victuals
were to increase, the number of pots and pans would readily
increase along with it ; a part of the increased quantity of
victuals being employed in purchasing them, or in maintaining an
additional number of workmen whose business it was to make them.
It should as readily occur, that the quantity of gold and silver
is, in every country, limited by the use which there is for those
metals ; that their use consists in circulating commodities, as
coin, and in affording a species of household furniture, as
plate; that the quantity of coin in every country is regulated by
the value of the commodities which are to be circulated by it;
increase that value, and immediately a part of it will be sent
abroad to purchase, wherever it is to be had, the additional
quantity of coin requisite for circulating them : that the
quantity of plate is regulated by the number and wealth of those
private families who choose to indulge themselves in that sort of
magnificence; increase the number and wealth of such families,
and a part of this increased wealth will most probably be
employed in purchasing, wherever it is to be found, an additional
quantity of plate ; that to attempt to increase the wealth of any
country, either by introducing or by detaining in it an
unnecessary quantity of gold and silver, is as absurd as it would
be to attempt to increase the good cheer of private families, by
obliging them to keep an unnecessary number of kitchen utensils.
As the expense of purchasing those unnecessary utensils would
diminish, instead of increasing, either the quantity or goodness
of the family provisions; so the expense of purchasing an
unnecessary quantity of gold and silver must, in every country,
as necessarily diminish the wealth which feeds, clothes, and
lodges, which maintains and employs the people. Gold and silver,
whether in the shape of coin or of plate, are utensils, it must
he remembered, as much as the furniture of the kitchen. Increase
the use of them, increase the consumable commodities which are to
be circulated, managed, and prepared by means of them, and you
will infallibly increase the quantity ; but if you attempt by
extraordinary means to increase the quantity, you will as
infallibly diminish the use, and even the quantity too, which in
those metals can never be greater than what the use requires.
Were they ever to be accumulated beyond this quantity, their
transportation is so easy, and the loss which attends their lying
idle and unemployed so great, that no law could prevent their
being immediately sent out of the country.

It is not always necessary to accumulate gold and silver, in
order to enable a country to carry on foreign wars, and to
maintain fleets and armies in distant countries. Fleets and
armies are maintained, not with gold and silver, but with
consumable goods. The nation which, from the annual produce of
its domestic industry, from the annual revenue arising out of its
lands, and labour, and consumable stock, has wherewithal to
purchase those consumable goods in distant countries, can
maintain foreign wars there.

A nation may purchase the pay and provisions of an army in a
distant country three different ways ; by sending abroad either,
first, some part of its accumulated gold and silver ; or,
secondly, some part of the annual produce of its manufactures ;
or, last of all, some part of its annual rude produce.

The gold and silver which can properly be considered as
accumulated, or stored up in any country, may be distinguished
into three parts ; first, the circulating money; secondly, the
plate of private families; and, last of all, the money which may
have been collected by many years parsimony, and laid up in the
treasury of the prince.

It can seldom happen that much can be spared from the circulating
money of the country ; because in that there can seldom be much
redundancy. The value of goods annually bought and sold in any
country requires a certain quantity of money to circulate and
distribute them to their proper consumers, and can give
employment to no more. The channel of circulation necessarily
draws to itself a sum sufficient to fill it, and never admits any
more. Something, however, is generally withdrawn from this
channel in the case of foreign war. By the great number of people
who are maintained abroad, fewer are maintained at home. Fewer
goods are circulated there, and less money becomes necessary to
circulate them. An extraordinary quantity of paper money of some
sort or other, 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
opportunity of sending a greater quantity of it abroad. All this,
however, could afford but a poor resource for maintaining a
foreign war, of great expense, and several years duration.

The melting down of 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

The accumulated treasures of the prince have in former times
afforded a much greater and more lasting resource. In the present
times, if you except the king of Prussia, to accumulate treasure
seems to be no part of the policy of European princes.

The funds which maintained the foreign wars of the present
century, the most expensive perhaps which history records, seem
to have had little dependency upon the exportation either of the
circulating money, or of the plate of private families, or of
the treasure of the prince. The last French war cost Great
Britain upwards of 90,000,000, including not only the
75,000,000 of new debt that was contracted, but the additional
2s. in the pound land-tax, and what was annually borrowed of the
sinking fund. More than two-thirds of this expense were laid out
in distant countries; in Germany, Portugal, America, in the ports
of the Mediterranean, in the East and West Indies. The kings of
England had no accumulated treasure. We never heard of any
extraordinary quantity of plate being melted down. The
circulating gold and silver of the country had not been supposed
to exceed 18,000,000. 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 30,000,000. Had
the war been carried on by means of our money, the whole of it
must, even according to this computation, have been sent out and
returned again, at least twice in a period of between six and
seven years. Should this be supposed, it would afford the most
decisive argument, to demonstrate how unnecessary it is for
government to watch over the preservation of money, since, upon
this supposition, the whole money of the country must have gone
from it, and returned to it again, two different times in so
short a period, without 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 difficult
to borrow, the creditors found it difficult to get payment. Gold
and silver, however, were generally to be had for their value, by
those who had that value to give for them.

The enormous expense of the late war, therefore, must have been
chiefly defrayed, not by the exportation of gold and silver, but
by that of British commodities of some kind or other. When the
government, or those who acted under them, contracted with a
merchant for a remittance to some foreign country, he would
naturally endeavour to pay his foreign correspondent, upon whom
he granted a bill, by sending abroad rather commodities than gold
and silver. If the commodities of Great Britain were not in
demand in that country, he would endeavour to send them to some
other country in which he could purchase a bill upon that
country. The transportation of commodities, when properly suited
to the market, is always attended with a considerable profit;
whereas that of gold and silver is scarce ever attended with any.
When those metals are sent abroad in order to purchase foreign
commodities, the merchant's profit arises, not from the purchase,
but from the sale of the returns. But when they are sent abroad
merely to pay a debt, he gets no returns, and consequently no
profit. He naturally, therefore, exerts his invention to find out
a way of paying his foreign debts, rather by the exportation of
commodities, than by that of gold and silver. The great quantity
of British goods, exported during the course of the late war,
without bringing back any returns, is accordingly remarked by the
author of the Present State of the Nation.

Besides the three sorts of gold and silver above mentioned, there
is in all great commercial countries a good deal of bullion
alternately imported and exported, for the purposes of foreign
trade. This bullion, as it circulates among different commercial
countries, in the same manner as the national coin circulates in
every country, may be considered as the money of the great
mercantile republic. The national coin receives its movement and
direction from the commodities circulated within the precincts of
each particular country ; the money in the mercantile republic,
from those circulated between different countries. Both are
employed in facilitating exchanges, the one between different
individuals of the same, the other between those of different
nations. Part of this money of the great mercantile republic may
have been, and probably was, employed in carrying on the late
war. In time of a general war, it is natural to suppose that a
movement and direction should be impressed upon it, different
from what it usually follows in profound peace, that it should
circulate more about the seat of the war, and be more employed in
purchasing there, and in the neighbouring countries, the pay and
provisions of the different armies. But whatever part of this
money of the mercantile republic Great Britain may have annually
employed in this manner, it must have been annually purchased,
either with British commodities, or with something else that had
been purchased with them ; which still brings us back to
commodities, to the annual produce of the land and labour of the
country, as the ultimate resources which enabled us to carry on
the war. It is natural, indeed, to suppose, that so great an
annual expense must have been defrayed from a great annual
produce. The expense of 1761, for example, amounted to more than
19,000,000. No accumulation could have supported so great an
annual profusion. There is no annual produce, even of gold and
silver, which could have supported it. The whole gold and
silver annually imported into both Spain and Portugal, according
to the best accounts, does not commonly much exceed 6,000,000
sterling, which, in some years, would scarce have paid four
months expense of the late war.

The commodities most proper for being transported to distatnt
countries, in order to purchase there either the pay and
provisions of an army, or some part of the money of the
mercantile republic to be employed in purchasing them, seem to be
the finer and more improved manufactures; such as contain a great
value in a small bulk, and can therefore be exported to a great
distance at little expense. A country whose industry produces a
great annual surplus of such manufactures, which are usually
exported to foreign countries, may carry on for many years a very
expensive foreign war, without either exporting any considerable
quantity of gold and silver, or even having any such quantity to
export. A considerable part of the annual surplus of its
manufactures must, indeed, in this case, be exported without
bringing back any returns to the country, though it does to the
merchant ; the government purchasing of the merchant his bills
upon foreign countries, in order to purchase there the pay and
provisions of an army. Some part of this surplus, however, may
still continue to bring back a return. The manufacturers during;
the war will have a double demand upon them, and be called upon
first to work up goods to be sent abroad, for paying the bills
drawn upon foreign countries for the pay and provisions of the
army: and, secondly, to work up such as are necessary for
purchasing the common returns that had usually been consumed in
the country. In the midst of the most destructive foreign war,
therefore, the greater part of manufactures may frequently
flourish greatly; and, on the contrary, they may decline on the
return of peace. They may flourish amidst the ruin of their
country, and begin to decay upon the return of its prosperity.
The different state of many different branches of the British
manufactures during the late war, and for some time after the
peace, may serve as an illustration of what has been just now

No foreign war, of great expense or duration, could conveniently
be carried on by the exportation of the rude produce of the soil.
The expense of sending such a quantity of it into a foreign
country as might purchase the pay and provisions of an army would
be too great. Few countries, too, produce much more rude produce
than what is sufficient for the subsistence of their own
inhabitants. To send abroad any great quantity of it, therefore,
would be to send abroad a part of the necessary subsistence of
the people. It is otherwise with the exportation of manufactures.
The maintenance of the people employed in them is kept at home,
and only the surplus part of their work is exported. Mr Hume
frequently takes notice of the inability of the ancient kings of
England to carry on, without interruption, any foreign war of
long duration. The English in those days had nothing wherewithal
to purchase the pay and provisions of their armies in foreign
countries, but either the rude produce of the soil, of which no
considerable part could be spared from the home consumption, or a
few manufactures of the coarsest kind, of which, as well as of
the rude produce, the transportation was too expensive. This
inability did not arise from the want of money, but of the finer
and more improved manufactures. Buying and selling was transacted
by means of money in England then as well as now. The quantity of
circulating money must have borne the same proportion, to the
number and value of purchases and sales usually transacted at
that time, which it does to those transacted at present ; or,
rather, it must have borne a greater proportion, because there
was then no paper, which now occupies a great part of the
employment of gold and silver. Among nations to whom commerce and
manufactures are little known, the sovereign, upon extraordinary
occasions, can seldom draw any considerable aid from his
subjects, for reasons which shall be explained hereafter. It is
in such countries, therefore, that he generally endeavours to
accumulate a treasure, as the only resource against such
emergencies. Independent of this necessity, he is, in such a
situation, naturally disposed to the parsimony requisite for
accumulation. In that simple state, the expense even of a
sovereign is not directed by the vanity which delights in the
gaudy finery of a court, but is employed in bounty to his
tenants, and hospitality to his retainers. But bounty and
hospitality very seldom lead to extravagance; though vanity
almost always does. Every Tartar chief, accordingly, has a
treasure. The treasures of Mazepa, chief of the Cossacks in the
Ukraine, the famous ally of Charles XII., are said to have been
very great. The French kings of the Merovingian race had all
treasures. When they divided their kingdom among their different
children, they divided their treasures too. The Saxon princes,
and the first kings after the Conquest, seem likewise to have
accumulated treasures. The first exploit of every new reign was
commonly to seize the treasure of the preceding king, as the most
essential measure for securing the succession. The sovereigns of
improved and commercial countries are not under the same
necessity of accummlating treasures, because they can generally
draw from their subjects extraordinary aids upon extraordinary
occasions. They are likewise less disposed to do so. They
naturally, perhaps necessarily, follow the mode of the times ;
and their expense comes to be regulated by the same extravagant
vanity which directs that of all the other great proprietors in
their dominions. The insignificant pageantry of their court
becomes every day more brilliant; and the expense of it not only
prevents accumulation, but frequently encroaches upon the funds
destined for more necessary expenses. What Dercyllidas said of
the court of Persia, may be applied to that of several European
princes, that he saw there much splendour, but little strength,
and many servants, but few soldiers.

The importation of gold and silver is not the principal, much
less the sole benefit, which a nation derives from its foreign
trade. Between whatever places foreign trade is carried on, they
all of them derive two distinct benefits from it. It carries out
that surplus part of the produce of their land and labour for
which there is no demand among them, and brings back in return
for it something else for which there is a demand. It gives a
value to their superfluities, by exchanging them for something
else, which may satisfy a part of their wants and increase their
enjoyments. By means of it, the narrowness of the home market
does not hinder the division of labour in any particular branch
of art or manufacture from being carried to the highest
perfection. By opening a more extensive market for whatever part
of the produce of their labour may exceed the home consumption,
it encourages them to improve its productive power, and to
augment its annual produce to the utmost, and thereby to increase
the real revenue and wealth of the society. These great and
important services foreign trade is continually occupied in
performing to all the different countries between which it is
carried on. They all derive great benefit from it, though that in
which the merchant resides generally derives the greatest, as he
is generally more employed in supplying the wants, and carrying
out the superfluities of his own, than of any other particular
country. To import the gold and silver which may be wanted into
the countries which have no mines, is, no doubt a part of the
business of foreign commerce. It is, however, a most
insignificant part of it. A country which carried on foreign
trade merely upon this account, could scarce have occasion to
freight a ship in a century.

It is not by the importation of gold and silver that the
discovery of America has enriched Europe. By the abundance of the
American mines, those metals have become cheaper. A service of
plate can now be purchased for about a third part of the corn, or
a third part of the labour, which it would have cost in the
fifteenth century. With the same annual expense of labour and
commodities, Europe can annually purchase about three times the
quantity of plate which it could have purchased at that time. But
when a commodity comes to be sold for a third part of what bad
been its usual price, not only those who purchased it before can
purchase three times their former quantity, but it is brought
down to the level of a much greater number of purchasers, perhaps
to more than ten, perhaps to more than twenty times the former
number. So that there may be in Europe at present, not only more
than three times, but more than twenty or thirty times the
quantity of plate which would have been in it, even in its
present state of improvement, had the discovery of the American
mines never been made. So far Europe has, no doubt, gained a real
conveniency, though surely a very trifling one. The cheapness of
gold and silver renders those metals rather less fit for the
purposes of money than they were before. In order to make the
same purchases, we must load ourselves with a greater quantity of
them, and carry about a shilling in our pocket, where a groat
would have done before. It is difficult to say which is most
trifling, this inconveniency, or the opposite conveniency.
Neither the one nor the other could have made any very essential
change in the state of Europe. The discovery of America, however,
certainly made a most essential one. By opening a new and
inexhaustible market to all the commodities of Europe, it gave
occasion to new divisions of labour and improvements of art,
which in the narrow circle of the ancient commerce could never
have taken place, for want of a market to take off the greater
part of their produce. The productive powers of labour were
improved, and its produce increased in all the different
countries of Europe, and together with it the real revenue and
wealth of the inhabitants. The commodities of Europe were almost
all new to America, and many of those of America were new to
Europe. A new set of exchanges, therefore, began to take place,
which had never been thought of before, and which should
naturally have proved as advantageous to the new, as it certainly
did to the old continent. The savage injustice of the Europeans
rendered an event, which ought to have been beneficial to all,
ruinous and destructive to several of those unfortunate

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 the savages, and
these were destroyed almost as soon as discovered. The rest were
mere savages. But the empires of China, Indostan, Japan, as well
as several others in the East Indies, without having richer mines
of gold or silver, were, in every other respect, much richer,
better cultivated, and more advanced in all arts and
manufactures, than either Mexico or Peru, even though we should
credit, what plainly deserves no credit, the exaggerated accounts
of the Spanish writers concerning the ancient state of those
empires. But rich and 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 indirectly, and
through them, that the other nations of Europe could either send
out or receive any goods from that country. When the Dutch, in
the beginning of the last century, began to encroach upon them,
they vested their whole East India commerce in an exclusive
company. The English, French, Swedes, and Danes, have all
followed their example; so that no great nation of Europe has
ever yet had the benefit of a free commerce to the East Indies.
No other reason need be assigned why it has never been so
advantageous as the trade to America, which, between almost every
nation of Europe and its own colonies, is free to all its
subjects. The exclusive privileges of those East India companies,
their great riches, the great favour and protection which these
have procured them from their respective governments, have
excited much envy against them. This envy has frequently
represented their trade as altogether pernicious, on account of
the great quantities of silver which it every year exports from
the countries from which it is carried on. The parties concerned
have replied, that their trade by this continual exportation of
silver, might indeed tend to impoverish Europe in general, but
not the particular country from which it was carried on ;
because, by the exportation of a part of the returns to other
European countries, it annually brought home a much greater
quantity of that metal than it carried out. Both the objection
and the reply are founded in the popular notion which I have been
just now examining. It is therefore unnecessary to say any thing
further about either. By the annual exportation of silver to the
East Indies, plate is probably somrwhat dearer in Europe than it
otherwise might have been ; and coined silver probably purchases
a larger quantity both of labour and commodities. The former of
these two effects is a very small loss, the latter a very small
advantage ; both too insignificant to deserve any part of the
public attention. The trade to the East Indies, by opening a
market to the commodities of Europe, or, what comes nearly to the
same thing, to the gold and silver which is purchased with those
commodities, must necessarily tend to increase the annual
production of European commodities, and consequently the real
wealth and revenue of Europe. That it has hitherto increased them
so little, is probably owing to the restraints which it
everywhere labours under.

I thought it necessary, though at the hazard of being tedious, to
examine at full length this popular notion, that wealth consists
in money or in gold and silver. Money, in common language, as I
have already observed, frequently signifies wealth ; and this
ambiguity of expression has rendered this popular notion so
familiar to us, that even they who are convinced of its
absurdity, are very apt to forget their own principles, and, in
the course of their reasonings, to take it for granted as a
certain and undeniable truth. Some of the best English writers
upon commerce set out with observing, that the wealth of a
country consists, not in its gold and silver only, but in its
lands, houses, and consumable goods of all different kinds. In
the course of their reasonings, however, the lands, houses, and
consumable goods, seem to slip out of their memory; and the
strain of their argument frequently supposes that all wealth
consists in gold and silver, and that to multiply those metals is
the great object of national industry and commerce.

The two principles being established, however, that wealth
consisted in gold and silver, and that those metals could be
brought into a country which had no mines, only by the balance of
trade, or by exporting to a greater value than it imported ; it
necessarily became the great object of political economy to
diminish as much as possible the importation of foreign goods for
home consumption, and to increase as much as possible the
exportation of the produce of domestic industry. Its two great
engines for enriching the country, therefore, were restraints
upon importation, and encouragement to exportation.

The restraints upon importation were of two kinds.

First, restraints upon the importation of such foreign goods for
home consumption as could be produced at home, from whatever
country they were imported.

Secondly, restraints upon the importation of goods of almost all
kinds, from those particular countries with which the balance of
trade was supposed to be disadvantageous.

Those different restraints consisted sometimes in high duties,
and sometimes in absolute prohibitions.

Exportation was encouraged sometimes by drawbacks, sometimes by
bounties, sometimes by advantageous treaties of commerce with
foreign states, and sometimes by the establishment of colonies in
distant countries.

Drawbacks were given upon two different occasions. When the home
manufactures were subject to any duty or excise, either the whole
or a part of it was frequently drawn back upon their exportation
; and when foreign goods liable to a duty were imported, in order
to be exported again, either the whole or a part of this duty was
sometimes given back upon such exportation.

Bounties were given for the encouragemnent, either of some
beginning 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
particular privileges, but a monopoly was frequently procured for
the goods and merchants of the country which established them.

The two sorts of restraints upon importation above mentioned,
together with these four encouragements to exportation,
constitute the six principal means by which the commercial system
proposes to increase the quantity of gold and silver in any
country, by turning the balance of trade in its favour. I shall
consider each of them in a particular chapter, and, without
taking much farther notice of their supposed tendency to bring
money into the country, I shall examine chiefly what are likely
to be the effects of each of them upon the annual produce of its
industry. According as they tend either to increase or diminish
the value of this annual produce, they must evidently tend either
to increase or diminish the real wealth and revenue of the

Adam Smith

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