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Chapter 3



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 disadvantageous, 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 warehoused
for exportation. Higher duties are imposed upon the wines of
France than upon those of Portugal, or indeed of any other
country. 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 second duty of twenty-five per cent. the
first not having been thought a sufficient discouragement, was
imposed upon 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 enumerated 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 commencement of
the present war, seventy-five per cent. may be considered as the
lowest duty to which the greater part of the goods of the growth,
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 importers, 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 te 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
between 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 importations would be diminished, in proportion as
the French goods of the same quality were cheaper than those of
the other two countries. 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 goods imported. What has frequently 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 England, 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. National prejudice and animosity, prompted always by the
private interest of particular traders, are the principles which
generally direct our judgment upon all questions concerning it.
There are two criterions, however, which have frequently 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 valuation 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 London
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 expense, of exporting which, the
premium is both demanded and given. But the ordinary state of
debt and credit between those two cities must necessarily be
regulated, it is said, by the ordinary course of their dealings
with one another. When neither of them imports from from other to
a greater amount than it exports to that other, the debts and
credits of each may compensate 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 becomes indebted to it: the debts and
credits of each do not compensate one another, and money must be
sent out from that place of which the debts overbalance 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

But though the ordinary course of exchange shall 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
Hamburg, Dantzic, Riga, etc. by bills upon Holland, the ordinary
state of debt and credit between England and Holland will not be
regulated entirely by the ordinary course of the dealings of
those two countries with one another, but will be influenced by
that of the dealings in 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

In the way, besides, in which the par of exchange has hitherto
been computed, the ordinary course of exchange can afford no
sufficient 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 the computed one, that, from the
course of the latter, no certain conclusion can, upon many
occasions, be drawn concerning that of the former.

When for a sum or 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
supposed 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, clipt, and
otherwise 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, according 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
or 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 supposed to give, may in
reality have got the premium. The French coin was, before the
late reformation of the English gold coin, much less wore 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 reformation of
the gold coin, the exchange has been constantly in favour of
England, and against France.

Secondly, In some countries the expense 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
derives 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 expense of it, but affords a small revenue to the
government. In England, 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 an
equal 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 respective 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,
consequently, 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 expense 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 lastly, In some places, as at Amsterdam, Hamburg,
Venice, etc. foreign bills of exchange are paid in what they call
bank money ; while in others, as at London, Lisbon, Antwerp,
Leghorn, etc. they are paid in the common currency of the
country. What is called bank money, is always of more value than
the same nominal sum of common currency. A thousand guilders in
the bank of Amsterdam, for example, are of more vallue than a
thousand guilders of 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 the
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, Hamburg, Venice,
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
computed exchange has generally been in favour of London with
Lisbon, Antwerp, Leghorn, and, if you except France, I believe
with most other parts of Europe that pay in common currency ; and
it is not improbable that the real exchange was so too.

Digression concerning Banks of Deposit, particularly concerning
that of Amsterdam.

The currency of a great state, such as France or England,
generally consists almost entirely of its own coin. Should this
currency, therefore, be at any time worn, clipt, or otherwise
degraded below its standard value, the state, by a reformation of
its coin, can effectually re-establish its currency. But the
currency of a small state, such as Genoa or Hamburg, can seldom
consist altogether in its own coin, but must be made up, in a
great measure, of the coins of all the neighbouring states with
which its inhabitants have a continual intercourse. Such a state,
therefore, by reforming its coin, will not always be able to
reform its currency. If foreign bills of exchange are paid in
this currency, the uncertain value of any sum, of what is in its
own nature so uncertain, must render the exchange always very
much against such a state, its currency being in all foreign
states necessarily valued even below what it is worth.

In order to remedy the inconvenience to which this
disadvantageous exchange must have subjected their merchants,
such small states, when they began to attend to the interest of
trade, have frequently enacted that foreign bills of exchange of
a certain value should be paid, not in common currency, but by an
order upon, or by a transfer in the books of a certain bank,
established upon the credit, and under the protection of the
state, this bank being always obliged to pay, in good and true
money, exactly according to the standard of the state. The banks
of Venice, Genoa, Amsterdam, Hamburg, and Nuremberg, seem to have
been all originally established with this view, though some of
them may have afterwards been made subservient to other purposes.
The money of such banks, being better than the common currency of
the country, necessarily bore an agio, which was greater or
smaller, according as the currency was supposed to be more or
less degraded below the standard of the state. The agio of the
bank of Hamburg, for example, which is said to be commonly about
fourteen per cent. is the supposed difference between the good
standard money of the state, and the clipt, worn, and diminished
currency, poured into it from all the neighbouring states.

Before 1609, the great quantity of clipt and worn foreign coin
which the extensive trade of Amsterdam brought from all parts of
Europe, reduced the value of its currency about nine per cent.
below that of good money fresh from the mint. Such money no
sooner appeared, than it was melted down or carried away, as it
always is in such circumstances. The merchants, with plenty of
currency, could not always find a sufficient quantity of good
money to pay their bills of exchange ; and the value of those
bills, in spite of several regulations which were made to prevent
it, became in a great measure uncertain.

In order to remedy these inconveniencies, a bank was established
in 1609, under the guarantee of the city. This bank received both
foreign coin, and the light and worn coin of the country, at its
real intrinsic value in the good standard money of the country,
deducting only so much as was neccssary for defraying the expense
of coinage and the other necessary expense of management. For the
value which remained after this small deduction was made, it gave
a credit in its books. This credit was called bank money, which,
as it represented money exactly according to the standard of the
mint, was always of the same real value, and intrinsically worth
more than current money. It was at the same time enacted, that
all bills drawn upon or negotiated at Amsterdam, of the value of
600 guilders and upwards, should be paid in bank money, which at
once took away all uncertainty in the value of those bills. Every
merchant, in consequence of this regulation, was obliged to keep
an account with the bank, in order to pay his foreign bills of
exchange, which necessarily occasioned a certain demand for bank

Bank money, over and above both its in trinsic superiority to
currency, and the additional value which this demand necessarily
gives it, has likewise some other advantages, It is secure from
fire, robbery, and other accidents; the city of Amsterdam is
bound for it; it can be paid away by a simple transfer, without
the trouble of counting, or the risk of transporting it from one
place to another. In consequence of those different advantages,
it seems from the beginning to have borne an agio; and it is
generally believed that all the money originally deposited in the
bank, was allowed to remain there, nobody caring to demand
payment of a debt which he could sell for a premium in the
market. By demanding payment of the bank, the owner of a bank
credit would lose this premium. As a shilling fresh from the mint
will buy no more goods in the market than one of our common worn
shillings, so the good and true money which might be brought from
the coffers of the bank into those of a private person, being
mixed and confounded with the common currency of the country,
would be of no more value than that currency, from which it could
no longer be readily distinguished. While it remained in the
coffers of the bank, its superiority was known and ascertained.
When it had come into those of a private person, its superiority
could not well be ascertained without more trouble than perhaps
the difference was worth. By being brought from the coffers of
the bank, besides, it lost all the other advantages of bank
money; its security, its easy and safe transferability, its use
in paying foreign bills of exchange. Over and above all this, it
could not be brought from those coffers, as will appear by and
by, without previously paying for the keeping.

Those deposits of coin, or those deposits which the bank was
bound to restore in coin, constituted the original capital of the
bank, or the whole value of what was represented by what is
called bank money. At present they are supposed to constitute but
a very small part of it. In order to facilitate the trade in
bullion, the bank has been for these many years in the practice
of giving credit in its books, upon deposits of gold and silver
bullion. This credit is generally about five per cent. below the
mint price of such bullion. The bank grants at the same time what
is called a recipice or receipt, entitling the person who makes
the deposit, or the bearer, to take out the bullion again at any
time within six months, upon transferring to the bank a quantity
of bank money equal to that for which credit had been given in
its books when the deposit was made, and upon paying one-fourth
per cent. for the keeping, if the deposit was in silver ; and
one-half per cent. if it was in gold; but at the same time
declaring, that in default of such payment, and upon the
expiration of this term, the deposit should belong to the bank,
at the price at which it had been received, or for which credit
had been given in the transfer books. What is thus paid for the
keeping of the deposit may be considered as a sort of warehouse
rent; and why this warehouse rent should be so much dearer for
gold than for silver, several different reasons have been
assigned. The fineness of gold, it has been said, is more
difficult to be ascertained than that of silver. Frauds are more
easily practised, and occasion a greater loss in the most
precious metal. Silver, besides, being the standard metal, the
state, it has been said, wishes to encourage more the making of
deposits of silver than those of gold.

Deposits of bullion are most commonly made when the price is
somewhat lower than ordinary, and they are taken out again when
it happens to rise. In Holland the market price of bullion is
generally above the mint price, for the same reason that it was
so in England before the late reformation of the gold coin. The
difference is said to be commonly from about six to sixteen
stivers upon the mark, or eight ounces of silver, of eleven parts
of fine and one part alloy. The bank price, or the credit which
the bank gives for the deposits of such silver (when made in
foreign coin, of which the fineness is well known and
ascertained, such as Mexico dollars), is twenty-two guilders the
mark : the mint price is about twenty-three guilders, and the
market price is from twenty-three guilders six, to twenty-three
guilders sixteen stivers, or from two to three per cent. above
the mint price.

The following are the prices at which the bank of Amsterdam at
present {September 1775} receives bullion and coin of different
Mexico dollars ................. 22 Guilders / mark
French crowns .................. 22
English silver coin ............. 22
Mexico dollars, new coin ........ 21 10
Ducatoons ....................... 3 0
Rix-dollars ..................... 2 8

Bar silver, containing 11-12ths fine silver, 21 Guilders / mark,
and in this proportion down to 1-4th fine, on which 5 guilders
are given. Fine bars, ................. 28 Guilders / mark.

Portugal coin ................. 310 Guilders / mark
Guineas ....................... 310
Louis d'ors, new .............. 310
Ditto old .............. 300
New ducats .................... 4 19 8 per ducat

Bar or ingot gold is received in proportion to its fineness,
compared with the above foreign gold coin. Upon fine bars the
bank gives 340 per mark. In general, however, something more is
given upon coin of a known fineness, than upon gold and silver
bars, of which the fineness cannot be ascertained but by a
process of melting and assaying.

The proportions between the bank price, the mint price, and the
market price of gold bullion, are nearly the same. A person can
generally sell his receipt for the difference between the mint
price of bullion and the market price. A receipt for bullion is
almost always worth something, and it very seldom happens,
therefore, that anybody suffers his receipts to expire, or allows
his bullion to fall to the bank at the price at which it had been
received, either by not taking it out before the end of the six
months, or by neglecting to pay one fourth or one half per cent.
in order to obtain a new receipt for another six months. This,
however, though it happens seldom, is said to happen sometimes,
and more frequently with regard to gold than with regard to
silver, on account of the higher warehouse rent which is paid for
the keeping of the more precious metal.

The person who, by making a deposit of bullion, obtains both a
bank credit and a receipt, pays his bills of exchange as they
become due, with his bank credit; and either sells or keeps his
receipt, according as he judges that the price of bullion is
likely to rise or to fall. The receipt and the bank credit seldom
keep long together, and there is no occasion that they should.
The person who has a receipt, and who wants to take out bullion,
finds always plenty of bank credits, or bank money, to buy at the
ordinary price, and the person who has bank money, and wants to
take out bullion, finds receipts always in equal abundance.

The owners of bank credits, and the holders of receipts,
constitute two different sorts of creditors against the bank. The
holder of a receipt cannot draw out the bullion for which it is
granted, without re-assigning to the bank a sum of bank money
equal to the price at which the bullion had been received. If he
has no bank money of his own, he must purchase it of those who
have it. The owner of bank money cannot draw out bullion, without
producing to the bank receipts for the quantity which he wants.
If he has none of his own, he must buy them of those who have
them. The holder of a receipt, when he purchases bank money,
purchases the power of taking out a quantity of bullion, of which
the mint price is five per cent. above the bank price. The agio
of five per cent. therefore, which he commonly pays for it, is
paid, not for an imaginary, but for a real value. The owner of
bank money, when he purchases a receipt, purchases the power of
taking out a quantity of bullion, of which the market price is
commonly from two to three per cent. above the mint price. The
price which he pays for it, therefore, is paid likewise for a
real value. The price of the receipt, and the price of the bank
money, compound or make up between them the full value or price
of the bullion.

Upon deposits of the coin current in the country, the bank grant
receipts likewise, as well as bank credits; but those receipts
are frequently of no value and will bring no price in the market.
Upon ducatoons, for example, which in the currency pass for three
guilders three stivers each, the bank gives a credit of three
guilders only, or five per cent. below their current value. It
grants a receipt likewise, entitling the bearer to take out the
number of ducatoons deposited at any time within six months, upon
paying one fourth per cent. for the keeping. This receipt will
frequently bring no price in the market. Three guilders, bank
money, generally sell in the market for three guilders three
stivers, the full value of the ducatoons, if they were taken out
of the bank ; and before they can be taken out, one-fourth per
cent. must be paid for the keeping, which would be mere loss to
the holder of the receipt. If the agio of the bank, however,
should at any time fall to three per cent. such receipts might
bring some price in the market, and might sell for one and
three-fourths per cent. But the agio of the bank being now
generally about five per cent. such receipts are frequently
allowed to expire, or, as they express it, to fall to the bank.
The receipts which are given for deposits of gold ducats fall to
it yet more frequently, because a higher warehouse rent, or one
half per cent. must be paid for the keeping of them, before they
can be taken out again. The five per cent. which the bank gains,
when deposits either of coin or bullion are allowed to fall to
it, maybe considered as the warehouse rent for the perpetual
keeping of such deposits.

The sum of bank money, for which the receipts are expired, must
be very considerable. It must comprehend the whole original
capital of the bank, which, it is generally supposed, has been
allowed to remain there from the time it was first deposited,
nobody caring either to renew his receipt, or to take out his
deposit, as, for the reasons already assigned, neither the one
nor the other could be done without loss. But whatever may be the
amount of this sum, the proportion which it bears to the whole
mass of bank money is supposed to be very small. The bank of
Amsterdam has, for these many years past, been the great
warehouse of Europe for bullion, for which the receipts are very
seldom allowed to expire, or, as they express it, to fall to the
bank. The far greater part of the bank money, or of the credits
upon the books of the bank, is supposed to have been created, for
these many years past, by such deposits, which the dealers in
bullion are continually both making and withdrawing.

No demand can be made upon the bank, but by means of a recipice
or receipt. The smaller mass of bank money, for which the
receipts are expired, is mixed and confounded with the much
greater mass for which they are still in force; so that, though
there may be a considerable sum of bank money, for which there
are no receipts, there is no specific sum or portion of it which
may not at any time be demanded by one. The bank cannot be debtor
to two persons for the same thing; and the owner of bank money
who has no receipt, cannot demand payment of the bank till he
buys one. In ordinary and quiet times, he can find no difficulty
in getting one to buy at the market price, which generally
corresponds with the price at which he can sell the coin or
bullion it entitles him to take out of the bank.

It might be otherwise during a public calamity ; an invasion, for
example, such as that of the French in 1672. The owners of bank
money being then all eager to draw it out of the bank, in order
to have it in their own keeping, the demand for receipts might
raise their price to an exorbitant height. The holders of them
might form extravagant expectations, and, instead of two or three
per cent. demand half the bank money for which credit had been
given upon the deposits that the receipts had respectively been
granted for. The enemy, informed of the constitution of the bank,
might even buy them up, in order to prevent the carrying away of
the treasure. In such emergencies, the bank, it is supposed,
would break through its ordinary rule of making payment only to
the holders of receipts. The holders of receipts, who had no bank
money, must have received within two or three per cent. of the
value of the deposit for which their respective receipts had been
granted. The bank, therefore, it is said, would in this case make
no scruple of paying, either with money or bullion, the full
value of what the owners of bank money, who could get no
receipts, were credited for in its books; paying, at the same
time, two or three per cent. to such holders of receipts as had
no bank money, that being the whole value which, in this state of
things, could justly be supposed due to them.

Even in ordinary and quiet times, it is the interest of the
holders of receipts to depress the agio, in order either to buy
bank money (and consequently the bullion which their receipts
would then enable them to take out of the bank ) so much cheaper,
or to sell their receipts to those who have bank money, and who
want to take out bullion, so much dearer ; the price of a receipt
being generally equal to the difference between the market price
of bank money and that of the coin or bullion for which the
receipt had been granted. It is the interest of the owners of
bank money, on the contrary, to raise the agio, in order either
to sell their bank money so much dearer, or to buy a receipt so
much cheaper. To prevent the stock-jobbing tricks which those
opposite interests might sometimes occasion, the bank has of late
years come to the resolution, to sell at all times bank money for
currency at five per cent. agio, and to buy it in again at four
per cent. agio. In consequence of this resolution, the agio can
never either rise above five, or sink below four per cent. ; and
the proportion between the market price of bank and that of
current money is kept at all times very near the proportion
between their intrinsic values. Before this resolution was taken,
the market price of bank money used sometimes to rise so high as
nine per cent. agio, and sometimes to sink so low as par,
according as opposite interests happened to influence the market.

The bank of Amsterdam professes to lend out no part of what is
deposited with it, but for every guilder for which it gives
credit in its books, to keep in its repositories the value of a
guilder either in money or bullion. That it keeps in its
repositories all the money or bullion for which there are
receipts in force for which it is at all times liable to be
called upon, and which in reality is continually going from it,
and returning to it again, cannot well be doubted. But whether it
does so likewise with regard to that part of its capital for
which the receipts are long ago expired, for which, in ordinary
and quiet times, it cannot be called upon, and which, in reality,
is very likely to remain with it for ever, or as long as the
states of the United Provinces subsist, may perhaps appear more
uncertain. At Amsterdam, however, no point of faith is better
established than that, for every guilder circulated as bank
money, there is a correspondent guilder in gold or silver to be
found in the treasures of the bank. The city is guarantee that it
should be so. The bank is under the direction of the four
reigning burgomasters who are changed every year. Each new set of
burgomasters visits the treasure, compares it with the books,
receives it upon oath, and delivers it over, with the same awful
solemnity to the set which succeeds ; and in that sober and
religious country, oaths are not yet disregarded. A rotation of
this kind seems alone a sufficient security against any practices
which cannot be avowed. Amidst all the revolutions which faction
has ever occasioned in the government of Amsterdam, the
prevailing party has at no time accused their predecessors of
infidelity in the administration of the bank. No accusation could
have affected more deeply the reputation and fortune of the
disgraced party ; and if such an accusation could have been
supported, we may be assured that it would have been brought. In
1672, when the French king was at Utrecht, the bank of Amsterdam
paid so readily, as left no doubt of the fidelity with which it
had observed its engagements. Some of the pieces which were then
brought from its repositories, appeared to have been scorched
with the fire which happened in the town-house soon after the
bank was established. Those pieces, therefore, must have lain
there from that time.

What may be the amount of the treasure in the bank, is a question
which has long employed the speculations of the curious. Nothing
but conjecture can be offered concerning it. It is generally
reckoned, that there are about 2000 people who keep accounts with
the bank; and allowing them to have, one with another, the value
of 1500 sterling lying upon their respective accounts (a very
large allowance), the whole quantity of bank money, and
consequently of treasure in the bank, will amount to about
3,000,000 sterling, or, at eleven guilders the pound sterling,
33,000,000 of guilders ; a great sum, and sufficient to carry on
a very extensive circulation, but vastly below the extravagant
ideas which some people have formed of this treasure.

The city of Amsterdam derives a considerable revenue from the
bank. Besides what may be called the warehouse rent above
mentioned, each person, upon first opening an account with the
bank, pays a fee of ten guilders ; and for every new account,
three guilder's three stivers; for every transfer, two stivers;
and if the transfer is for less than 300 guilders, six stivers,
in order to discourage the multiplicity of small transactions.
The person who neglects to balance his account twice in the year,
forfeits twenty-five guilders. The person who orders a transfer
for more than is upon his account, is obliged to pay three per
cent. for the sum overdrawn, and his order is set aside into the
bargain. The bank is supposed, too, to make a considerable profit
by the sale of the foreign coin or bullion which sometimes falls
to it by the expiring of receipts, and which is always kept till
it can be sold with advantage. It makes a profit, likewise, by
selling bank money at five per cent. agio, and buying it in at
four. These different emoluments amount to a good deal more than
what is necessary for paying the salaries of officers, and
defraying the expense of management. What is paid for the keeping
of bullion upon receipts, is alone supposed to amount to a neat
annual revenue of between 150,000 and 200,000 guilders. Public
utility, however, and not revenue, was the original object of
this institution. Its object was to relieve the merchants from
the inconvenience of a disadvantageous exchange. The revenue
which has arisen from it was unforeseen, and may be considered as
accidental. But it is now time to return from this long
digression, into which I have been insensibly led, in
endeavouring to explain the reasons why the exchange between the
countries which pay in what is called bank money, and those which
pay in common currency, should generally appear to be in favour
of the former, and against the latter. The former pay in a
species of money, of which the intrinsic value is always the
same, and exactly agreeable to the standard of their respective
mints ; the latter is a species of money, of which the intrinsic
value is continually varying, and is almost always more or less
below that standard.

PART II. - Of the Unreasonableness of those extraordinary
Restraints, upon other Principles.

In the foregoing part of this chapter, I have endeavoured to
show, even upon the principles of the commercial system, how
unnecessary 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, in proportion to its declension from
the exact equilibrium. Both suppositions are false. A trade,
which is forced by means of bounties 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
quantity of gold and silver, but that of the exchangeable value
of the annual produce of the land and labour of the country, or
the increase of the annual revenue of its inhabitants.

If the balance be even, and if the trade between the two places
consist altogether in the exchange of their native commodities,
they will, upon most occasions, not only both gain, but they will
gain equally, or very nearly 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 directly
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 100,000, for example, or to
1,000,000, on each side, each of them will afford an annual
revenue, in the one case, of 100,000, and, in the other, of
1,000,000, 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 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 exported 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 annually 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 countries, 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
capitals were equal, or nearly equal, therefore, this employment
of the French capital would augment much more the revenue of the
people of France, than that of the English capital would the
revenue of the people of England. France would, in this case,
carry on a direct foreign trade of consumption with England;
whereas England 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 consumption, 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 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 foregoing, 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 employed 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 replaced, 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 sup- posed to be
greater abroad than at home, and of which the returns,
consequently, it is expected, will be of more value at home than
the commodities exported. If the tobacco which in England is
worth only 100,000, when sent to France, will purchase wine
which is in England worth 110,000, the exchange will augment the
capital of England by 10,000. If 100,000 of English gold, in
the same manner, purchase French wine, which in England is worth
110,000, this exchange will equally augment the capital of
England by 10,000. As a merchant, who has 110,000 worth of wine
in his cellar, is a richer man than he who has only 100,000
worth of tobacco in his warehouse, so is he likewise a richer man
than he who has only 100,000 worth of gold in his coffers. He
can put into motion a greater quantity of industry, and give
revenue, maintenance, and employment, to a greater number of
people, than either of the other two. But the capital of the
country is equal to the capital of all its different inhabitants;
and the quantity of industry which can be annually 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 more
advantageous for England that it could purchase the wines of
France with its own hardware 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 consumption, 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 advantageous 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
division's 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 advantageous for him to buy it
by little 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
consumption of fermented liquors, there seems to be no risk that
a nation should do so. Though in every country there are many
people who spend upon such liquors more than they can afford,
there are always many more who spend less. It deserves to be
remarked, 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 of Europe; witness the Spaniards, the Italians, and the
inhabitants of the southern 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 consequently 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
somewhat dear, to be quartered in the southern, where it is very
cheap, the soldiers, I have frequently heard it observed, are at
first debauched 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 general and temporary drunkenness among
the middling and inferior ranks of people, which would probably
be soon followed by a permanent 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 upon the wine trade in Great Britain,
besides, do not so much seem calculated to hinder the people 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 manufactures 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 purchases 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
nation has been made to look with an invidious eye upon the
prosperity 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 friendship, 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 manufacturers. 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
anybody but themselves.

That it was the spirit of monopoly which originally both invented
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 ridiculous to take any pains to prove it ; nor could it
ever have been called in question, had not the interested
sophistry of merchants and manufacturers 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 themselves; 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 countries,
the extraordinary duties upon almost all goods imported by alien
merchants. Hence the high duties and prohibitions upon all those
foreign manufactures which can come into competition with our
own. Hence, too, the extraordinary restraints upon the
importation 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 ta be most violently inflamed.

The wealth of neighbouring nations, 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
expense 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 expense 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
share of it may fall to them. The same maxim 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 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
Egyptians and the modern Chinese acquired their great wealth. The
ancient Egyptians, it is said, neglected foreign commerce, and
the modem 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
impoverishment 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 advantageous 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 coast 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 all 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 24,000,000
of inhabitants. Our North American colonies were never supposed
to contain more than 3,000,000; and France is a much richer
country than North America; though, on account of the more
unequal 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 advantageous 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 advantageous to
both, have occasioned the principal obstructions to that
commerce. Being nighbours, they are necessarily enemies, and the
wealth and power of each becomes, upon that account, more
formidable 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 commerce with the other.

There is no commercial country in Europe, of which the
approaching ruin has not frequently been foretold by the
pretended doctors of this system, from all unfavourably 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 proportion 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 same 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
explained, very different from the balance of trade, and which,
according 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 increase 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 prorportion to this
deficiency. The expense 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

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 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 exchangeable value of
the annual produce of its lands and labour, may, during the same
period, have been increasing in a much greater proportion. 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, {This paragraph was written in the year
1775.} may serve as a proof that this is by no means an
impossible supposition.

Adam Smith

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