. A ■ 4. 1907 J ^ V'^ V No. 1907... LIBRARY OF THE DEPARTMENT OF STATE. Alcove, Shelf, x» / - - 168 3. Of the accession of value, a commodity receives, by being vested with the cha- racter of money - - - - 170 4. Of the utility of coinage; and of the charge of its execution - - - - 175 5. Of alterations of the standard of money 181 6. Of the reason why money is neither a sign nor a measure - - - - - 188 7. Of a particularity, that should be attend- ed to, in estimating the sums mention- ed in history - - - - - 196 8. Of the absence of any fixed ratio of value, between one metal and another - - 201 9. Of money as it ought to be - - - 203 10. Of copper and brass metal coinage - 209 1 1. Of the preferable form of coined money 21 1 12. Of the party, on whom the loss of coin by wear should properly fall - - 212 XXII. Of signs or representatives of money Sect. 1. Of bills of exchange and letters of credit 214 2. Of banks of deposite - - - - 217 3. Of banks of circulation or discount; and ofbank notes, or convertible paper - 219 4. Of paper money ----- 230 BOOK II. OP THE DISTRIBUTION OE WEALTH. I. Of the basis of value, and of supply and demand 235 II. Of the sources of revenue , - - - 244 III. Of real and relative variation of price - - 250 CONTENTS. Vll IV. Of nominal variation of price, and of the peculiar value of bullion and of coin - - - - V. Of the manner, in vi^hich revenue is distributed amongst society _-_--- VI. Of what branches of production yield the most libe- ral recompense to production agency VII. Of the revenue of industry: Sect. 1. Of the profits of industry in general 2. Of the profits of the man of science 3. Of the profits of the master-agent or ad- venturer in industry . - - - 4. Of the profits of the operative labourer - 5. Of the independence accruing to the mo- derns from the advancement of industry - VIII. Of the revenue of capital _ > - . . Sect. 1. Of loan at interest - - - - - 2. Of the profit of capital - - - - 3. Of the employments of capital most bene- ficial to society - - . . - IX. Of the revenue of land: Sect. 1. Of the profit of landed property 2. Of rent ------- X. Of the effect of revenue derived by one nation from another _-- XI. Of the mode, in which the quantity of the product affects population: Sect. 1. Of population, as connected with political economy 2. Of the influence of the quality of a nation- al product upon the local distribution of the population - - - - - PAGE 259 267 275 278 283 284 287 296 298 299 311 313 316 322 325 329 340 BOOK in. OF THE CONSUMPTION OF W^EALTH. I. Of the different kinds of consumption - - - 347 II. Of the effect of consumption in general - - 35 1 III. Of the effect of productive consumption - - 354 IV. Of the effect of unproductive consumption in gen- eral 357 V. Of individual consumption, its motives and its ef- fects ---._--_ 362 VI. Of public consumption: Sect. 1. Of the nature and general effect of public consumption - - - - - 373 2. Of the principal objects of national expen- diture ...=-- 382 Vm CONTENTS- PAGE Of the charge of civil and judicial admin- istration ------ 384 Of charges, military and naval - - 389 Of the charges of public instruction - 393 Of the charges of public benevolent insti- tutions ------ 400 Of the charges of public edifices and v^^orks 403 VII. Of the actual contributors to public consumption - 405 VIII. Of taxation: Sect. 1 . Of the effect of all kinds of taxation in ge- neral 408 2. Of the different modes of assessment, and the classes they press upon respectively - 423 3. Of taxation in kind 438 4. Of the territorial or land-tax of England - 440 IX. Of national debt: Sect, 1. Of the contracting of debt by national au- thority, and of its general effect - - 442 2. Of public credit, its basis, and the circum- stances that endanger its solidity - - 447 ADVERTISEMENT 3$a the ^mrvCcan EtrCtpr. No work upon Political Economy has appeared in Europe, since the publication of Dr. Adam Smith's profound and ori- ginal Inquiry into the nature and causes of the Wealth of Na- tions, that has attracted more general attention, and received more distinguished marks of approbation from competent judges, than the " Traite D'Economie Politique" of M. Say. The first edition of this treatise was printed in Paris in the year 1803; and, subsequently, it has passed through four large edi- tions, that have received various corrections and improvements from the author. Translations of it have, also, been made into the German, Spanish, Italian, and other languages; and it has been adopted as a text-book in all the universities of the con- tinent of Europe in which this new but essential branch of liberal education is now taught. The two former American editions of the following translation have also been introduced into several of the most respectable of our own seminaries of learning. It is unquestionably the most methodical, comprehensive, and best digested treatise on the elements of Political Econo- my, that has yet been presented to the world. It contains a clear and systematical view of all the solid and important doc- trines of this very extensive and difficult science, unfolded in their proper order and connexion. The reasonings employed by the author in defence of his principles are, with but a few exceptions, logical and accurate, delivered with distinctness and perspicuity, and supported by the fullest and most satis- factory illustrations. By a rigid adherence to the inductive method of investigation, in the prosecution of almost every part of his inquiry, M. Say has effected a nearly complete ana- lysis of the numerous and complicated phenomena of Wealth, X ADVERTISEMENT. and has thus been enabled to lay down and establish, with all the evidence of demonstration, the simple and general laws on which its production, distribution, and consumption depend. The few slight and inconsiderable errors into which the author has fallen in the course of his investigation do not, in the opinion of the editor, impair the general soundness and con- sistency of his text, although, it is true, they are blemishes that disfigure it. But these are of rare occurrence, and the false conclusions involved in them may be easily detected and re- futed, by recurrence to the leading fundamental principles of the work, with which they are manifestly at variance and contradict. The foundation of the science of Political Economy had been laid, and the only successful method of prosecuting our researches in it, pointed out and exemplified, by the illustrious author of the Wealth of Nations; and many of its theoretical doctrines had been developed and explained by various other eminent writers on the same subject, who both preceded and followed him. But, neither the scientific genius and pene- trating sagacity of the former, nor the brilliant talents and per- severing industry of many of the latter, were sufficient to ef- fect an entire and perfect solution of the most difficult and ab- struse problems which form the basis of this important study. Aided, however, by their valuable labours, and the materials they had collected and arranged, and proceeding in the same path, M. Say, with a closeness and minuteness of attention due to its importance, has succeeded in examining, under all their aspects, the particular phenomena which the ground-work of this science presents, and by rejecting and excluding all acci- dental circumstances has traced up their ultimate laws or prin- ciples. Accordingly, the author of this treatise, by pursuing the in- ductive method of investigation has, in the most strict and philo- sophical manner, demonstrated the true nature of Value, ded uced its origin, and presented a clear and accurate explanation of its theory. His definition of Wealth is, therefore, more precise and correct than that of any of his predecessors in this inquiry. The operation of hum.an industry, which Dr. Adam Smith, not with the strictest propriety, denominates labour, the im- portant agency of natural powers, the functions of capital, and the relative services of these three instruments, as well as the ADVERTISEMENT. XI modes in which they all concur in the business of production, were first distinctly and fully pointed out and illustrated by our author. In this way he successfully unfolded the manner in which production takes place, and imparts value to products, in Agriculture, Manufactures and Commerce. In distinguish- ing re-productive from un-productive consumption, M. Say has exhibited the exact nature of capital and its agency in pro- duction, and thence has shown why economy is a source of na- tional wealth. Such are this author's peculiar and original speculations, the fruits of deep and patient meditation on the phenomena observed. The elementary principles derived from them, with others previously ascertained, he has com- bined into one harmonious, consistent, and beautiful system. But some of these solid and well established positions have been criticised and objected to, as inconclusive and inadmissi- ble, by Mr. Ricardo and by Mr. Malthus, two of the ablest and most celebrated political economists among our author's contemporaries. Other doctrines in relation to the nature and origin of Value have been advanced by them, and with so much plausibility too, that some of the most acute reasoners of the present day have not been sufficiently on their guard against them. The mathematical cast given to their reason- ings by these writers, has captivated and led astray the un- derstandings of their most intelligent and sagacious readers, and induced them to adopt as scientific truths, what, when properly investigated and analysed, are found to be merely specious hypotheses. Hence it is, that a theory of Value, purely gratuitous, has been extolled in one of the principal literary journals of Great Britain as being " no less logical and conclusive than it was profound and important. " Our author, therefore, deemed it necessary to examine the arguments brought forward in support of these views of his opponents, in order to test their soundness and accuracy, and to submit his own principles to a further review, that he might become sa- tisfied, that the conclusions he had deduced from them had not been in any manner invalidated. In the notes appended by M. Say to the French translation of Mr. Ricardo's Principles of Political Economy and Taxa- tion, the reader will find what the editor deems a masterly and conclusive refutation of the theoretical errors of this author. M. Say's strictures upon the twentieth chapter of the work. Xll ADVEKTISEMENT. entitled, "Value and Riches, their Distinctive Properties,'' are in his opinion decisive and unanswerable. The fallacies contained in Mr. Ricardo's theory of Value, which, the editor thinks, may be traced to an anxiety to give consistency to the loose and inaccurate assertion of Dr. Adam Smith, that ex- changeable value is entirely derived from human labour, are there fully exposed, and his whole train of reasoning shown to rest upon an unwarrantable assumption. It must however be conceded that Mr. Ricardo was an intrepid and uncompro- mising reasoner, who always proceeded in the most direct and fearless manner from his premises to the conclusion. But not uniting, with the strongest powers of reasoning, a capacity for analytical subtilty, he sometimes did not perceive verbal am- biguities in the formation of his premises, and transitions in the signification of his terms in the conduct of his argument, which, in these instances, vitiated his conclusions. The fun- damental errors into which he has fallen, accordingly, do not arise from any want of strictness in his deductions, but from undue generalizations and perversions of language. In M. Say's Letters to Mr. Malthus, which have been translated into English by Mr. Richter, the points at issue between these two eminent political economists are discussed in the most luminous, impartial and satisfactory manner; and by all candid and unprejudiced critics must be considered as bring- ing the controversy to a close. It is not his intention, nor would it be proper on this occa- sion, for the editor further to enter into the merits of the con- troversial writings of our author. Any dispassionate inquirer, who will take the pains carefully to review the whole ground in dispute, will, he thinks, find, that these writings contain a triumphant vindication of such of the author's general princi- ples as had been assailed by his ingenious opponents. When- ever the study of the science of Political Economy shall be more generally cultivated as an essential branch of early edu- cation, most of the abstruse questions involved in the contro- versies which now divide the writers on this subject will be brought to a conclusion; the accession of useful knowledge it will occasion will more effectually eradicate the prejudices which have given birth to these disputes and misconceptions, than any direct argumentative refutation. ADVERTISEMENT. Xlll, The great merits of M. Say's treatise on Political Economy* are now well known and highly estimated in Great Britain, by that class of speculative readers who take a deep interest in the progress of a science, which " aims at the improvement of society," as Dugald Stewart so truly remarks, " not by de- lineating plans of new constftutions, but by enlightening the policy of actual legislators;" a science, therefore, with the right understanding of whose principles the welfare and hap- piness ofjmnkind are intimately connected. In al^^^g to this excellent work of M. Say, Mr. Ricardo remarljllPTOiat its author not only was the first, or among the first, of continental writers, who justly appreciated and applied the principles of Smith, and who has done more than all other continental writers taken together, to recommend the princi- ples of that enlightened and beneficial system to the nations of Europe; but who has succeeded in placing the science in a more logical, and more instructive order; and has enriched it by several discussions, original, accurate, and profound." The English public has for some time been in possession of the present excellent translation of this treatise by Mr. Prinsep; the first edition of which was published in London in the spring of 1821. It is executed with spirit, elegance and ge- neral fidelity, and is a performance, in every respect, worthy of the original. It is here given to the American reader with- out any alteration. The translator wasted much ingenuity, in various notes which he thought proper to subjoin to the text, by endea- vouring to overthrow some of the author's elementary princi- ples, which, notwithstanding, are as fixed and immutable as the facts which constitute their basis. Had Mr. Prinsep more thoroughly studied M. Say's profound theoretical views on the subject of Value, and had he, also, made himself acquainted, which it no where appears that he has done, with the power- ful and successful defence of these doctrines, contained in the notes on Mr. Ricardo's work, and in the letters to Mr. Mal- thus, already referred to, he perhaps might have discovered, that they are the ultimate generalizations of facts, which, agreeably to the most ligitimate rules of philosophising, the author was entitled to lay down as general laws or principles. At all events, Mr. Prinsep should not have ventured upon an XIV ADVERTISEMENT. attack on these first principles of the science of Political Eco- nomy, without this previous examination. Such, therefore, of these notes of the English translator as are in opposition to the well established elements of the science, and have no other support than the hypothesis of Mr. Ricardo and Mr. Malthus, have been eiptirely omitted; the editor not deeming himself under any obligation to give currency to er- rors, which would perpetually interrupt and distract the at- tention of the reader in a most abstruse and difficult inquiry. Other notes of the translator, which contain in^^^^ng and valuable illustrations of other general principles^i^^ work, drawn from the actual state of Great Britain and her colonies, have been retained in this edition, as appropriate and useful. The translator's remarks on the pernicious character and tendency of the restrictive and prohibitive policy, are particu- larly worthy of regard, confirming as they most fully do, on this subject, all the important conclusions of the author. The folly of attempting, either by extraordinary encouragements, to attract towards some branches of production a larger share of capital and industry than would naturally be employed in them, or by uncommon restraints forcibly to withdraw from others a portion of the capital and industry that would other- wise be invested in them, is beginning to be better understood. The restrictive system, or that which by means of legislative enactments endeavours to give a particular direction to nation- al capital and industry, derived its whole support from the as- sumption of positions now generally admitted to be gratuitous and unfounded, namely, that in trade whatever is gained by one nation must necessarily be lost by another, that wealth consists exclusively of the precious metals, and consequently that in all sales of commodities the great object should be to obtain returns in gold and silver. In Europe these erroneous opinions have now, for some time, been relinquished by politi- cal economists of all the various schools, some of whom yet differ and dispute respecting a few of the more recondite and ultimate elements of the science. In the whole range of in- quiry in Political Economy, perhaps there is not a single pro- position better established, or one that has obtained a more universal sanction from its enlightened cultivators in every country, than the liberal doctrine, that the most active, gene- ral and profitable employments are given to the industry and ADVERTISEMENT. XV capital of every people, by allowing to their direction and ap- plication the most perfect freedom, compatible with the secu- rity of property. This fundamental position of Political Econ- omy, and the various principles that flow from it as corollaries, were first systematically developed, explained and taught by the great father of the science. Dr. Adam Smith; although glimpses of some of these important truths had previously, and about the same time, reached the minds of a few eminent indivi- duals in other parts of the world. " The most effectual plan for advanciug^-people to greatness," says Dr. Smith, " is to main- tain that orderof things which nature pointed out; by allowing every man as long as he observes the rules of justice, to pursue his own interest in his own way, and to bring both his indus- try and his capital into the freest competition with those of his fellow citizens." Animated by the same desire to promote the improvement and happiness of mankind that actuated Dr. Smith, the most profound inquirers among his successors em- braced his enlarged and benevolent views, as the only certain means of augmenting national wealth, and eloquently vindi- cated and enforced them. The doctrine of the freedom of trade and industry was adopted and taught by Stewart, Ricardo, Malthus, Torrens, Horner, Huskisson, Lauderdale, Bentham, Mills, Craig, Lowe, Tooke, and M'Culloch, the most distin- guished British political economists, and on the continent of Europe, by authors as celebrated, namel}^. Say, Sismondi, Storch, G^arnier, Destutt-Tracy, Ganilh, Jovellanos, Sartorius, Queypo, Leider, Von Schlozer, Kraus, Weber, and Muller. "Under a system of perfectly free commerce," says Mr. Ricardo, " each country naturally devotes its capital and la- bour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efiicaciously the powers bestowed by nature, it distributes labour most efiec- tively and most economically: while by increasing the general mass of productions, it diffuses general benefit, and binds to- gether by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America XVI ADVERTISEMENT. and Poland, and that hard-ware and other goods shall be manu- factured in England." Our own illustrious countryman Franklin too, with a sagacity and force which always characterized his intellect, maintained and exemplified in his "Essay on the Principles of Trade," what he therein repeatedly called "the great principle of free- dom in trade." Even before the appearance of the Wealth of Nations, he had with almost intuition anticipated some of the most profound conclusions of the science of Political Economy, which other inquirers had arrived at only after a patient and laborious analysis of its phenomena. The new and'generous commercial policy is not more beholden for support and cur- rency to the arguments and illustrations of any one of its early expositors, than to the clear and vigorous pen of the highly gifted American philosopher. " The expressions, Laissez nous /aire, and pas irop gouverner" says that highly ac- complished and able critic, Dugald Stewart, *' which comprise in a few words two of the most important lessons of political wisdom, are indebted chiefly for their extensive cir- culation, to the short and luminous comments of Franklin, which had so extraordinary an influence on public opinion, both in the Old and New World." Nevertheless, strange as it may seem, by a perversion or misconception of a few of his incidental opinions, the name of the first of practical statesmen has been invoked, and its authority employed among us, in aid of a system of restraints and prohibitions on commerce, which it was the chief aim of his politico-economical writings to refute and condemn as alike repugnant to sound theory and destruc- tive to national prosperity. Whenever American statesmen and legislators shall have as clear and steady perceptions as Franklin, of the truth and wisdom of the doctrine of commer- cial freedom, we may expect that our national and state codes will no longer exhibit so many traces of that empirical spirit of tampering regulation, which, instead of invigorating and quickening the development of national wealth, only cramps and retards its natural growth. "Where should we expect," says M. Say, in a letter to the editor, " sound doctrine to be better received than amongst a nation that supports and illus- trates the value of free principles, by the most striking exam- ples. The old states of Europe are cankered with prejudices and bad habits; it is America who will teach them the height ADVERTISEMENT. Xvii of prosperity which may be reached when governments follow the counsels of reason and do not cost too much." The preliminary discourse by the author has been translated by the American editor, and in this edition of the work is re- stored to its place. The editor must confess, that he is at a loss to account for the omission by the English translator of so material a part of the author's treatise, as the introduction to his whole inquiry. In itself, it is a performance of uncommon merit, has immediate reference to, and sheds much light over, the general views unfolded in the body of the work. The na- ture and object of the science of Political Economy, the only certain method of conducting any of our inquiries in it with success, and the causes which have hitherto so much retarded its advancement, are all considered and pointed out with great clearness and ability. The author has also connected with it a highly interesting and instructive historical sketch of the progress of this science, during the last and present century, interspersed with numerous judicious and acute criticisms upon the writings and opinions of his predecessors. Moreover, this discourse, throughout every part, is deeply philosophical, and well calculated to prepare the reader for the study on which he is about to enter. The editor has, therefore, he trusts, per- formed an acceptable service, in putting the American student in possession of so important a part of the original work. * Notes have, also, been subjoined by the American editor, for the purpose of marking a few inconsiderable errors and in- consistencies into which the author has inadvertently fallen, together with an occasional supplementary observation, drawn from other authors, to such passages of the text as seemed to require further elucidation or correction. C. C. B. Philadelphia, lOtli April, 1827. * The following extract of a letter from M. Say, to the American editor, it may not be improper to subjoin; as it contains the author's opinion of tiie value he attaches to the preliminary discourse. " Your translation and restoration of the preliminary discourse adds, in my eyes, a new value to your edition. It could only have been from a nar- row calculation of the English pubHsher, that it was omitted in Mr. Prinsep's translation. Ought that portion of the work to be deemed unuseful, whose aim is to unfold the real object of the science, to present a rapid sketch of its history, and to point out the only true method of investigating it with success' Mr. George Pryme, professor of Political Economy in the university of Cambridge, in England, makes this very discourse the principal topic of several of his first lectures. 3 INTRODUCTION. A SCIENCE advances with certainty, only when the plan of in- quiry, and the objects of our researches, have been clearly de- fined; otherwise, a small number of truths are loosely laid hold of, without their connexion being perceived, and numerous er- rors, without being enabled to detect their fallacy. For a long time the science of Politics, confined, in strict- ness, to the investigation of the principles which lay the foun- dation of the social order, was confounded with Polif/ical Eco- nomy, which unfolds the manner in which wealth is produced, distributed and consumed. Wealth, nevertheless, is essential- ly independent of political organization. Under every form of government, a state, whose affairs are well administered, may prosper. Nations have risen to opulence under absolute mon- archs, and have been ruined by popular councils. If political liberty be more favourable to the development of wealth, it is indirectly; in the same manner that it is more favourable to general education. In confounding in the same researches the essential princi- ples of good government with those on which the growth of wealth, either public or private, depends, it is by no means surprising that authors should have involved these subjects in obscurity, instead of elucidating them. Steuart, who has en- titled his first chapter "Of the Government of Mankind," is liable to this reproach. The sect of " Economists" of the last century, throughout all their writings, and J. J. Rousseau in the article " Political Economy" in the Encyclopedic, lie un- der the same imputation. Since the time of Adam Smith it appears to me that these two very distinct inquiries have been uniformly separated; the term Political Economy* being now confined to the science * From 0«(/c, a house, and vofA.oi, a law; Economy, the law which reg'ulates the household. Household, according to the Greeks, comprehending- ;ill the goods in possession of the family? and political extending- its application to society or the nation at large. Political Economy is the best expression that can be used to designate the science discussed in the following treatise; which is not the investigation oi natural wealth, or that which nature supplies us with gratuitously and without limitation; but oi social wealth exclusively, which is founded on ex- change andtlie recognition of the right of property; both social regulations. XX INTRODUCTION. which treats of wealth, and that of Politics, to designate the relations existing between a government and its people, and the relations of different states to each other. The wide range taken into the field of pure Politics, whilst investigating the subject of Political Economy, was supposed to furnish a much stronger reason for including in the same in- quiry agriculture, commerce and the arts, the true sources of wealth, and upon which laws have but an accidental and in- direct influence. Thence how many interminable digressions! If commerce, for example, constitutes a branch of Political Eco- nomy, all the various kinds of commerce form a part; and as a consequence, maritime commerce, navigation, geography — where are we to stop? Every department of human know- ledge is connected. It is, therefore, necessary to ascertain their points of contact, or the articulations by which they are imited; by this means, a more exact knowledge will be obtain- ed of whatcA^er is peculiar to each, and where they run into one another. In Political Economy, agriculture, commerce and manufac- tures are considered only in reference to the increase or dimi- nution of wealth; and not the processes employed in these opera- tions. This science indicates the cases in which commerce is truly productive, where whatever is gained by one is lost by another, and where it is profitable to all; it also teaches us to appreciate its several processes, but simply in their results, at which it stops. Besides this knowledge, the merchant must also understand the processes of his art. He must be acquaint- ed with the commodities in which he deals, their qualities and defects, the countries from which they are derived, their mode of transportation, the values to be given for them in exchange, and the method of keeping accounts. The same remark is applicable to the agriculturist, to the manufacturer, and to the practical man of business; for to ac- quire a thorough knowledge of the causes and consequences of each phenomenon, the study of Political Economy is essential- ly necessaiy to them all; and to become expert in his particu- larpursuit, each one must add thereto a knowledge of its pro- cesses. These different subjects of investigation were not, however, confounded by Dr. Smith; but neither he, nor the writers who succeeded him, have guarded themselves against another source of confusion, here important to be noticed, in- asmuch as the developments resulting from it, may not be al- together unuseful in the progress of general knowledge, or in the prosecution of our particular inquiry. In Political Economy, as in natural philosophy, and in every other study, systems have been formed before facts have been established; the place of the latter being supplied by bold as- sertions. More recently, the excellent method of philosophiz- ing, which, during the last half century, has so much contri- buted to the advancement of every other science, has been applied to the conduct of our researches in this. Has not this INTRODUCTION. XX! method itself, however, been employed, before really know- ing in what its excellence consists, and, consequently, before bemg acquainted with all the advantages to be derived from it? It is, in general, correctly enough said, that it consists in ad- mitting only facts carefully observed, and the consequences rigorously deduced from them; thereby effectually excluding those prejudices and authorities which, in every department of literature and science, have so often been interposed between man and truth. But, is the whole extent of the meaning of the term/ac/.S', so often made use of, understood? It appears to me, that by this word must be understood, not only objects that exist, but events that take place; at once presenting two classes of facts: it is, for example, one fact, that such an object exists; another fact, that such an event takes place in such a manner. Objects that exist, in order to serve as the basis of certain reasoning, must be seen exactly as they are, under every point of view, with all their qualities. Other- wise, whilst supposing ourselves to be reasoning respecting the same thing, we may, under the same name, be treating of two different things. The second class oi facts, namely, events that take place, consists of the phenomena exhibited, when we observe the manner in which things take place. It is, for instance, a fact, that metals, when exposed to a certain degree of heat, become fluid. The manner in which things exist and take place, constitutes what is called the nature of thinj^s; and a careful observation of the nature of things is the sole wundation of all truth. Hence, a twofold classification of sciences, namely, into those which maybe styled descriptive, and impart an accurate knowledge of certain objects and their properties, as in bota- ny and natural history; and into those which may be styled ex- perimental, and unfold the manner in which events take place, as in chemistry, natural philosophy and astronomy. Both departments are founded on facts, and constitute an equally solid and useful portion of knowledge. Political Economy be- longs to the latter ; in showing the manner in which events take place in relation to wealth, it forms a part of experimental science.* ^nt facts that take place nxd^y be considered in two points of view; either dsgeneral or constant, or 'ds particular or va- riable. General facts are the results of the nature of things in all analogous cs.sfis; particular facts as truly result from the nature of things, but they are the result of several operations * Experimental science, in order to establish why events take place in a certain manner, or to be able to assign a particular cause for a particular ef- fect, to a certain extent must be descriptive. Astronomy, in order to ex- plain the eclipses of the sun, must demonstrate the opacity of the moon. Political Economy, in like manner, in order to show that money is a means^ of the production of wealth, but not the end, must extiibit its tnie nature. XXll INTRODUCTION. modified by each other in a particular case. The former are not less incontrovertible than the latter, even when apparently they contradict each other. In natural philosophy it is a ge- neral fact, that heavy bodies fall to the earth; the water in a foun- tain, nevertheless, rises above it. The particular fact of the fountain is a result wherein the laws of equilibrium are com- bined with those of gravity, but without destroying them. In our present inquiry, the knowledge of these two classes of facts, to wit, of objects that exist, and of events that take jjlace, embraces two distinct sciences, Political Economy and Statistics. Political Economy, from facts always carefully observed, makes known to us the nature of wealth; from the knowledge of its nature deduces the means of its creation, unfolds the or- der of its distribution and the phenomena attending its destruc- tion. It is, in other words, an exposition of the general facts observed in relation to this subject. With respect to wealth, it is a knowledge of effects and of their causes. It shows what facts are constantly conjoined; so that one is always the se- quence of the other, and why it is so. But it does not resort for any further explanations to hypothesis: from the nature of particular events their concatenations must be distinctly per- ceived; the science must conduct us from one link to another, so thateveryintelligentunderstandingmay clearly comprehend in what manner the chain is united. It is this which consti- tutes the excellence of the modern method of philosophizing. Statistics exhibits the production and consumption of a par- ticular country, at a designated period; its population, military force, wealth, and whatever else is susceptible of valuation. It is a description in detail. Between Political Economy and Statistics there is the same difference as between Politics and History. The study of Statistics may gratify curiosity, but it can never be productive of advantage when it does not indicate the origin and consequences of the facts it has collected; and by indicating their origin and consequences, it becomes at once Political Economy. This doubtless is the reason why these two distinct sciences have hitherto been confounded. The work of Dr. Adam Smith is but an immethodical assemblage of the soundest principles of Political Economy, supported by luminous illustrations, and of the most ingenious researches in Statistics, blended with instructive reflections; but it is not a complete treatise of either science, but an irregular mass of cui'ious and original speculations and of known and demon- strated truths. A perfect knowledge of Political Economy may be obtain- ed, inasmuch as all the general facts which compose this sci- ence may be discovered. In Statistics this never can be the case; this latter science, like history, being a recital of facts, more or less uncertain, and necessarily incomplete. Of the statistics of former periods and distant countries, only detached INTRODUCTION. XXIU and very imperfect accounts can be furnished. With respect to the present time, there are few persons who unite the qualifica- tions of good observers, with a situation favourable for accurate observation. The inaccuracy of the statements inquirers are compelled to have recourse to, the restless suspicions of par ticular governments and even individuals, their ill-will, and their indifference, present obstacles often insurmountable, even by the toil and care taken by them in order to collect minute details with exactness; and which, after all, when in their possession, are only true for an instant. Dr. Smith ac- cordingly avows that he puts no great faith in political arith- metic; which is nothing more than the arrangement of numerous statistical data. Political Economy, on the other hand, whenever the prin- ciples which constitute its basis are the rigorous deductions of undeniable general facts, rests upon an immoveable foundation. Generalfacts are undoubtedlj' founded upon the observation of f)articular facts; but upon such particular facts as have been se- ected from those most carefully observed, best established, and witnessed by ourselves. When the results of these facts have uniformly been the same, the cause of their having been so sat- isfactorily demonstrated, and the exceptions to them even con- firming other principles, equally well established, we are au- thorized to give them as ultimate general facts, and to submit them with confidence to the examination of all competent inqui- rers, who may be again desirous of subjecting them to experi- ment. A new particular fact, if insulated, and the connexion between its antecedents and consequents not established by rea- soning, is not sufficient to shake our confidence in a general fact, for who can say that some unknown circumstance has not pro- duced the difference noticed in their several results? A light fea- ther is seen to mount in the air, and sometimes remain there for a long time before it falls back to the ground. Would it not, nevertheless, be erroneous to conclude that this feather is not affected by the universal law of gravitation? In Political Econo- my it is a general fact, that the interest of money rises in pro- portion to the riskrun by the lender of not being repaid. Shall it be inferred that this principle is false, from having seen mo- ney lent at a low rate of interest upon hazardous occasions? The lender may have been ignorant of the risk, gratitude or fear may have induced sacrifices, and the general law, disturbed in this particular case, will resume its entire force the moment the causes of its interruption have ceased to operate. Finally, how small a number of particular facts are completely established, and how few among them are observed under all their aspects! And in supposing them well established, well observed, and well described, how many of them prove nothing, or directly the reverse of what is intended to be maintained by them! Hence, there is not an absurd theory or extravagant opin- ion that has not been supported by an appeal to facts;* and it * In France, tlie minister of the Interior in his expose of 1813, a most dis- XXIV INTRODUCTION. is by facts also that public authorities have been so often mis- led. But a knowledge of facts, v^ithout a know^ledge of their mutual relation — without being able to show why the one is a cause and the other an effect, is really no better than the crude information of a public clerk, of whom the most intelligent seldom becomes acquainted with more than one particular se- ries, which enables him to examine a question only in a single point of view. Nothing can be more idle than the opposition of theory to practice! What is theory, if it be not a knowledge of the laws which connect effects with their causes, or facts with facts? And who can be better acquainted with facts, than the theorist who surveys them under all their aspects, and com- prehends their relation to each other? And what is practice* without theory, but the employment of means without know- ing how or why they act? In any investigation, to treat dis- similar cases as if they were analogous, is but a dangerous kind of empiricism, leading to conclusions never foreseen. Hence it is, that after having seen the exclusive or restric- tive system of commerce, a system founded on the opinion that one nation can only gain what another loses, almost uni- versally adopted throughout Europe after the revival of arts and letters; after having seen taxation without intermission perpetually increasing, and in some countries extending itself to a most enormous amount; and after having seen these same countries become more opulent, more populous and more pow- erful, than at the time they carried on an unrestricted trade and were almost entirely exempt from public burdens, the genei-ality of mankind have concluded, that national wealth and power were attributable to the restraints imposed on the application of industry, and to the taxes levied from the in- comes of individuals. Shallow thinkers have even pretended that this opinion was founded on facts, and that every different one was the offspring of a wild and disordered imagination. It is, however, on the contrary evident, that the supporters of the opposite opinion embraced a wider circle of facts, and understood them much better than their opponents. The very remarkable impulse given to the industry of the free states of Italy during the middle ages, and in the Hanse towns of the North of Europe, the spectacle of riches it exhibited in both, the shock of opinions occasioned by the crusades, the jDrogi-ess of the arts and sciences, the improvement of navigation and astrous period, when foreig-n commerce was destroyed, and the national re- sources of every description rapidly declining, boasted of having- proved by indabitable calculations, that the country was in a hig-her state of prosperity than it ever before had been. * Bv the term practice, is not here meant the manual skill which enables the artificer or clerk to execute with greater celerity and precision what- ever he peiforms daily, and which constitutes his peculiar talent; but the method pursued in superintending and administering public or private affairs. INTRODUCTION. XXV consequent discovery of the route to India and of the conti- nent of America, as well as a succession of other less import- ant events, were all known to them as the true causes of the increased opulence of the most ingenious nations on the globe. And, although they were aware that this activity had received successive checks, they at the same time knew that it had been freed from more oppressive obstacles. In consequence of the authority of the feudal lords and barons declining, the intercourse between the different provinces and states could no longer be interrupted; roads became improved, travelling more secure, and laws less arbitrary; the enfranchised towns, becoming im- mediately dependent upon the crown, found the sovereign in- terested in their advancement; and this enfranchisement, which the natural course of things, and the progress of civilization had extended to the country, secured to every class of pro- ducers the fruits of their industry. In every part of Europe personal freedom became almost generally respected; if not from a more improved organization of political society, at least from the influence of public sentiment. Certain prejudices, such as branding with the odious name of usury, all loans upon interest, and attaching the importance of nobility to idleness, had begun to decline. Noris this all: enlightened individuals have not only remarked the influence of these, but of many other analogous facts; it has been perceived by them, that the decline of prejudices has been favourable to the advancement of science, or to a more exact knowledge of the immutable laws of nature; that this improvement in the cultivation of science has itself been favourable to the progress of industry, and industry to national opulence. From such an induction of facts they have been enabled to conclude, with much greater certainty than the unthinking multitude, that although many modern states in the midst of taxation and restrictions have risen to opulence and power, it is not owing to these restraints on the natural course of human affairs, but in spite of such powerful causes of discouragement. The prosperity of the same countries would have been much greater, had they been governed by a more liberal and enlightened policy.* To obtain a knowledge of the truth, it is not then necessary to be acquainted with a great number of facts, as with sucli as are essential and have a direct and immediate influence; and above all, to examine them under all their aspects, to be enabled * Hence it is, that nations seldom derive any benefit fi'om the lessons of experience. To profit liy them, the community at large must be enabled to seize tlie connexion between causes and their consequences; which at once supposes a vei'y high degree of intelligence and a rare cajnicity for reflection. Whenever mankind sliall be in a situation to profit by experi- ence, they will no longer require her lessons; plain sound sense will then be sufficient. This is one i"eas" stant conti'ol. All tl)at a people can desire is, fhat laws slioukl be made con- ducive to the general interest of society, and carried into effect, a problem ■which different political constitutions more ;, there is a gain of 4000yr. only, although France has received 24, 000 /r. in specie. And, should the merchant lay out his 1000/. sterling in cotton goods, and be able to sell them in France for 28,000 _/r. there would then be a gain to the importer and to the nation of 8000 /r., although no specie whatever had been brought into the country. In short, the gain is precisely the excess of the value received above the value given for it, whatever be the form in which the import is made. It is curious enough, that the more lucrative external commerce is, the greater must be the excess of the import above the export; and that the ver}' thing, which the partisans of the exclusive system deprecate as a ca- lamity, is of all things to be desired. I will explain why. When there has been an export of 10, and an import in return of 11 millions, there is in the nation a value of 1 million more than before the interchange. And, in spite of the specious statements of the balance of commerce, this must al- most always be so, otherwise the traders would gain nothing. In fact, the value of the export is estimated at its value before shipment, which is in- creased by the time it reaches the destination: with this augmented value the return is purchased, which also receives a like accession of value by the transport. The value of tliis import is estimated at the time of entry. 'I'hus, the result is the presence of a value equal to that exported, plus the gains. CHAP. XVII. ON PRODUCTION, 95 If the merchant find it more advantageous to get his returns in goods than in specie, and if it be admitted, that he knows his own interest better than any body else, the sole point left for discussion is, whether returns in specie, though less ad- vantageous to the merchant, may not be better for the nation, than returns of any other article: whether, in short, it be de- sirable in a national point of view, that the precious metals should abound, in preference to any other commodity. What are the functions of the precious metals in the com- munity? If shaped into trinkets or plate, they serve for per- sonal ornament, for the splendour of our domestic establish- ments, or for a variety of domestic purposes; they are con- verted into watch-cases, spoons, forks, dishes, coffee-pots; or rolled out into leaves for the embellishment of picture-frames, book-binding, and the like; in which case, they form part of that portion of the capital of the community, which yields no interest, but is devoted to the production of utility or pleasure. It is doubtless an advantage to the nation, that the material, whereof this portion of its capital consists, should be cheap and abundant. The enjoyment they afford in these various ways is then obtained at a lower rate, and is more widely dif- fused. There are many establishments on a moderate scale, which, but for the discovery of America, would have been unable to make the show of plate that is now seen upon their tables. But this advantage must not be over-rated; there are other utilities of a much higher order. The window-glass, that keeps out the inclemency of the weather, is of much more importance to our comfort, than any species of plate whatso- ever; yet no one has ever thought of encouraging its import or production by special favour or exemptions. The other utility of the precious metals is^ to act as the ma- outward and homeward. Wherefore, in a thriving country, the vahie of the total imports should always exceed that of the exports. What then are we to think of the Report of the French Minister of the Interior of 1813, who makes the total exports to have been 383 millions o? francs, and the total imports inclusive of specie, but 350 millions; a statement upon which he felicitates the nation, as the most favourable that had ever been present- ed. Whereas, this balance shows, on the contrary, what every body felt and knew, that the commerce of France was then making- immense losses, in consequence of the blunders of her administration, and the total ignorance of the first principles of Political Economy. In a tract upon the kingdom of Navarre in Spain. (^Annates des Voyages, tom. i. p. 312.) I find it stated, that, on comparison of the value of the ex- ports with that of the imports of that kingdom, there is found to be an annu- al excess of the former above the latter of 600,000 /r. Upon which the au- thor very sagely observes, "that, if there be one trutli more indisputable than another, it is this, that a nation which is growing rich can not be im- porting more than it is exporting; for tlien its capital m.ust diminish per- ceptibly. And, since Navarre is in a state of gradual improvement, as ap- pears from the advance of population and comfort, it is cleai' — ," that I know nothing about the matter, he might have added; " — for I am citing- an established fact to give the lie to an indisputable principle." We are every day witnessing contradictions of the same kind. 96 ON PRODUCTION. book i. terial of money, that is to say, of that portion of the national capital, which is employed in facilitating the interchange of existing values between one individual and another. For this purpose, is it any advantage, that the material selected should be abundant and cheap? Is a nation, that is more amply pro- vided with that material, richer than one which is more scan- tily supplied? I must here take leave to anticipate a position, established in chap. 21 of this book, wherein the subject of money is con- sidered: viz. that the total business of national exchange and circulation, requires a given quantity of the commodity, mo- ney, of some amount or other. There is in France a daily sale of so much wheat, cattle, fuel, property moveable and im- moveable, which sale requires the daily intervention of a given value in the form of money, because every commodity is first converted into money, as a step towards its further conver- sion into other objects of desire. Now, whatever be the rela- tive abundance or scarcity of the article money, since a given quantum is requisite for the business of circulation, the mo- ney must of course advance in value, as it declines in quantity, and decline in value as it advances in quantity. Suppose the money of France to amount now to 3000 millions oi francs, and that by some event, no matter what, it be reduced to 1500 millions; the 1500 millions will be quite as valuable as the 3000 millions. The demands of circulation require the agency of an actual value of 3000 millions; that is to say, a value equivalent to 2000 millions of pounds of sugar, (taking sugar at 30 sous per lb.) or to 180 millions of hectolitres of wheat (taking wheat at 20 fr. the hectolitre.) Whatever be the weight or bulk of the material, whereof it is made, the total value of the national mono)'- will still remain at that point; though, in the latter case, that material will be twice as valua- ble as in the former. An ounce of silver will buy eight in- stead of four lbs. of sugar, and so of all other commodities; and the 1500 millions of coin will be equivalent to the former 3000. But the nation will be neither richer nor poorer than before. A man, who goes to market with a less quantity of coin, will be able to buy with it the same quantity of com- modoties. A nation that has chosen gold for the material of its money, is equally rich with one that has made choice of silver, though the volume of its money be much less. Should silver become fifteen times as scarce as at present, that is to say, as scarce as gold now is, an ounce of silver would per- form the same functions, in the character of money, as an ounce of gold now does; and we should be equally rich in mo- ney. Or, should it fall to a par with copper, we should not he a jot the richer in the article of money; we should merely be encumbered with a more bulky medium of circulation. On the score, then, of the other utilities of the precious metals, and on that score only their abundance makes a nation richer, because it extends the sphere of those utilities, and CHAP. XVII. ON PRODUCTION. .97 diffuses their use. In the character of money, that abundance no wise contributes to national enrichment;* but the habits of the vulgar lead them to pronounce an individual rich, in proportion to the quantity of money he is possessed of; and this notion has been extended to national wealth, which is made up of Jthe aggregate of individuals' wealth. Wealth, however, as before observed, consists, not in the matter or substance, but in the value of that matter or substance. A money of large, is worth no more than a money of small volume; neither is a money of small, of less value, than one of large volume. Value, in the form of commodities, is equiva- lent to value to the same amount in the form of money. It may be asked, why, then, is money so generally preferred to commodities, when the value on both sides is equal? This requires a little explanation. When I come to treat of mone^', it will be shown, that coined metal of equal value commands a preference, because it ensures to the holder the attainment 01 the objects of desire by means of one exchange instead of two. He is not, like the holder of any other commodity, obliged, in the first instance, to exchange his own commodity, money, for the purpose of obtaining, oy a second exchange, the object of his desire; one act of exchange suffices; and this it is, combined with the extreme facility of apportionment, afforded by graduated denominations of the coin, which ren- ders it so useful in exchanges of value. Every individual, who has an exchange to make, becomes a consumer of the commodity, money; that is to say, every individual in the com- munity; which accounts for the universal preference of money to commodities at large, where the value is equal. But this superiority of money, in the interchange between individuals, does not extend to that between nation and na- tion. In the latter, money, and, a fortiori, bullion, lose all the advantage of their peculiar character as money, and are * It is a necessary inference from these positions, that a nation gains in wealth by tlie partial export of its specie, because the residue is of equal value to the total previous amount, and the nation receives an equivalent for the portion exported. How is this to be accounted for? By the pecu- liar property of money to exhibit its utility in the exercise, not of its physi- cal or material qualities, but those of its value alone. A less quantity of bread will less satisfy the cravings of hunger; but a less quantity of money may possess an equal amount of utility; for its value augments with the ili- minution of its volume, and its value is the sole ground of its employment. Whence it is evident, that governments should shape their coui'se in the opposite direction to that pursued at present, and encourage, instead of discouraging, the export of specie. And so they assuredly will, whentliey shall understand their business better: or rather, they will attempt neitljer the one nor the other; for it is impossible, that any considerable poi-tion of the national specie can leave the country, without raising the value of tlie residue. And, when it is raised, less of it is given in exchange for commo- dities, which are then low in price, so as to make it advantageous again to import specie and export commodities; by whicli action and reaction the quantity of the precious metals is, \\\ spite of all regulations, kept prctl> nearly at the amount required by the wants of the nation. 20 98 ON PRODUCTION. book i. dealt with as mere commodities. The merchant, who has re- mittances to make from abroad, looks at nothing but the gain to be made on those remittances, and treats the precious metals as a commodity he can dispose of with more or less benefit. In his eyes, an exchange more or less is no object; for it is his business to negotiate exchanges, so as to get a profit upon them. An ordinary person might prefer to receive money instead of goods, because it is an article, whose value he is better ac- quainted with: but a merchant, who is apprised of the prices current in most of the markets of the world, knows how to ap- preciate the value he receives in return, whatever shape it may appear under. An individual may be under the necessity of liquidating, for the purpose of giving a new direction to his capital, or of partition, or the like. A nation is never obliged to do so. This liquidation is effected with the circulating money of the nation, which it occupies only for the time: the same money going almost immediately to operate another act of liquidation or of exchange. We have seen above (Chap. 15.) that the abundance of specie is not even necessary for the national facilitation of exchanges and sales; for that buyers really buy with products, — each with his respective portion of the products he has concurred in creating: that with this he buys money, which serves but to buy some further product; and that, in this operation, mo- ney affords but a temporary convenience; like the vehicles employed to convey to market the produce of a farm, and to bring back the articles that have been purchased with the pro- duce. Whatever amount of money may have been employed in the purchase or liquidation, it has passed for as much as it was taken for: and, at the close of the transaction, the indivi- dual is neither richer nor poorer. The loss or profit arises out of the nature of the transaction itself, and has no reference to the medium employed in the course of it. In no one way do the causes, that influence individual pre- ference of money to commodities, operate upon international commerce. When the nation has a smaller stock than its ne- cessities require, its value within the nation is raised, and fo- reign and native merchants are equally interested in the im- portation of more: when it is redundant, its relative value to commodities at large is reduced, and it becomes advantageous to export to that spot, where its command of commodities may be greater than at home. To retain it by compulsory mea- sures, is to force individuals to keep what is a burthen to them.* * No one but an entire stranger to these matters would here be inclined to object, that money can never be burtliensome, and is always disposed of easily enough. So it may be, indeed, by such as are content to throw its value away altogether, or at least, to make a disadvantageous exchange. A confectioner may give away his sugar-plums, or eat them himself; but in that case, he loses the value of them. It should be observed, that the abundance of specie is compatible with national miserj^; for the monej', that CHAP. XVII. ON PRODUCTION. 99 And here I might, perhaps, now dismiss the subject of the balance of trade: but such is the prevailing ignorance on this topic, and so novel are the views I have been taking, even to persons of the better class, to writers and statesmen of the purest intentions and well informed on other points, that it may be worth while to put the reader on his guard against some fallacies, which are often set up in opposition to liberal principles, and are unfortunately the ground-work of the po- lity of most of the European States. I shall uniformly reduce the objections to the simplest terms possible, that their weight may be the more easily estimated. It is said, that, by increasing the currency througli the means of a favourable balance of trade, the total capital of a nation is augmented; and, on the contrary, by diminishing it, that capital is reduced. But it must be always kept in mind, that capital consists, not of so much silver or gold, but of the values devoted to reproductive consumption, which values ne- cessarily assume an infinite variety of successive forms. When it is intended to vest a given capital in any concern, or to place it out at interest, the first step is undoubtedly to realise to that amount, by converting into ready money the different values one has at command. The value of the capital, thus assuming the transient form of money, is quickl}'^ transmuted by one exchange after another into buildings, works, and perishable substances requisite for the projected adventure. — The ready money employed for the occasion passes again into other hands, for the purpose of facilitating fresh exchanges, as soon as it has accomplished its momentary duty; in like manner as do many other substances, the shape of which this capital successively assumes. So that the value of capital is neither lost nor impaired by parting with its value, whatever material shape it happens to be under, provided that we part with it in a way that ensures its renovation. Suppose a French dealer in foreign commodities to consign to a foreign country a capital of lOOjOOO/?'. in specie for the purchase of cotton; when his cotton arrives, he possesses lOOjOOOyr. value in cotton instead of specie, putting nis profit out of the question for the moment. Has any body lost this amount of specie? Certainly not: the adventurer has come honestly by it. A cotton manufacturer gives cash for the cargo; is he the loser of the price? No, surely: on the con- trary, the article in his hands will increase to twice its value, so as to leave him a profit, after repaying all his advances. — If no individual capitalist has lost the 100,000 fr. exported, how can the nation have lost them? The loss will fall on the goes to buy bread, must have been boug-ht itself with other products. And, when production has to contend with adverse circumstances, individuals are in great distress for money, not because that article is scarce, which often- times it is not, but because the ci'eation of the products, wherewith it is procurable, can not be eHiscted with advantage. 100 ON PRODUCTION. book. i. consumer, they will tell you: in fact, all the cotton goods bought and consumed will be so much positive loss; but the same consumers might have consumed linens or woollens of exactly the same value without a centime of the 100,000 fr. being sent out of the country, and yet there would equally be a loss or consumption to that amount of value. The loss of value we are now speaking of is not occasioned by the export, but by the consumption, which might have taken place with- out any export whatever. I may, therefore, say, with strict attention to truth, that the export of the specie has caused no loss at all to the nation.* It has been urged, with much confidence, that, had the ex- port of 100,000 yr. never been made, France would remain in possession of that additional value; in fact, that the nation has lost the amount twice over; first, hj the act of export; second- ly, by that of consumption: whereas, the consumption of an indigenous product would have entailed a single loss only. But I answer as before, that the export of specie has occa- sioned no loss; that it was balanced by equivalent value im- ported; and that it is so certain, that nothing more has been lost, than the 100,000 fr. worth of imported commodities, that I defy any one to point any other losers than the consum- ers of those commodities. If there have been no loser, it is clear there can have been no loss. Would you put a stop to the emigration of capital? It is not to be prevented by keeping specie in the country. A man resolved to transfer his capital elsewhere can do it just as ef- *-A merchant's ledger for two successive years may show him richer at the end of the second, than at the end of the first, although possessed of a smaller amount of specie. Suppose the first year's amount to stand thus: — Francs. Ground and buildings ..... 40,000 Machinery and moveables 20,000 Stock in hand 15,000 Balance of good credits ...... 5,000 Cash 20,000 Total 100,000 And the second year's thus: — • Ground and buildings 40,000 Machinery and moveables ..... 25,000 Stock in hand ....... 30,000 Balance of good credits 10,000 Cash - " - . - . . . . . 5,000 Total 110,000 Exhibiting an increase of 10,000 /y., although his cash be reduced to one quarter of the former amount. A similar account, differing only in the ratios of the different items, might be made out for the whole of the individuals in the community, who would then be evidently richer, though possessed of much less specie or c;ish. CHAP. XVII. ON PRODUCTION. 101 fectually by the consignment of goods, whose export is per- mitted.* So much the better we may be told; for our manu- facturers will benefit by the exports. True; but their value exists no longer in the nation, since they bring back no return wherewith to make new purchases; there has been a transfer of so much capital from amongst you, to give activity, not to your own, but to some other nation's industry. This is a real ground of apprehension. Capital naturally flows to those places, that hold out security and lucrative employment, and gradually retires from countries offering no such advantages: but it may easily enough retire, without being ever converted into specie. If the export of specie causes no diminution of national capital, provided it be followed by a corresponding return, on the other hand, its import brings no accession of capital. For, in reality, before specie can be imported, it must have been purchased by an equivalent value exported for that purpose. On this point it has been alleged, that, by sending abroad goods instead of specie, a demand is created for goods, and the producers enabled to make a profit upon their production. I answer, that, even when specie is sent abroad, that specie must have been first obtained by the export of some indi- genous product; for, we may rest assured, that the foreign owner of it did not give it to the French importer for nothing; and France had nothing to offer in the first instance but her domestic products. If the supply of the precious metals in the country be more than sufficient for the wants of the coun- try, it is a fitter object of export than another commodity; and, if more of the specie be exported than the excess of the supply above the demand for the purposes of circulation, we may calculate with certainty, that, since the value of specie must have been necessarily raised by the exportation, other specie will be imported to replace what has been withdrawn; for the purchase of which last, home products must have been sent abroad, which will have yielded a profit to the home pro- ducers. In a word, every value sent out of France, for the purchase of foreign returns for the French market, may be resolved into a product of domestic industry, given either first or last, for France has nothing else to procure them with, Again, it has been argued, that it is better to export con-^ sumable articles, as for instance, manufactures, and to keep at home those products not liable to consumption, or, at least, not to quick consumption, such as specie. Yet objects of quick consumption, if more in demand, are more profitable to keep than objects of slower consumption. It would often be doing a producer a very poor service, to make him substitute a * The transfer of capital by bills on foreig-n countries, comes precisely to the same thing. It is a mere substitute in place of the individual making the expoi't of commodities, who transfers his right to receive their proceeds, the value of which remains abroad. 102 ON PRODUCTION. book i. quantity of commodities of slow consumption for an equal por- tion of his capital of more rapid consumption. If an ironmaster were to contract for the delivery to him of a quantity of coal at a day certain, and when the day came the coal should not be procurable, and he should be offered the value in money in its stead, it would be somewhat difficult to convince him of the service done him by the delivery of money; which is an ob- ject of much slower consumption than the coal he contracted for. Should a dyer send an order for dyeing woods from abroad, it would be a positive injury to send him gold, on the plea, that, with equal value, it has the advantage of greater durability. He had no occasion for a durable article what- ever; what he wanted was a substance, which, though decom- posed in his vats, would quickly re-appear in the colours of his stuffs.* If it were no advantage to import any but the most durable items of productive capital, there are other very durable ob- jects, such as stone or iron, that ought to share in our partiality with silver and gold. But the point of real importance is, the durability, not of any particular substance, but of the value of capital. Now the value of capital is perpetuated, notwithstand- ing the repeated change of the material shape in which it is vested. Nay, it can not yield either interest or profit, unless that shape be continually varied. To confine it to the single shape of money would be to condemn it to remain unproduc- tive. But I will go a step further, and, having shown that there is no advantage in importing gold and silver more than any other article of merchandise, I will assert, that, supposing it were desirable to have the balance of trade always in our favour, yet it is morally impossible it should be so. Gold and silver are like all the other substances that, united, compose national wealth; they are useful to the community no longer than while they do not exceed the national demand for them. Any such excess must make the sellers more nume- rous than the bidders; consequently, must depress the price in proportion, and thus create a powerful inducement to buy in the home market, in the expectation of making a profit up- on the export. This may be illustrated by an example. Suppose for a moment the internal traffic and national wealth of a given country to be such, as to require the constant em- ploy of a thousand, carriages of different kinds. Suppose too, that, by some peculiar system of commerce, we should suc- * In Booklir., which treats of consumption, it will be seen, that the slower kinds of unproductive consumption are preferable to the moi'e rapid ones. But, in the reproductive branch, the more rapid are the better; be- cause, the more quickly the reproduction is effected, the less charge of interest is incurred, and the oftener the same capital can repeat its pro- ductive agency. The rapidity of consumption, moreover, does not affect external prodvicts in particular; its disadvantages are equal, whether the product be of home or foreign growth. CHAP. XVII. ON PRODUCTION. 103 ceed in getting more carriages annually imported, than were annually destroyed by wear and tear; so that, at the year's end, there should be 1500 instead of 1000; is it not obvious, that there would be in that case 500 lying by in the reposito- ries quite useless, and that the owners of them, rather than suffer their value to lie dormant, would undersell each other, and even smuggle them abroad if it were practicable, in the hope of turning them to better account? In vain would the government conclude commercial treaties for the encourage- ment of their import: in vain would it expend its efforts in stimulating the export of other commodities, for the purpose of getting returns in the shape of carriages; the more the public authorities favoured the import, the more anxious would individuals be to export. As it is with carriages, so is it with specie likewise. The demand is limited: it can form but a part of the aggregate wealth of the nation. That wealth can not possibly consist entirely of specie, for other things are requisite besides specie. The extent of the demand for that peculiar article is propor- tionate to the general wealth; in the same manner, as a great- er number of carriages is wanted in a rich than in a poor coun- try. Whatever brilliant or solid qualities the precious metals may possess, their value depends upon the use made of them, and that use is limited. Like carriages, they have a value peculiar to them; a value that diminishes in proportion to the nicrease of their relative plenty, in comparison with the ob- jects of exchange, and increases in proportion to their rela- tive scarcity. One is told, that every thing may be procured with gold or silver. True; but upon what terms? The terms are less ad- vantageous, when these metals are forcibly multiplied beyond the demand; hence their strong tendency to emigration under such circumstances. The export of silver from Spain was pro- hibited; yet Spain supplied all Europe with it. In 1812, the paper money of England having rendered superfluous all the fold money of that country, and made that metal too abun- ant for its other and remaining uses, its relative value fell, and her guineas emigrated to France, in spite of the ease with which the coasts of an island may be guarded, and of the de- nunciation of capital punishment against the exporters. To what good purpose, then, do governments labour to turn the balance of commerce in favour of their respective nations? To none whatever; unless, perhaps, to exhibit the show of financial advantages, unsupported by fact or experience. * — * The returns of Bi-itish commerce from the commencement of the 18th century down to the establishment of the existing paper money of that na- tion, show a regular annual excess, more or less, received by Great Britain in the shape of specie, amounting- altogether to the enormous total of 347" milhons sterling (more than 6000 milhons of/ra«C5.J Iftothisbe added the specie already in Great Britain at the outset, England ought to have 104 ON PRODUCTION. book i. How can maxims so clear, so agreeable to plain common sense, and to facts attested by all who have made commerce their study, have yet been rejected in practice by all the ruling powers of Europe,* nay, even have been attacked by a num- ber of writers, that have evinced both genius and information on other subjects? To speak the truth, it is because the first principles of political economy are as yet but little known; be- cause ingenious systems and reasonings have been built upon hollow foundations, and taken advantage of, on the one hand, by interested rulers, who employ prohibition as a weapon of offence or an instrument of revenue; and, on the other, by the personal avarice of merchants and manufacturers, who have a private interest in exclusive measures, and take but little pains to inquire, whether their profits arise from actual pro- duction, or from a simultaneous loss thrown upon other classes of the community. A determination to maintain a favourable balance of trade, that is to say, to export goods and receive returns of specie, is, in fact, a determination to have no foreign trade at all; for the nation, with whom the trade is to be carried on, can only give in exchange what it has to give. If one party will receive no- thing but the precious metals, the other party may come to a similar resolution; and, when both parties require the same commodity, there is no possibility of any exchange. Were it practicable to monopolize the precious metals, there are few nations in the world that would not be cut off from all hope of mutual commercial relations. If one country afford to another what the latter wants in exchange, what more would she have? or in what respect would gold be preferable? for what else can it be wanted, than as the means of subsequently purchasing the objects of desire? The day will come, sooner or later, when people will won- der at the necessity of taking all this trouble to expose the folly possessed a circulating' medium of very near 400 millions sterling-. How happens it then, that the most exag-gerated ministerial calculations have ne- ver given a lai-ger total of specie than 47 millions, even at the period of its greatest abundance? Vide supra. Chap. 3. * All of them have acted under the conviction, 1. That the precious metals are the only desirable kind of wealth, whereas they perform but a secondary part in its production: 2. That they have it in their power to cause their regular influx by compulsory measures. The example of Eng- land CVide note preceding, J will show the little success of the experiment. The pre-eminent wealth of that nation, then, is derived from some other (Cause than the favourable balance of her commerce. But what other cause? Why, from the immensity of her production. But to what does she owe that immensity? To the frug^ality exerted in the accumulation of individual capital; to the national turn for industry and practical applica- tion; to the security of person and propert}', the facility of internal circula- tion, and freedom of individual agency, which, limited and fettered as it is, is yet, on the whole, superior to that of the other European states. CHAP. XVII. ON PRODUCTION. 105 of a system, so childish and absurd, and yet so often enforced at the point of the bayonet. (1) EXD OF THE DIGRESSION tJPOTf THE BALANCE OF TRADE. To resume our subject. — We have seen, that the very ad- vantages, aimed at by the means of a favourable balance of trade, are altogether illusory; and that, supposing them real, it is impossible for a nation permanently to enjoy them. It re- mains to be shown, what is the actual operation of regulations framed with this object in view. By the absolute exclusion of specific manufactures of foreign fabric, a government establishes a monopoly in favour of the home producers of these articles, and in prejudice of the home consumers; that is to say, those classes of the nation which produce them, being entitled to their exclusive sale, can raise their prices above the natural rate; while the home consumers, being unable to purchase elsewhere, are compelled to pay for them unnaturally dear.* If the articles be not wholly pro- • Ricardo, in his Essay on the Principles of Political Economy and Taxa- tion, publishhd in 1817, has justly remarked on this passage, that a govern- ment can not, by prohibition, elevate a product beyond its natural rate of price: for in that case, the home producers would betake themselves in greater numbers to its production, and, by competition, reduce the profits upon it to the general level. To make myself better understood, I must therefore explain, that, by natural rate of price, I mean the lowest rate at which a commodity is procurable, whether by commerce or other branch of industry. If commercial can procure it cheaper than manufacturing in- dustry, and the government take upon itself to compel its production by the way of manufacture, it then imposes upon the nation a more chargeable mode of procurement. Thus, it wrongs the consumer, without giving to the domestic producer a profit, equivalent to the extra charge upon the consumer; for competition soon brings that profit down to the ordinary level of profit, and the monopoly is thereby rendered nugatory. So that, although Ricardo is thus far correct in his criticism, he only shows the measure I am reprobating to be more mischievous; inasmuch as it aug- ments the natui'al difficulties in the way of the satisfaction of human wants, without any counteracting benefit to any class or any individual whatever. (1) "To the English reader," said Mr. Prinsep in a note to this section, *' a great part of this elaborate digression will appear superfluous; so rapid has been the progress of Political Economy, and so wide the diffusion of its principles." But Mr. Prinsep, then, in 1821, supposed, " that however much the continuance of the restrictive system was reprobated by all think- ing men, the administration was not capable of emancipating itself from the trammels of practical habits and opinions in which it had been trained." In this he has been mistaken; for by no set of men have the "impolicy and injustice" of the restrictive system been more clearly pointed out, and measures taken to effect its entire repeal, than by Messrs. Huskisson, Can- ning, Robinson, and Wallace, the most prominent members of the British government. " They have already done a great deal," says a writer in a late number of the Edinburgh Review, "to relieve the commerce and industry of the country from the shackles imposed in a less enlightened age; and, notwith- standing the outcry and clamour, that a small faction, opposed to eyerjr 21 106 ON PRODUCTION. book i. hibitetl, but merely saddled with an import duty, the home producer can then increase their price by the whole amount of the duty, and the consumer will have to pay the diiference. For example, if an import duty of \fr. per dozen be laid upon earthenware plates worth S/r. per dozen, the importer, what- ever country he may belong to, must charge the consumer 4yr.; and the home manufacturer of that commodity is enabled to ask 4 fr. per dozen of his customers for plates of the same quality; which he could not do without the intervention of the duty; because the consumer could get the same article for 3 fr.'. thus, a premium to the whole extent of the duty is given to the home manufacturer out of the consumer's pocket. Should any one maintain, that the advantage of producing at home counterbalances the hardship of paying dearer for almost every article; that our own capital and labour are en- gaged in the production, and the profits pocketed by our own lellow citizens; my answer is, that the foreign commodities we might import are not to be had gratis; that we must purchase them with values of home production, which would have given equal employment to our industry and capital: for we must never lose sight of this maxim, that products are always bought ultimately with products. It is most for our advantage to em- ploy our productive powers, not in those branches in which foreigners excel us, but in those, which we excel in ourselves; and with the product to purchase of others. The opposite course would be just as absurd, as if a man should wish to make his own coats and shoes. What would the world say, if, at the door of every house an import duty were laid upon coats and shoes, for the laudable purpose of compelling the inmates to make them for themselves? Would not people say with justice, let us follow each his own pursuits, and buy what we want with what we produce, or, which comes to the same thing, with what we get for our products. The system would be precisely the same, only carried to ridiculous extreme. Well may it be a matter of wonder, that every nation should manifest such anxiety to obtain prohibitory regulations, if it be true that it can profit nothing by them; and lead one to sup- pose the two cases not parallel, because we do not find indi- species of improvement, and attached to every thing- that is antiquated and vicious, has raised against them, they may be assured tliat their late mea- sures are cordially approved by the vast majority of the middle classes. Of Mr. Huskisson in particular, against whom every species of ribald abuse has been cast, we have no hesitation in saying, that he has done more to improve our commercial policy during the short period since he became President of the Board of Trade, than all the ministers who have preceded him for the last hundred years. And it ought to be remembered to his honour, that the measures he has suggested, and the odium thence arising, have not been proposed and incuiTed by him in the view of serving any party purpose, but solely because he beheved, and most justly, that these measures were sound in principle, and calculated to promote the real and lasting interests of the public." American Editor. CHAP. xvii. ON PRODUCTION. 107 vidual householders solicitous to obtain the same privilege. — But the sole difference is this, that individuals are independent and consistent beings, actuated by no contrariety of will, and more interested in their character of consumers of coats and shoes to buy them cheap, than as manufacturers to sell unnatu- rally dear. Who, then, are the classes of the community so importunate for prohibitions or heavy import duties? The producers of the particular commodity, that applies for protection from compe- tition, not the consumers of that commodity. The public in- terest is their plea; but self-interest is evidently their object. Well, but, say these gentry, are they not the same thing? are not our gains national gains? By no means: whatever profit is acquired in this manner, is so much taken out of the pockets of a neighbour and fellow citizen: and, if the excess of charge thrown upon consumers by the monopoly could be correctly computed, it would be found, that the loss of the consumer ex- ceeds the gain of the monopolist. Here, then, individual and public interest are in direct opposition to each other; and, since public interest is understood by the enlightened few alone, is it at all surprising, that the prohibitive system should find so many partisans and so few opponents? There is in general far too little attention paid to the serious mischief of raising prices upon the consumers. The evil is not apparent to cursory observation, because it operates piece- meal, and is felt in a very slight degree on every purchase ot act of consumption: but it is really most serious, on account of its constant recurrence and universal pressure. The whole fortune of every consumer is affected by every fluctuation of price in the articles of his consumption; the cheaper they are, the richer he is, and vice versa. If a single article rise in price, he is so much the poorer in respect of that article; if all rise together, he is poorer in respect to the whole. And, since the whole nation is comprehended in the class of consumers, the ■whole nation must in that case be the poorer. Besides which, it is crippled in the extension of the variety of its enjoyments, and prevented from obtaining products whereof it stands iii need, in exchange for those wherewith it might procure them. It is of no use to assert, that, when prices are raised, what one gains another loses. For the position is not true, except in the case of monopolies; nor even to the full extent with regard to them; for the monopolist never profits to the full amount of the loss to the consumers. If the rise be occasioned by taxa- tion or import-duty under any shape whatever, the producer gains nothing by the increase of price, but just the reverse, as we shall see by and by (Book iii. Chapter 7.): so that, in fact, he is no richer in his capacity of producer, though poorer in his quality of consumer. This is one of the most effective causes of national impoverishment, or at least one of the most powerful checks to the progress of national wealth. For this reason, it may be perceived, that it is an absurd 108 ON PRODUCTION. book i, distinction to view with more jealousy the import of foreign objects of barren consumption, than that of raw materials for home manufacture. Whether the products consumed be of domestic or of foreign growth, a portion of wealth is destroyed in the act of consumption, and a proportionate inroad made into the wealth of the community. But that inroad is the re- sult of the act of consumption, not of the act of dealing with the foreigner; and the resulting stimulus to national pro- duction, is the same in either case. For, wherewith was the purchase of the foreign product made? either with a domestic product or with money, which must itself have been procured with a domestic product. In buying of a foreigner, the nation really does no more than send abroad a domestic product in lieu of consuming it at home, and consume in its place the foreign product received in exchange. The individual con- sumer himself, probably, does not conduct this operation; commerce conducts it for him. No one country can buy of another, except with its own domestic products. In defence of import duties it is often urged, " that, when the interest of money is lower abroad than at home, the fo- reign has an advantage over the home producer, which must be met by a countervailing duty." The low rate of interest is, to the foreign producer, an advantage, analogous to that of the superior quality of his land. It tends to cheapen the pro- ducts he raises; and it is reasonable enough that our domestic consumers should take the benefit of that cheapness. The same motive will operate here, that leads us rather to import sugar and indigo from tropical climates, than to raise them in our own. " But capital is necessary in every branch of production: so that the foreigner, who can procure it at a lower rate of in- terest, has the same advantage in respect to every product; and, if the free importation be permitted, he will have an ad- vantage over all classes of home-producers." Tell me, then, how his products are to be paid for. "Why, in specie, and there lies the mischief." And how is the specie to be got to pay for them? " All the nation has, will go in that way; and when it is exhausted, national misery will be complete." So then, it is admitted, that, before arriving at this extremity, the constant efflux of specie will gradually render it more scarce at home, and more abundant abroad; wherefore, it will gradually rise 1, 2, 3, per cent, higher in value at home than abroad; which is fully sufficient to turn the tide, and make specie flow inwards faster than it flowed outwards. But it will not do so without some returns; and of what can the re- turns be made, but of products of the land, or the commerce of the nation? For there is no possible means of purchasing from foreign nations, otherwise than with the products of the national land and commerce; and it is better to buy of them what they can produce cheaper than ourselves, because we may rest assured, that they must take in payment what we CHAP. XVII. ON PRODUCTION. 109 can produce cheaper than they. This they must do, else there must be an end of all interchange. Again, it is affirmed, and what absurd positions have not been advanced to involve these questions in obscurity? that, since almost all the nation are at the same time consumers and producers, they gain by prohibition and monopoly as much in the one capacity as they lose in the other; that the producer, who gets a monopoly-profit upon the object of his own pro- duction, is, on the other hand, the sufferer by a similar profit upon the objects of his consumption; and thus that the nation is made up of rogues and fools, who are a match for each other. It is worth remarking, that every body thinks himself more rogue than fool: for, although all are consumers as well as pro- ducers, the enorm-ous profits made upon a single article are much more striking, than reiterated minute losses upon the numberless items of consumption. If an import duty be laid upon calicoes, the additional annual charge to each person of moderate fortune, may, perhaps, not exceed 12 or I5fr. at most; and probably he does not very well comprehend the nature of the loss, or feel it much, though repeated in some degree or other upon every thing he consumes; whereas, pos- sibly, this consumer is himself a manufacturer, say a hat-maker; and, should a duty be laid upon the import of foreign hats, he will immediately see that it will raise the price of his own hats, and probably increase his annual profits by many thou- sand yrawcj'. It is this delusion, that makes private interest so warm an advocate for prohibitory measures, even where the whole community loses more by them as consumers, than it gains as producers. But, even in this point of view, the exclusive system is pregnant with injustice. It is impossible that every class of production should profit by the exclusive system, supposing it to be universal, which, in point of fact, it never is in prac- tice, though possibly it may be in law or intention. Some ar- ticles can never, from the nature of things, be derived from abroad; fresh fish, for instance, or horned cattle; as to them, therefore, import duties would be inoperative in raising the price. The same may be said of masons and carpenters' work, and of the numberless callings necessarily carried on within the community; as those of shopmen, clerks, carriers, retail dealers, and many others. The producers of immaterial pro- ducts, public functionaries and fundholders, lie under the same disability. These classes can none of them be invested with a monopoly by means of import duties, though they are sub- jected to the hardship of many monopolies granted in that way to other classes of producers.* * There is a sort of malicious satisfaction in the discovery, that those who impose these restrictions are usualh^ among' the severest suiFerers. Some- times they attempt to indemnify themselves by a further act of injustice; the public functionaries augment their own salaries, if they have the keep- ing- pf the public piu-se. At other times they abolish a monopoly, when 110 ON PRODUCTION. book i. Besides, the profits of monopoly are not equitably divided amongst the different classes even of those that concur in the production of the commodity, which is the subject of monopo- ly. If the master-adventurers whether in agriculture, manu- facture, or commerce, have the consumers at their mercy, their labourers and subordinate productive agents are still more ex- posed to their extortion, for reasons that will be explained in Book II. So that these latter classes participate in the loss with consumers at large, but get no share of the unnatural gains of their superiors. Prohibitory measures, besides affecting the pockets of the consumers, often subject them to severe privations. I am ashamed to say, that, within these few years, we have had the hat-makers of Marseilles petitioning for the prohibition of the import of foreign straw or chip hats, on the plea that they in- jured the sale of their own felt hats;* a measure that would have deprived the country people and labourers in husbandry, who are so much exposed to the sun, of a light, a cool, and cheap covering, admirably adapted to their wants, the use of which it was highly desirable to extend and encourage. In pursuit of what it mistakes for profound policy, or to gratify feelings it supposes to be laudable, a government will sometimes prohibit or divert the course of a particular trade, and thereby do irreparable mischief to the productive powers of the nation. When Philip II. became master of Portugal, and forbade all intercourse between his new subjects and the Dutch whom he detested, what was the consequence? The Dutch, who before resorted to Lisbon for the manufactures of India, of which they took off an immense quantity, finding this avenue closed against their industry, went straight to India for what they wanted, and, in the end, drove out the Portu- guese from that quarter; and, what was meant as the deadly blow of inveterate hatred, turned out the main source of their aggrandizement. " Commerce," says Fenelon, " is like the native springs of the rock, which often cease to flow altoge- ther, if it be attempted to alter their course, "t they find it press peculiarly on themselves. In 1599, the manufacturers of Tours petitioned Henry IV. to prohibit the import of gold and silver silk stuffs, which had previously been entirely of foreign fabric. They cajoled the government by the statement, that they could furnish the whole con- sumption of France with that article. The king granted their request, with his characteristic facility; but the consumers, who were chiefly the cour- tiers and people of condition, were loud in their remonstrances at the con- sequent advance of price; and the edict was revoked in six months. Me- moires de Sully, liv. ii. * Bulletin de la Societe d' Encouragement pour I'Industrie Nationale. No. A. fThe national convention of France prohibited the import of raw hides from Spain, on the plea, that they injured the trade in those of France; not observing, that the self-same hides went back to Spain in a tanned state. The tanneries of France, being obliged to procure the raw article at too CHAP. XVII. ON PRODUCTION. Ill Such arc the principal evils of impediments thrown in the way of import, which are carried to the extreme point by ab- solute prohibition. There have, indeed, been instances of na- tions that have thriven under such a system; but then it was, because the causes of national prosperity were more powerful, than the causes of national impoverishment. Nations resem- ble the human frame, which contains a vital principle, that in- cessantly labours to repair the inroads of excess and dissipa- tion upon its health and constitution. Nature is active in closing the wounds and healing the bruises inflicted by our own awkwardness and intemperance. In like manner, states maintain themselves, nay, often increase in prosperity, spite of the infinite injuries of every description, which friends as well as enemies heap upon them. And it is worth remarking, that the most industrious nations are those, which are the most subjected to such outrage, because none others could survive them. The cry is then ' our system must be the true one, for the national prosperity is advancing.' Whereas, were we to take an enlightened view of the circumstances, that, for the last three centuries, have combined to develop the power and faculties of man; to survey with the eye of intelligence the progress of navigation, of discovery, of invention in every branch of art and science; to take account of the variety of useful animals and vegetables that have been transplanted from one hemisphere to the other, and to give a due attention to the vast enlargement and increased solidity both of science and of its practical application, that we are daily witnesses of, we , can not resist the conviction, that our actual prosperity is no- thing to what it might have been; that it is engaged in a per- petual struggle against the obstacles and impediments thrown into its way; and that, even in those parts of the world where mankind is deemed the most enlightened, a great part of their time and exertions is occupied in destroying instead of multi- plying their resources, in despoiling instead of assisting each other; and all for want of correct knowledge and information respecting their real interests,* But, to return to the subject, we have just been examining the nature of the injury, that a community suffers by difficul- ties thrown in the way of the introduction of foreign commo- dear a rate, were quickly abandoned; and the manufacture was transferred to Spain, along with great part of the capital, and many of the hands em- ployed. It is next to impossible for a government, not only to do any good to national production by its interference, but even to help doing miscliief. * It is not my design to insinuate by this, that it is desirable that all minds should be imbued with all kinds of knowledge; but that every one should have just and correct ideas of that, in which he is more immediately con- cerned. Nor is the general and complete diffusion of information requisite for the beneficial ends of science. The good resulting from it is propor- tionate to the extent of its progress: and the welfare of nations differs in degree, according to the correctness of their notions upon those points, which most intimately concern them respectively. 112 ON PRODUCTION. book i. dities. The mischief occasioned to the country, that produces the prohibited article, is of the same kind and description; it is prevented from turning its capital and industry to the best account. But it is not to be supposed, that the foreign nation can by this means be utterly ruined and stripped of all re- source, as Napoleon seemed to imagine, when he excluded the products of Britain from the markets of the continent. To say nothing of the impossibility of effecting a complete and actu- al blockade of a whole country, opposed as it must be by the universal motive of self-interest, the utmost effect of it can only be to drive its production into a different channel. A na- tion is always competent to the purchase and consumption of the whole of its own produce, for products are always bought with other products. Do you think to prevent England from producing value to amount of a million, by preventing her ex- port of woollens to that amount? You are much mistaken, if you do. England will employ the same capital and the same annual labour in the preparation of ardent spirits, by the dis- tillation of grain or other domestic products, that were before occupied in the manufacture of woollens for the French market, and she will then no longer bring her woollens to be bartered for French brandies. A country, in one way or other, direct or indirect, always consumes the values it produces, and can consume nothing more. Kit can not exchange its products with its neighbours, it is compelled to produce values of such kinds only as it can consume at home. This is the utmost ef- fect of prohibitions; both parties are worse provided, and nei- ther is at all the richer. Napoleon, doubtless, occasioned much injury, both to Eng- land and to the continent, by cramping their mutual relations of commerce as far as he possibly could. But, on the other hand, he did the continent of Europe the involuntary (a) ser- vice of facilitating the communication between its different parts, by the universality of dominion, which his ambition had well nigh achieved. The frontier duties between Holland, Belgium, part of Germany, Italy, and France, were demolish- ed; and those of the other powers, with the exception of Eng- land, were far from oppressive. We may form some estimate of the benefit thence resulting to commerce, from the discon- tent and stagnation that have ensued upon the establishment of the present system, of lining the frontier of each state with a triple guard of douaniers. AH the continental states so guard- (a) It is rather hard measure to deal out to a fallen despot, to attribute all the mischief he has done to design, and all the good to accident; but our author, in his literary character, had received some provocation. The grand and obvious benefit of extended dominion is the extension of facility of communication over a wider surface; and a conqueror may fairly be sup- posed to have that object in view, if he exhibit any traces of plan or design in his operations. Napoleon will scarcely be charged with any want of sys- tem or object. T. CHAP. XVII. ON PRODUCTION. 113 ed have, indeed, preserved their former means of production ; but that production has been made less advantageous. It can not be denied, that France has gained prodigiously by the suppression of the provincial barriers and custom-houses, consequent upon her political revolution. Europe had, in like manner, gained by the partial removal of the international barriers between its different political states; and the world at large would derive similar benefit from the demolition ofthose, which insulate, as it were, the various communities, into which the human race is divided, I have omitted to mention other very serious evils of the exclusive system ; as, for instance, the creation of a new class of crime, that of smuggling; whereby an action, wholly in- nocent in itself, is made legally criminal: and persons, who are actually labouring for the general welfare, are subjected to punishment. Smith admits of two circumstances, that, in his opinion, will justify a government in resorting to import-duties: — 1. When a particular branch of industry is necessary to the public se- curity, and the external supply can not be safely reckoned up- on. On this account, a government may very wisely prohibit the import of gunpowder, if such prohibition be necessary to set the powder-mills at home in activity; for it is better to pay somewhat dear for so essential an article, than to run the risk of being unprovided in the hour of need.* 2. Where a simi- lar commodity of home produce is already saddled with a du- ty. The foreign article, if wholly exempt from duty, would in this case have an actual privilege; so that a duty imposed has not the effect of destroying, but of restoring the natural equilibrium and relative position of the different branches of production. Indeed, it is impossible to find any reasonable ground for exempting the production of values by the channel of external commerce from the same pressure of taxation, that weighs upon the production effected in those of agriculture and manu- facture. Taxation is, doubtless, an evil, and one which should be reduced to the lowest possible degree; but, when once a given amount of taxation is admitted to be necessary, it isbut common justice to lay it equally on all three branches of in- dustry. The error I wish to expose- to reprobation is, the no- tion, that taxes of this kind are favourable to production. A. tax can never be favourable to the public welfare, except by the good use that is made of its proceeds. These points should never be lost sight of in the framing of commercial treaties, which are really good for nothing, but to protect industry and capital, diverted into improper channels * There is no great weight in this plea of justification. For experience has sho\¥ai, that saltpetre is stored against the moment of need, in the largest quantity, when it is most an article of habitual import. Yet the legislature of France has saddled it with duties amounting to prohibition, 33 114 ON PRODUCTIOPs^. book i. by the blunders of legislation. These it would be far wiser to remedy than to perpetuate. The healthy state of industry and wealth is the state of absolute liberty, in which each interest is left to take care of itself. The only useful protection authori- ty can afford them is, that against fraud or violence. Taxes and restrictive measures never can be a benefit: they are at the best a necessary evil; to suppose them useful to the sub- jects at large, is to mistake the foundation of national pros- perity, and to set at naught the principles of political econo- my. Import duties and prohibitions have often been resorted to as a means of retaliation: "Your government throws impedi- ments in the way of the introduction of our national products: are not we, then, justified in equally impeding the introduction of yours?" This is the favourite plea, and the basis of most commercial treaties; but people mistake their object: grant- ing that nations have a right to do one another as much mis- chief as possible, which by the way I can hardly admit; 1 am not here disputing their rights, but discussing their interests. Undoubtedly a nation, that excludes you from all commer- cial intercourse with her, does you an injury; — robs you, as far as in her lies, of the benefits of external commerce; if, therefore, by the dread of retaliation, you can induce her to abandon her exclusive measures, there is no question about the expediency of such retaliation, as a matter of mere policy. But it must not be forgotten, that retaliation hurts yourself as well as your rival; that it operates, not defensively against her selfish measures, but offensively against yourself, in the first instance, for the purpose of indirectly attacking her. The only point in question is this, Avhat degree of vengeance you are animated by, and how much 3^ou will consent to throw away upon its gratification,* I will not undertake to enume- rate all the evils arising from treaties of commerce, or to apply the principles enforced throughout this work to all the clauses and provisions usually contained in them. I will confine my- self to the remark, that almost every modern treaty of com- merce has had for its basis the imaginary advantage and possi- bility of the liquidation of a favourable balance of trade by an import of specie. If these turn out to be chimerical, whatever advantage may have resulted from such treaties must be whol- * The transatlantic colonies, that have, within these few years, thrown off their colonial dependence, amongst otliers, the provinces of La Plata, and St. Domingo or Haiti, have opened their ports to foreigners, without any demand of reciprocity, and are more rich and prosperous than the)' ever were under the operation of the exclusive system. We are told, that the trade and prosperity of Cuba have doubled, since its ports have been open- ed to the flags of all nations by a concurrence of imperious circumstances, and in violation of the system of the mother-countr}'. The elder states of Europe go on like wrong-headed farmers, in a bigoted attachment to their old prejudices and methods, while they have examples of the good effects of an improved s} stem all around them. CHAP. XVII. ON PRODUCTION. 115 ly referred to the additional freedom and facility of interna- tional communication obtained by them, and not at all to their restrictive clauses or provisoes, unless either of the contract- ing parties have availed itself of its superior power, to exact conditions savouring; of a tributary character; as England has done in relation to Portugal. («) In such case, it is mere ex- action and spoliation. Again, I would observe, that the offer of peculiar advant:ges by one nation to another, in the way of a treaty of commerce, if not an act of hostility, is at least one of extreme odium in the eyes of other nations. For the concession to one can only be rendered effectual by refusal to others. Hence the germ of discord and of war with all its mischiefs. It is infinitely more simple, and I hope to have shown, more profitable also, to treat all nations as friends, and impose no higher duties on the introduction of their products, than what are necessary to place them on the same footing as those of domestic growth. Yet notwithstanding all the mischiefs resulting from the ex- clusion of foreign products, which I have been depicting, it would be an act of unquestionable rashness abruptl}' to abolish it. Disease is not to be eradicated in a moment; it requires nursing and management to dispense even national benefits. Monopolies are an abuse, but an abuse in which enormous ca- pital is vested, and numberless industrious agents employed, w^hich deserve to be treated with consideration; for this mass of capital and industry can not all at once find a more advan- tageous channel of national production. Perhaps the cure of all the partial distresses, that must follow the downfall of that colossal monster in politics, the exclusive system, would be as much as the talent of any single statesman could accomplish; yet when one considers calmly the wrongs it entails when it is established, and the distresses consequent upon its over- throw, we are insensibly led to the reflection, that, if it be so difficult to set shackled industry at liberty again, with what caution ought we not to receive any proposition for enslaving her. But governments have not been content with checking the import of foreign products. In the firm conviction, that na- tional prosperity consists in selling without buying, and blind (a) This noted act of diplomacy, which Ims heen the source of infinite jealous}', savours nothing: of a tributary character, hut wns framed on tlie basis of reciprocity of partial exemption from duty. It has long been re- garded in England as a mere bug-bear. Indeed, since the days of Adam Smith, the exclusive measures of Great Britain have been directed, not so much to the exploded object of a favourable balance of foreign trade, and the consequent influx of specie, as to the no less absurd ends of the mono- poly of the home-market, and the maintenance of an inflated scale of money price. The duties and prohibitions affecting silk are chiefly directed to the former; the partial prohibition of foreign grain to the latter. These ob- jects are fast becoming impracticable and unwise in the opinion of their late abettors. T. 116 ON PRODUCTION. book i. to the utter impossibility of the thing, they have gone beyond the mere imposition of a tax or fine upon purchasing of foreign- ers, and have in many instances ofiered rewards in the shape of bounties for selling to them. This expedient has been employed to an extraordinary de- gree by the British government, which has always evinced the greatest anxiety to enlarge the vents for British commercial and manufactured produce.* It is obvious, that a merchant, who receives a bounty upon export, can, without personal loss, afford to sell his goods in a foreign market at a lower rate than prime cost. In the pithy language of Smith, ' We can not force foreigners to buy the goods of our own workmen, as we may our own countrymen; the next best expedient, it has been thought, therefore, is to pay them for buying.' In fact, if a particular commodity, by the time it has reach- ed the French market, costs the English exporter 100 yr., his trouble, &c. included, and the same commodity could be bought in France at the same or a less rate, there is nothing to give him exclusive possession of the market. But if the British government pays a bounty of \0 fr. upon the export, and there- by enables him to lower his demand from 100 to 90 fr. he may safely reckon upon a preference. Yet what is this but a free gift of \0 fr. from the British government to the French consumer? It may be conceived, that the merchant has no ob- jection to this mode of dealing; for his profits are the same, as if the French consumer paid the full value, or cost price, of the commodity. The British nation is the loser in this trans- action, in the ratio of 10 per cent, upon the French consump- * The political circumstances of Eng-land, and her practice of supporting and subsidizing military operations on the continent, furnished her with a more plausible excuse for attempting to export, in the shape of manufactur- ed produce, those values, which she thus expended without return. But she hatli no need to be at any expense for that purpose. Had England charged a seignorage upon the coinage of gold and silver, as she ought to have done, she needed not to have given herself any trouble about the form of the values she exported to meet her foreign subsidies and ex- penditure: guineas would themselves have been an object of manufac- ture, (a) (c) So they were without the imposition of a seignorage, which, however, should have been charged. But England had no occasion to give bounties with a view to facilitate her foreign expenditure. The discount of her bills was a sufficient premium to the manufacturer; and, where that expenditure was large, greatly exceeded either drawbacks or bounties. Had specie been directly procurable, perhaps it might have saved something to the go- vernment, in the reduced profit payable to the merchants upon a mere complex operation. But the merchants must have made their profit upon bullion. The sole difference occasioned by the absurdity of gratuitous coinage was, the expense incurred in that coinage; but t!ie imposition of a seignorage would neither have promoted the import of bullion, nor facili- tated its transport to the scene of expenditure. T. CHAP. xvii. ON PRODUCTION. 117 tion ; and France remits in return a value of but 90 fr. for what has cost 100.^ When a bounty is paid, not at the moment of export, but at the commencement of productive creation, the home consumer participates with the foreigner in the advantage of the bounty; for, in that case, the article can be sold below cost price in the home as well as in the foreign market. And if, as is some- times the case, the producer pockets the bounty, and yet keeps up the price of the commodity, the bounty is then a present of the government to the producer, over and above the ordinary profits of his industry. When, by the means of a bounty, a product is raised either for home or foreign consumption, which would not have been raised without one, the effect is, an injurious production, one that costs more than it is worth. Suppose an article, when completely finished off, to be saleable for 24 fr. and no more, but its prime cost, including of course the profits of productive industry, to amount to 21 fr., it is quite clear, that nobody will volunteer the production, for fear of a loss of ^ fr. But if the government, with a view to encourage this branch of industry, be willing to defray this loss, in other words, if it offer a boun- ty of S fr. to the producer, the production can then go on, and the public revenue, that is to say, the nation at large, will be a loser of S fr. And this is precisely the kind of advantage, that a nation gains by encouraging a branch of production, which can not support itself: it is in fact urging the prosecution of a losing concern, the produce of which is exchanged, not for other produce, but for the bounty given by the state. Wherever there is any thing to be made by a particular em- ployment of industry, it wants no encouragement; where there is nothing to be made, it deserves none. There is no truth in the argument, that perhaps the state may gain, though indivi- duals can not; for how can the state gain, except through the medium of individuals? Perhaps it may be said, that the state receives more in duties than it pays in bounties; but suppose it does, it merely receives with one hand and pays with the other: let the duties be lowered to the whole amount of the bounty, and production will stand precisely where it did be- fore, with this difference in its favour, viz. that the state will save the whole charge of management of the bounties, and part of that of the duties. Though bounties are chargeable, and a dead loss to the gross national wealth, there are cases in which it is politic to incur that loss;{l) as when a particular product is necessary to pub- * The British government seems not to have perceived, that the most profitable sales to a nation are those made by one individual to another within the nation; forthese latter imply a national production or two values, the value sold and that given in exchange. (1) [Vide Note, page 47.] 118 ON PRODUCTION. book i, lie security, and must be had at any rate, however extravagant. Louis XIV., with a view to restore the marine of France^ granted a bounty of S/r. per ton upon every ship fitted out in France. His object was to train up sailors. So likewise when the bounty is the mere refunding of a duty previously exact- ed. The bounty paid by Great Britain upon the export of re- fined sugar is nothing more than the reimbursement of the import duties upon muscovado and molasses. Perhaps, too, it may be wise in a government to grant a pre- mium on a particular product, which, though it make a loss in the outset, holds out a fair prospect of profit in a few years' time. Smith thinks otherwise: hear what he says on the sub- ject. ' No regulation of commerce can increase the quantity of industry in any society, beyond what its capital can main- tain. It can only divert a part of it into a direction, into which it might not otherwise have gone; and it is by no means cer- tain, that this artificial direction is likely to be more advan- tageous to the society, than that into which it would have gone of'its own accord. — The statesman, who should attempt to di- rect private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessar}'- attention, but assume an authority, which could safely be trust- ed, not only to no single person, but to no council or senate whatever; and which would no where be so dangerous, as in the hands of a man, who had folly and presumption enough to fancy himself fit to exercise it. — Though, for want of such re- gulations, the society should never acquire the proposed manu- facture, it would not upon that account necessarily be the poor- er in any one period of its duration. In every period of its duration, its whole capital and industry might still have been employed, though upon different objects, in the manner that was most advantageous at the time.'* And Smith is certainly right in the main; though there are circumstances that form exceptions to the general rule, ' that every one is the best judge how to employ his industry and capital.' Smith wrote at a period and in a country, where personal interest is well understood, and where any profitable mode of investing capital and industry is not likely to be long overlooked. But every nation is not so far advanced in intelli- gence. How many countries are there, where many of the best employments of capital are altogether excluded by pre- judices, that the government alone can remove? How many cities and provinces, where certain established investments of capital have prevailed from time immemorial? In one place, every body invests in landed property, in another in houses, and in others still in public offices, or national funds. Every unusual application of the power of capital is, in such places, contemplated with distrust or disdain; so that partiality shown * Wealth of Nations, book iv. c. 2. CHAP, XVII. ON PRODUCTION. 119 to a profitable mode of employing industry or capital may pos- sibly be productive of national advantage. Moreover, a new channel of industry may ruin an unsup- ported speculator, though capable of yielding enormous profit, when the labourers shall have acquired practice, and the no- velty has once been overcome. France at present contains the most beautiful manufactures of silk and of woollen in the world, and is probably indebted for them to the wise encou- ragement of Colbert's administration. He advanced to the manufacturers 2000 fr. for every loom at work; and, by the way, this species of encouragement has a very peculiar advan- tage. In ordinary cases, whatever the government levies upon the produce of individual exertion is wholly lost to future pro- duction; but, in this instance, a part was employed in repro- duction; a portion of individual revenues was thrown into the aggregate productive capital of the nation. This was a degree of wisdom one could hardly have expected, even from person- al self-interest.* It would be out of place here to inquire, how wide a field bounties open to peculation, partiality, and the whole tribe of abuses incident to the management of public affairs. The most enlightened statesman is often obliged to abandon a scheme of evident public utility, by the unavoidable defects and abuses in the execution. Among these, one of the most frequent and prominent is, the risk of paying a premium, or granting a fa- vour to the pretensions, not of merit, but of importunity. In other respects, I have no fault to find with the honours, or even pecuniary rewards publicly given to artists or mechanics, in recompense of some extraordinary feat of genius or address. Rewards of this kind excite emulation, and enlarge the stock of general knowledge, without diverting industry or capital from their most beneficial channels. Besides, they cost no- thing in comparison of bounties of another description. The bounty on the export of wheat has, by Smith's account, cost England in some years as much as seven millions of our fr. I do not believe that the British or any other government, ever spent the fiftieth part of that sum upon agriculture in any one year. * 1 am far from equally approving all the encouragements of this kind lield out by this minister; particularly the sums lavished on several esta- blishments of pure ostentation, which, like that of the Gobelin tapestry, have constantly cost more than they have produced. 120 ON PRODUCTION. book i. SECTION II. Of the Effect of Regulations fixing the Manner of Pro- duction. The interference of the public authority, with regard to the details of agricultural production, has generally been of a bene- ficial kind. The impossibility of intermeddling in the minute and various details of agriculture, the vast number of agents it occupies, often widely separated in locality and pursuits, from the largest farming concerns to the little garden of the cottager, the small value of the produce in comparison with its volume, are so many obstacles, that nature has placed in the way of authoritative restraint and interference. All governments, that have pretended to the least regard for the public welfare, have consequently confined thmselves to the granting of pre- miums and encouragements, and to the diffusion of knowledge which has often contributed largely to the progress of this art. The veterinary college of Alfort, the experimental farm of Rambouillet, the introduction of the merino breed, are real benefits to the agriculture of France, ^he enlargement and per- fection of which she owes to the providence of the different rulers, that her political troubles have successively brought into power. A national administration, that guards with vigilance the faci- lity of communication, and the quiet prosecution of the labours of husbandry, or punishes acts of culpable negligence, as the destroying of caterpillars* and other noxious insects, does a service analogous to the preservation of civil order and of pro- perty, without which production must cease altogether. The regulations relative to the felling of trees in France, however indispensable for the preservation of their growth, at least in many of their provisions, appear in others rather to operate as a discouragement of that branch of cultivation, which, though particularly adapted to certain soils and sites, and conducive to the attraction of atmospheric moisture, yet seems to be daily qn the decline. * Under the old regime of the canton of Berne, every proprietor of land was required to furnish, in the proper season of the year, so many bushels of cockchafers, in proportion to the extent of his property. The rich land- holders were in the habit of buying their contingents from the poorer sort of people, who made it their business to collect them, and did it so effec- tually, that the district was ultimately cleared of them. But the extreme difficulty, that even the most provident government meets with in doing good by its interference in the business of production, may be judged of by a fact of which I am credibly assured; viz. that this act of paternal care gave rise to the singular fraud of transporting these insects in sacks from the Sa- voy side of the Lehman lake into the Pays de Vaud. " CHAP. XVII. ON PRODUCTION. 121 But there is no branch of industry, that has suffered so much from the officious interference of authority in its details, as that of manufacture. Much of that interference has been directed towards limit- ing the number of producers, either by confining them to one trade exclusively, or by exacting specific terms, on which they shall carry on their business. This system gave rise to the establishment of chartered companies and incorporated trades. The effect is always the same, whatever be the means employed. An exclusive privilege, a species of monopoly, is created, which the consumer pays for, and of which the privi- leged persons derive all the benefit. The monopolists can prosecute their plans of self-interest with so much the more ease and concert, because they have legal meetings, and a regu- lar organization. At such meetings, the prosperity of the cor- fioration is mistaken for that of commerce and of the nation at arge; and the last thing considered is, whether the proposed advantages be the result of actual new production, or merely a transfer from one pocket to another, from the consumers to the privileged producers. This is the true reason, why those engaged in any particular branch of trade are so anxious to have themselves made the subject of regulation; and the pub- lic authorities are commonly, on their part, very ready to in- dulge them in what offers so fair an opportunity of raising a revenue. Moreover, arbitrary regulations are extremely flattering to the vanity of men in power, as giving them an air of wisdom and foresight, and confirming their authority, which seems to derive additional importance from the frequency of its exer- cise. There is, perhaps, at this time no country in Europe where a man is free to dispose of his industry and capital in what manner he pleases; in most places he can not even change his occupation or place of residence at pleasure. It is not enough for a man to have the necessary qualifications of abili- ty and incimation to become a manufacturer or dealer in the woollen or silk line, in spirits or calicoes; he mast besides have served his time, or been admitted to the freedom of the craft.* Freedoms and apprenticeships are likewise expedients of police, not of that wholesome branch of police, whose ob- ject is the maintenance of public and private security, and which is neither costly and vexatious; but of that sort of po- lice, which bad governments employ to preserve or extend their personal authority at any expense. By the dispensation of honorary or pecuniary advantages, authority can generally * When industry made its first start in the middle ages, and the mercan- tile classes were exposed to the rapacity of a gi-asping- and ignorant nobility, incorporated trades and crafts were useful in extending to individual indus- try the protection of the association at large. Their utility has ceased al- together of late years; for governments have, in our days, been either too enlightened to encroach upon the sources of financial prosperity, or too poweiful to stand in awe of such associations. 23 122 ON PRODUCTION. book i. influence the chiefs and superiors it has appointed to the cor- porations, who think to earn these honours and emoluments by their subservience to the power that confers them. These are the ready tools for the management of the body at large, and volunteer to denounce the individuals, whose firmness may be formidable, and report those, whose servility may be reckoned upon, and all under the pretext of public good. Offi- cial harangues and public addresses are never wanting in plau- sible reasons for the contuiuance of old restrictions on liberty of action, or for the establishment of new ones; for there is no cause so bad, as to be without some argument or other in its favour. The chief advantage, and the one most relied upon, is, the insurance of a more perfect execution of the products raised for consumption, and of a superiority in them highly favoura- ble to the national commerce, and calculated to secure the con- tinued demand of foreigners. But does this advantage result from the system in question? what security is there that the corporate body itself will always be composed of men not merely of integrity, but of scrupulous delicacy, such as would never be disposed to take in either their own countrymen or foreigners? We are told, that this system facilitates the en- forcement of regulations for the warranty and verification of the quality of products; but are not such regulations illusory in practice, even under the corporate system? and, supposing them absolutely necessary, is there no more simple way of enforcing them. Neither will the length of apprenticeship be a better gua- rantee of the perfection of the work; the only thing to be de- pended upon for that perfection is the skill of the workman, and that is best attained by paying him in proportion to his superiority. ' To teach any young man,' says Smith, ' in the completest manner how to apply the instruments, and how to construct the machines, of the common mechanic trades, can not well require the lessons of more than a few weeks, per- haps those of a few days might be sufficient. The dexterity of hand, indeed, even in common trades, can not be acquired without much practice and experience; but a young man would practice with much more diligence and attention, if from the beginning he wrought as a journeyman, being paid in propor- tion to the little work which he could execute, and paying in his turn for the materials which he might sometimes spoil through awkwardness and inexperience.'* Were apprentices bound out a year later, and the interval spent in schools conducted on the plan of mutual instruction, I can hardly think the products would be worse executed; and, beyond all doubt, the labouring class would be advanced a stage in civilization. Were apprenticeships a sure means of attaining a greater * TVealth of Nations, book i. c. 10. CHAP. XVII. ON PRODUCTION. 123 perfection of products, those of Spain would be as good as those of Britain. It was not before incorporated trades and compulsory apprenticeships had been abolished in France, that she attained that superiority of execution she has now to boast of. Perhaps there is no one mechanic art nearly so difficult as that of the gardener or field labourer; yet this is almost the only one that has no where been subjected to apprenticeship. Are vegetables and fruits produced in less abundance or per- fection? Were cultivators a corporate body, I suppose it would soon be asserted, that high-flavoured peaches and white heart lettuces, could not be raised without a code of some hundred well penned articles. After all, regulations of this nature, even admitting their utility, must be nugatory as soon as evasion is allowed: now it is notorious, that there is no manufacturing town, where money will not purchase exemption. So that they are more than merely useless as a warranty of quality; inasmuch as they are an engine of the most odious injustice and extortion. In support of these opinions, the advocates for the corporate system appeal to the example of GreatBritain, where industry is well known to be greatly shackled, and yet manufactures prosper. But in this they expose their ignorance of the real causes of that prosperity. " These causes," Smith tells us, " seem to be, the general liberty of trade, which, notwithstand- ing some restraints, is at least equal, perhaps superior, to what it is in any other country; the liberty of exporting, duty free, almost all sorts of goods, which are the produce of domestic industry, to almost any foreign country; and, what perhaps is of still greater importance, the unbounded liberty of transport- ing them from any one part of our own country to any other, without being obliged to give any account to any public office, without being liable to question or examination of any kind, &c."* Add to these, the complete inviolability of all proper- ty whatever, either by public or private attack, the enormous capital accumulated by her industry and frugality, and lastly, the habitual exercise of attention and judgment, to which her population is trained from the earliest 3^ears; and there is no need of looking farther for the causes of the manufacturing prosperity of Britain, Those, who cite her example in justification of their desire to enthral the exertions of industry, are not perhaps aware, that the most thriving towns in that kingdom, those on which her character for manufacturing pre-eminence is mainly built, are the very places, where there are no incorporations of crafts and trades. Manchester, Birmingham, and Liverpool,! were mere villages a century or two ago, but now rank in point of wealth and population next to London, and much before York, * IVealth of Nations, book iv. c. 7, ^ Baeri. vol. i. p. 107, 124 ON PRODUCTION. book i. Canterbury, and even Bristol, cities of the greatest antiquity and privileges, and the capitals of her most thriving provinces, but still subjected to the shackles of these Gothic institutions. "The town and parish of Halifax," says Sir John Nickols,* a writer of acknowledged local information, "has, within these forty years, seen the number of its inhabitants quadru- pled; whilst many other towns, subjected to corporations, have experienced a sensible diminution of theirs. Houses situated within the precincts of the city of London hardly find tenants, and numbers of them remain empty; whilst Westminster, South wark, and the other suburbs, are continually increasing. These suburbs are free, whilst London supports within itself four score and twelve exclusive companies of all kinds, of which we may see the members annually adorn, with a silly pageantry, the tumultuous triumphal procession of the Lord Mayor." The prodigious manufacturing activity of some of the suburbs of Paris is notorious; of the Faubourg St. Antoine, in particu- lar, where industry enjoyed many exemptions. Some products were made no where else. How happened it, that without apprenticeships, or the necessity of being free of the craft, the manufacturer required a greater degree of skill, than in the rest of the city, which was subject to those institutions, that are held up as so indispensable. For a very simple reason; because self-interest is the best of all instructors. An example or two will serve better than all reasoning in the world, to show the impediments thrown in the way of the development of industry by incorporations of trades and crafts. Argand, the inventor of the lamps that go by his name, and yield at the same expense, triple the amount of light, was dragged before the Parlement de Paris, by the company of tinmen, locksmiths, ironmongers, and journeymen farriers, who claimed the exclusive right of making lamps, t Lenoir, the celebrated Parisian philosophical and mathematical instru- ment maker, had set up a small furnace for the convenience of working the metals used in his business. The syndics of the founders' company came in person to demolish it; and he * JRemarJes on the Advantages and Disadvantages of France and of Great Britain, 12mo. 1754. § 4. p. 142. (a) ■\ "Why not get himself made free of the compaii)'^?" say those who are ever ready to palliate or justify oflficial abuse, '['he corporation, which had the control over admissions, was itself interested in thwarting a dan- gerous competitor. Besides, why compel the ingenious inventor to waste in a personal canvas, tliat time, which would be so much more profitably occupied in his calling ? (a) This work was originally published in Frencli in 1752, with great suc- cess, under the fictitious name of Sir John Nickols, and is supposed to have been the production of a foreigner employed about the court of Versailles. It contains many judicious remarks upon the internal policy of Britain. 1\ CHAP. XVII. ON PRODUCTION. 125 was obliged to apply to the king for protection. Thus was talent rendered dependent upon court favour. The manufac- ture of japanned hardware was altogether excluded from France until the era of the revolution, by the circumstance of its requiring the skill and implements of many different trades, and the necessity of being admitted to the freedom of them all, before an individual could carry it on. It would be easy to fill a volume with the recapitulation of the disheartening vexa- tions, that personal industry had to encounter in the city of Paris alone, under the corporate system; and another with that of the successful efforts made, since that system was abolished by the revolution. For the same reason, that the free suburb of a chartered town, or a free town in the midst of a country embarrassed by the officiousness of a meddling government, will exhibit an unusual degree of prosperity, a nation that enjoys the freedom of industry, in the midst of others following the corporate system, would probably reap similar advantages. Those have thriven the most, that have been the least shackled by the observance of formalities, provided of course, that individuals be secure from the exactions of power, the chicanery of law, and the attempts of dishonesty or violence. Sully, whose whole life was spent in the study and practice of measures for improving the prosperity of France, entertained this opin- ion.* In his memoirs, he notices the multiplicity of useless laws and ordinances, as a direct barrier to the national pro- gress, t It may, perhaps, be alleged, that, were all occupations quite free, a large proportion of those who engaged in them would fall a sacrifice to the eagerness of competition. Possibly they might, in some few instances; although it is not very likely there should be a great excess of candidates in a line, that held out but little prospect of gain; yet, admitting the casual occurrence of this evil, it would be of infinitely less magni- tude, than permanently keeping up the prices of produce at a * Iav. xix. f Colberfs early education in the counting-house of the Messrs. Mascrani, of Lyons, a very considerable mercantile estabhshment, very early imbued him with the principles of the manufacturers. Commerce and manufacture thi-ived prodigiously imder his powerful and judicious patronage; but, though he liberated them from abundance of oppression, he was himself liardly sparing enough of ordinances and regulations; he encouraged manu- factures at the expense of agriculture, and saddled the people at large with the extraordinary profits of monopolists. We can not shut our eyes to the fact, that to this system, acted upon ever since the days of Colbert, France owed the striking inequalities of private fortune, the overgrown wealth of some, and the superlative misery of others; the contrast of a few splendid establishments of industr}', with a wide waste of poverty and degradation. This is no ideal picture, but one of sad reality, which the study of princi- ples will help us to explain. 126 ON PRODUCTION. book. i. rate, that must limit its consumption, and abridge the power of purchasing in the great body of consumers. If the measures of authority, levelled against the free dispo- sition of each man's respective talents and capital, are criminal in the eye of sound policy, it is still more difficult to justify them upon the principles of natural right. " The patrimony of a poor man," says the author of the Wealth of Nations, "lies in the strength and dexterity of his hands; and to hinder him from employing this strength and dexterity in what man- ner he thinks proper, without injury to his neighbour, is a plain violation of his most sacred property." However, as society is possessed of a natural right to regu- late the exercise of any class of industry, that without regula- tion might prejudice the rest of the community, physicians, surgeons, and apothecaries, are with perfect justice subjected to an examination into their professional ability. The lives of their fellow-citizens are dependent upon their skill, and a test of that skill may fairly be established; but it does not seem advisable to limit the number of practitioners nor the plan of their education. Society has no interest further than to ascertain their qualification. On the same grounds, regulation is useful and proper, when aimed at the prevention of fraud or contrivance, manifestly injurious to other kinds of production, or to the public safety, and not at prescribing the nature of the products and the methods of fabrication. Thus, a manufacturer must not be al- lowed to advertise his goods to the public as of better than their actual quality: the home consumer is entitled to the pub- lic protection against such a breach of faith; and so, indeed, is the mercantile character of the nation, which must suffer in the estimation and demand of foreign customers from such practices. And this is an exception to the general rule, that the best of all guarantees is the personal interest of the manu- facturer. For, possibly, when about to give up business, he may find it answer to increase his profit by a breach of faith, and sacrifice a future object he is about to relinquish for a present benefit. A fraud of this kind ruined the French cloths in the Levant market, about the year 1783; since when the German and British have entirely supplanted them.* — We may go still further. An article often derives a value from the name, or from the place, of its manufacture. When we judge from long experience, that cloths of such a denomina- tion, and made at such a place, will be of a certain breadth and substance, it is a fraud to fabricate, under the same name and at the same place, a commodity of inferior substance and * The loss of this trade has been erroneously imputed to the liberty of commerce, consequent upon the revolution. But Felix Beaujour, in his Tableau du Commerce de la Grece, has shown, that it must be referred to an earlier period, when restrictions M-^ere still in force. CHAP. XVII. ON PRODUCTION. 127 quality to the ordinary standard, and thus to send it into the world under a false certificate. Hence we may form an opinion of the extent, to which government may carry its interference with benefit. The cor- respondence with the sample of conditions, express or implied, must be rigidly enforced, and government should meddle with production no further. I would wish to impress upon my readers, that the mere interference is itself an evil, even where it is of use:* first, because it harasses and distresses individuals; and, secondly, because it costs money, either to the nation, if it be defrayed by government, that is to say, charged upon the public purse, or to the consumer, if it be charged upon the specific article; in the latter case, the charge must of course, enhance the price, thereby laying an additional tax upon the home consumer, and pro tanto discouraging the foreign de- mand. If interference be an evil, a paternal goverement will be most sparing of its exercise. It will not trouble itself about the certification of such commodities, as the purchaser must understand better than itself; or of such as can not well be cer- tified by its agents; for, unfortunately, a government must always reckon upon the negligence, incapacity, and miscon- duct of its retainers. But some articles may well admit of certification; as gold and silver, the standard, of which can only be ascertained by a complex operation of chemistry, which few purchasers know how to execute, and which, if they did, would cost them infinitely more, than it can be exe- cuted for by the government in their stead. In Great Britain, the individual inventor of a new product or of a new process may obtain the exclusive right to it, by ob- taining what is called a patent. While the patent remains in force, the absence of competitors enables him to raise his price far above the mere ordinary return of his outlay with interest, and the wages of his own industry. Thus he receives a pre- mium from the government, charged upon the consumers of the new article; and this premium is often very large, as may be supposed, in a country so immensely productive as Great Britain, where th'ere are consequently abundance of affluent individuals, ever on the lookout for some new object of en- joyment. Some years ago, a man invented a spiral or worm spring for insertion between the leather braces of carriages to ease the motion, and made his fortune by the patent for so trifling an invention. Privileges of this kind no one can reasonably object to; for they neither interfere with, nor cramp any branch of industry, previously in operation. Moreover, the expense incurred is * " Every restraint, imposed by legislation upon the freedom of human action, must inevitably extinguish a portion of the energies of the com- munity, and abridge its annual product." Vorri, Refl. sur VEcon. FoL c. 12. 128 ON PRODUCTION. book i. purely voluntary; and those, who choose to incur it, are not obliged to renounce the satisfaction of any previous wants, either of necessity or of amusement. However, as it is the duty of every government to aim at the constant amelioration of its subjects' condition, it can not de- prive other producers to eternity of the right to employ part of their industry and capital in this particular channel, which perhaps they might sooner or later have themselves discover- ed, or preclude the consumer for a very long period from the advantages of a competition-price. Foreign nations, being out of its jurisdiction, would of course grant no privilege to the inventor, and would, therefore, in this particular, during the operation of the patent, be better off than the nation where the invention originated. France* has imitated the wise example of England, in as- signing a limit to the duration of these patent rights, after which the invention is free for all the world to avail themselves of. It is also provided, that, if the process be capable of con- cealment, it shall be divulged at the expiration of the term. And the patentee, who in this case, it may be supposed, could do without the patent, has this advantage: that if his secret be discovered by any body in the interim, it can not be made available till the expiration of the term. Nor is it at all necessary, that the government should inquire into the novelty or utility of the invention; for, if it be useless, so much the worse for the inventor; and, if it be already known, every body is competent to plead and prove that fact, and the previous right of the public; so that the only sufferer is the mventor, who has been at the expense of a patent for nothing. Thus the public is no loser by this species of encouragement, but, on the contrary, may derive prodigious advantage. The regulations tending to direct either the object or the method of production, which have been above observed upon, by no means comprise all the measures adopted by different nations with those views. Indeed, were 1 to specify them all, my catalogue would soon be incomplete; for new ones are every day brought into practice. The great point is, to lay down certain principles, that may enable us before hand to judge of their consequences. But there are two other branches of commerce, that have been the subject of more than usual regulation, and are, therefore, worthy of more especial inves- tigation. I shall devote the two succeeding sections to their exclusive examination. * Vide the laws dated nil Jan. and 25th May, 1791, and 20th Sept, 1792. Also the arret of the government, dated 5 Vendemaire, an. Ix. CHAP. XVII. ON PRODUCTION. 129 SECTION III. Of Privileged Trading Companies. A GOVERNMENT Sometimes grants to individual merchants, and much oftener to trading companies, the exclusive privilege of buying and selling specific articles, tobacco for example; or of trafficking with a particular country, as with India. The privileged traders, being thus exempted from all com- petition by the exertion of the public authority, can raise their prices above the level, that could be maintained under the ap- pellation of a free trade. This unnatural ratio of price is sometimes fixed by the government itself, which thus assigns a limit to the partiality it exercises towards the producers, and the injustice it practises upon the consumers: otherwise, the avarice of the privileged company would be bounded only by the dread of losing more by the reduction of the gross amount of its sales, in consequence of increased prices, than it would gain by their unnatural elevation. At all events, the consumer pays for the commodity more than its worth; and govern- ment generally contrives to share in the profits of monopoly. It has been said, for the most ruinous expedient is sure to find some plausible argument or other to support it, that the commerce with certain nations requires precautionary mea- sures, which privileged companies only can enforce. At one time the plea is, that forts must be built, and marine establish- ments kept up; as if in truth it were worth while to traffic sword in hand, or an army were necessary to protect plain dealing; or as if the state did not already maintain at great charge a military force for the protection of its subjects! At another, that diplomatic address is indispensable. The Chinese, for instance, are a people so bigoted to form and prone to suspi- •cion, so entirely independent of other nations, by reason of their remote position, the extent of their territory, and the pe- culiar character of their wants, that it is a matter of special and precarious favour to be allowed to deal with them. We must, therefore, elect either to go without their teas, silks, and nankeens, or be content to submit to precautions, which can alone ensure the continuance of the trade; for the dealings of individuals might endanger the continuance of that good hu- mour, without which the mutual intercourse of the two nations would be at an end. But let me ask, is it so certain, that the agents of a compa- ny, who are too apt to presume upon the support of the mili- tary power, either of the nation, or at least of the company, — • is it quite certain, that such agents are more likely to keep alive an amicable feeling, than private traders, in whom more 24 130 ON PRODUCTION. book i. deference to local institutions might he expected, and who would have an immediate interest in keeping clear of any misunderstanding, that should endanger both their persons and their propert}^?* But supposing the worst that could hap- pen, and granting for argument's sake that the trade with Chi- na can not be conducted otherwise than by a privileged com- pany, does it follow, that without one we must needs give up the taste for Chinese productions? Certainly not. The trade in Chinese goods will always exist, for this plain reason, that it suits both parties, the Chinese and their customers. But shall we not pay dearer for those goods? There is no ground for thinking so. Three fourths of the European states have never sent a single ship to China, and yet are abundantly sup- plied with teas, with silks, and with nankeens, and that too at a very cheap rate. There is another argument of more general application, and still more frequently urged; viz. that a company, having the exclusive trade of any given country, is exempt from the ef- fects of competition, and, therefore, buys at a less price. But, in the first place, it is not true that the exclusive privilege exempts from the effect of competition; the only competition it removes, is that of the national traders, which would be of the utmost benefit to the nation; but it excludes neither the competition of foreign companies, nor of foreign private traders. In the next place, there are many articles that would not rise in price in consequence of the competition, which some people affect to be alarmed at, though in truth it is a mere bug-bear. Suppose Marseilles, Bourdeaux, L'Orient, were all to fit out vessels to bring tea from China, we have no reason to believe, that all their ventures together would import more tea into France, than France could consume or dispose of. All we have to fear is, that they should not import enough. Now, if they were to import no more than other merchants would have imported for them, the demand for tea in China will have been just the same in both cases; consequently, the commodity will not have become more scarce there. Our merchants would hardly have to pay dearer for it, unless the price should rise in China itself; and what sensible effect could the purchases of a few merchants of France have upon the price of an article, consumed in China itself, to one hundred times the amount of the whole consumption of Europe? But, granting that European competition would operate to raise the price of some coniniodities in the eastern market, is * This has been exemplified in the commercisil relations of the United States with China. The American traders conduct themselves at Canton vlth more discretion, and are regarded by the Chinese authorities with less jealousy, than the agents of the English company. The Portuguese, for upwards of a century, carried on the trade with the Eastern seas, without the intervention of a company, and with greater success than any of their cotemporaries. CHAP. XVII. ON PRODUCTION. 131 that a sufficient motive for excepting the trade to that part of the world from the general rules, that are acted upon in all other branches of commerce? Are we to invest an exclusive company with the sole conduct of the import or export trade between Germany and France, for the sole purpose of getting our cottons and woollens from Germany at a cheaper rate? If the commerce of the East were put upon the same footing as foreign trade in general, the price of any one article of its pro- duce could never long remain much above the cost price of production in Asia; for the rise of price would operate as a stimulus to increased production, and the competition of sellers would soon be on a par with that of purchasers. But, admitting the advantage of buying cheap to be as sub- stantial as it is represented, the nation at large has a right to participate in that cheapness; the home consumers ought t.o buy cheap, as well as the company. Whereas in practice it is just the reverse, and for a very simple reason: the company is not exempt from competition as a purchaser, for other nations are its competitors: but as a seller it is exempt; for the rest of the nation can buy the articles it deals in no where else, the im- port by foreigners being wholly prohibited. It asks its own price, and can command the market, especially if it be atten- tive to keep the market always understocked, as the English call it; that is, if the supply be just so far short of the demand, as to keep alive the competition of purchasers.* In this manner, trading companies not only extort usurious profits from the consumer, but moreover saddle him with all the fraud and mismanagement inseparable from the conduct of these unwieldy bodies, with their cumbrous organization of di- rectors and factors without end, dispersed from one extremity of the globe to the other. The only check to the gross abuses of these privileged bodies is the smuggling or contraband trade, which, in this point of view, may lay claim to some de- gree of utility. This analysis brings us to the point in question; are the gains of the privileged company, national gains? Undoubtedly not; for they are wholly taken from the pockets of the nation itself. The whole excess of value, paid by the consumer, be- yond the rate at which free-trade could afibrd the article, is not a value produced, but so much existing value, presented by the government to the trader at the consumer's expense. It will probably be urged, that it must at least be admitted, that this profit remains and is spent at home. Granted: but by whom is it spent? that is the point. Should one member of a family possess himself of the whole family income; dress him- self in fine clothes, and devour the best of every thing, what consolation would it be to the rest of the family, were he to * It is well known, that, when the Dutch were in possession of the Mo- luccas, they were in the habit of burning part of the spices they produced, for the sake of keeping up the price in Europe. 132 ON PRODUCTION. book i. say, what signifies it whether you or 1 spend the money? the income spent is the same, so it can make no difierence. The exclusive as well as usurious profits of monopoly would soon glut the privileged companies with wealth, could they depend upon the good management of their concerns; but the cupidity of agents, the long pendency of distant adventures, the difficulty of bringing factors abroad to account, and the in- capacity of those interested, are causes of ruin in constant ac- tivity. Long and delicate operations of commerce require superior exertion and intelligence in the parties interested. And how can such qualities be expected in shareholders amounting sometimes to several hundreds, all of them having other mat- ters of more personal importance to look after?* Such are the consequences of privileges granted to trading companies: and these consequences, it must be observed, are in the nature of things inseparable; circumstances may reduce their efficacy, but can never remove them altogether. The English East India Company has met with more success than the three or four French ones, that at different times made the experiment. t This company is sovereign as well as merchant; and we know by experience, that the most destestable govern- ments may last for several generations: witness that of the Mamelukes in Egypt. There are some minor evils also incident to commercial pri- vileges. The grant of exclusive rights frequently exiles from a country a branch of industry and a portion of capital, that, would readily have taken root there, but are compelled to set- tle abroad. Towards the close of the reign of Louis XIV. the French East India Company, being unable to support itself, notwithstanding its exclusive rights, transferred the exercise of its privileges to some speculators of St. Malo, in considera- tion of a small share in their profits. The trade began to re- vive under the influence of this comparative liberty, and would on the expiration of the company's charter, in 1714, have been as active as the then melancholy condition of France would have permitted: but the company petitioned for a re- newal, and obtained one, pending the ventures of some private traders. Soon afterwards, a vessel of St. Malo, commanded by a Breton of the name of Lamerville, appeared upon the French coast, on its return from the East Indies, but was re- fused permission to enter the harbour, on the plea, that it was • The answer of La Bourdonnais to one of the directors of the French East India Company, who asked how it was, that he had managed his own interests so much better than those of the company, will long be remember- ed: — " Because," said he, '• I manage my own affairs according to the dic- tates of my own judgment, but am obhged to follow your instructions in regard to those of the company." f The first French East India Company was established in the reign of Henry IV. A. D. 1604, at the instance of a Fleming of the name of Gerard Leroi, It met with no success. CHAP. XVII. ON PRODUCTION. 133 in contravention of the company's rights. Consequently, he was compelled to prosecute his voyage to the nearest port in Belgium, and carried his vessel into Ostend, where he disposed of the cargo. The governor of the Low Countries, hearing of the enormous profits he had made, proposed to the captain a second voyage, with a squadron to be fitted out for the express purpose; and Lamerville afterwards performed many similar voyages for different employers, and laid the foundation of the Ostend Company.* Thus, the French consumer must necessarily have suffered by this monopoly: and so, in fact, he did. But at any rate, it will be supposed, the company must have benefited. Just the contrary: the company was itself ruined; in spite of the mono- poly of tobacco, the lotteries, and other subsidiary grants be- stowed on them by the government.t " In short," says Vol- taire, f " all that remained to France in the East was, the re- gret of having, in the course of forty years, squandered enor- mous sums, to bolster up a company, that never made a six- pence profit, never made any dividend from the resources of its commerce, either to its shareholders or creditors; and sup- ported its establishments in India, solely by the underhand practice of pillage and extortion upon the natives." The only case in which the establishment of an exclusive company is justifiable, is, when there is no other way of com- mencing a new trade with distant or barbarous nations. In that case, the charter is a kind of patent of invention, and con- fers an advantage, commensurate to the extraordinary risk and expense of the first experiment. The consumers have no rea- son to complain of the dearness of products, which, but for the grant of the charter, they would either not have enjoyed at all, or have enjoyed at a still dearer rate. But such grants should, like patents, be limited to such duration only, as will repay and fully indemnify the adventurers for the advances and risk incurred. Any thing further is a mere free gift to the compa- ny, at the expense of the nation at large, who have a natural right to get what they want wherever they can, and at the low- est possible price. What has been said with respect to commercial is equally applicable to manufacturing privileges. The reason why gov- ernments are so easily entrapped into measures of this kind is, partly because they see a statement of large profits, and do not trouble themselves to inquire whence they are derived; and partly because this apparent profit is easily ruduced to numeri- cal calculation, no matter whether wrong or right, correct or incorrect; whereas the loss and mischief resulting to the nation * Taylor's Letters on India. t Raynal. Hist. phil. et. polit. des Esiabl. des Euroviens, dans les deux Indes, liv. iv. § 19. t Sicde de Louis XV. 134 ON PRODUCTION. book i. are infinitely subdivided amongst the members of the commu- nity, and operate after all in a very indirect, complex, and general way, so as to escape and defy calculation. Some wri- ters maintain arithmetic to be the only sure guide in political economy; for my part, I see so many detestable systems built upon arithmetical statements, that I am rather inclined to re- gard that science as the instrument of national calamity. SECTION IV. Of Regulations affecting the Corn Trade. It would seem that the general principles, which govern the commerce of all other commodities, should be equally applica- ble to the commerce of grain. But grain, or whatever else may happen to be the staple article of human subsistence to any people, deserves more particular notice. It is universally found, that the numbers of mankind increase, in proportion to the supply of subsistence. The abundance and cheapness of provisions are favourable to the advance of population; their scarcity is productive of the opposite effect;* but neither cause operates so rapidly, as the annual succession of crops. The crop of one year may, perhaps, exceed or fall short of the usual average, by as much as 1-5 or 1-4; but a country, that, like France, has thirty millions of inhabitants one year, can not have thirty-six millions the next; nor could its population be reduced to twenty-four millions in the space of one year, without the most dreadful degree of suffering. Therefore it is the ordinance of nature, that the population shall one year be superabundantly supplied with subsistence, and another year be subjected to scarcity in some degree or other of intensity. And so, indeed, it is with all other objects of consumption; but, as the most of them are not absolutely indispensable to existence, the temporary privation of them amounts not to the absolute extinction of life. The high price of a product, which has wholly or partially failed at home, is a powerful stimulus to commerce to import it from a greater distance and at a greater expense. But it is unsafe to leave wholly to the pro- vidence of individuals the care of supplying an article of such absolute necessity; the delay of which, but for a few days, may be a national calamity; the transport of which exceeds the or- dinary means of commerce; and whose weight and bulk would make its distant transport, especially by land, double, or triple its average price. If the foreign supply of corn be relied upon, it may happen to be scarce and dear in the exporting and the * Vide infra. Book II. chap. 11. CHAP. XVII. ON PRODUCTION. 135 importing country at the same moment. The government of the exporting country may prohibit the export, or a maritime war may interrupt the transport. But the article is one the nation can not do without; or even wait for a few days longer. Delay is death to a part of the population at the least. For the purpose of equalizing the average consumption to the average crop, each family ought literally to lay by, in years of plenty, for the deficiency of years of scarcity. But such providence can not be reckoned upon in the bulk of the popu- lation. A great majority, to say nothing of their utter want of foresight, are destitute of the means of keeping such a store in reserve sometimes for several years together; neither have they the accommodations for housing it, or the means of tak- ing it along with them on a casual change of abode. Can speculative commerce be depended upon for this re- serve against a deficiency? At first sight it might appear that it could, that self-interest would be an adequate motive; for the difference of the price of corn in years of abundance and those of scarcity is very great. But the recurrence of the oscilla- tion is too irregular in distance of time, and too infrequent also to give rise to a regular traffic, or one that can be repeated at pleasure. The purchase of the grain, the number and size of the storehouses, require a very large advance of capital and a heavy arrear of interest: it is an article, that must be repeat- edly shifted and turned, and is much exposed to fraud and damage, as well as to popular violence. All these are to be covered by a profit of rare occurrence. Wherefore, it is pos- sible, that the article may not hold out sufficient temptation to the speculator, although this would be the most commendable kind of speculation, being framed upon the principle of buying from the producer when he is eager to sell, and selling to the consumer when he finds it difficult to purchase. In default of the individual providence of the consumer, and of speculative accumulation and reserve, neither of which it would seem can be safely depended upon, can the public au- thority, as representing the aggregate interest, undertake the charge of providing against a scarcity with any prospect of success? I am aware, that, in a few very limited communities, blessed with a very economical government, like some of the Swiss cantons, public granaries for storing a casual surplus have answered the purpose well enough. But I should pro- nounce them impracticable in large and populous countries. The advance of capital and its accruing interest would affect the government in the same manner as private speculators, and even in a greater degree; for there are few governments, that can borrow on such low terms as individuals in good credit. The difficulties of managing a commercial concern of buying, storing, and re-selling to so large an extent, would be still more insuperable. Turgot, in his letters on the com- merce of grain, has clearly proved, that, in matters of this kind, a government never can expect to be served at a reasonable 136 ON PRODUCTION. book i. rate; all its agents having an interest in swelling its expendi- ture, and none of them in curtailing. It would be utterly im- possible to answer for the tolerable conduct of a business left to the discretion of agents without any adequate control, whose actions are, for the most part, governed by the superior dig- nitaries of the state, who seldom have either the knowledge or condescension requisite for such details. A sudden panic in the public authorities might prematurely empty the grana- ries; a political measure, or a war, divert their contents to quite a different destination. Generally speaking, it appears that there is no safe depend- ence for a reserve of supply against a season of scarcity, unless the business be confided to the discretionary management of mercantile houses of the first capital, credit, and intelligence, willing to undertake the purchase, and the filling and replen- ishment of the granaries upon certain stipulated terms, and with the prospect of such advantages, as may fairly recom- pense them for all their trouble. The operation would then be safe and effectual, for the contractors would give security for due performance; and it would also be cheaper executed in this way than in any other. Different establishments might be contracted with for the different cities of note; and these being thus supplied in times of scarcity from the stores in re- serve, would no longer drain the country of the subsistence destined to the agricultural population, (a) Public stores and granaries are after all but auxiliary and temporary expedients of supply. The most abundant and ad- vantageous supply will always be, that furnished by the ut- most freedom of commerce, whose duties in respect to grain consists chiefly in transporting the produce from the farm-yard to the principal markets, and thence in smaller quantities from the markets of the districts where it is superabundant to those of others, that may be scantily supplied; or in exporting when cheap, and importing when dear. Popular prejudice and ignorance have universally regarded with an evil eye those concerned in the corn-trade; nor have the depositaries of national authority been always exempt from similar illiberality. The main charge against them is, (a) It is singular, that, after the very careful revision, which this section has undergone in the last edition, this paragraph should have been suffered to stand. Indeed, one would almost suspect that our author had left it ra- ther in compliment to the popular notions of his own country, than from personal conviction of the propriety of the measure he suggests; which is impugned by the whole context of the remaining part of the section. The best security against famine is, the total absence of all official interference whatever, whether permanent or temporary, as the example of Great Bri- tain will testify. There the government has at all times abstained from tak- ing a personal part in the supply either of town or country, and has limited Us interference to them ere export and import, which have only been cramp- ed and impeded by its ill-advised operations. Another important ground of security is, the variety of the national food. Upon this our author has observed. Fide, infra. T. CHAP. XVII. ON PRODUCTION. 137 that they buy up corn with the express purpose of raising its price, or at least of making an unreasonable advantage upon the purchase and resale, which is in effect so much gratuitous loss to the producer and consumer. First, I would ask, what is meant by this charge? If it be meant to accuse the dealers of buying in plentiful seasons when corn is cheap, and laying by in reserve against seasons of scarcity, we have just seen, that this is a most beneficial opera- tion, and the sole means of accommodating the supply of so precarious an article to the regularity of an unceasing demand. Large stores of grain laid in at a low price contribute power- fully to place the subsistence of the population beyond risk of failure, and deserve not only the protection, but the en- couragement of the public authorities. But, if it be meant to charge the corn-dealers with buying up on a rising market and on the approach of scarcity, and thereby enhancing the scarci- ty and the price, although I admit, that this operation has not the same recommendation of utility, and that the consumer is saddled with the additional cost of the operation without any direct equivalent benefit, for in this instance the deficiency of one year is not made good by the hoarded surplus of a pre- ceding one, yet I can not think it has ever been attended with any very alarming or fatal consequences. Corn is a commo- dity of most extended production; and its price can not be ar- bitrarily raised, without disarming the competition of an in- finity of sellers, and without an extent of dealing and of agency scarcely practicable to individuals. It is, besides, a most cum- bersome and inconvenient article in comparison with its price, and consequently most expensive and troublesome in the car- riage and warehousing. A store of any considerable value can not escape observation.* And its liability to damage or decay often makes sales compulsory, and expose the larger speculators to immense loss. Speculative monopoly is, therefore, extremely difficult, and little to be dreaded. The kind of engrossment most prejudi- cial, as well as most difficult of prevention, is that practised by the domestic prudence of individuals in apprehension of a scarcity. Some, from excess of precaution, lay by rather more than they want; while farmers, farming proprietors, millers and bakers, who habitually keep a stock on hand, take care somewhat to swell that stock, in the idea that they shall sell to a profit whatever surplus there may be; and the infinite number of these petty acts of engrossment makes them greatly exceed in the aggregate all the united efforts of speculation. * Lamarre, who was a great advocate for the interference of authority in these matters, and was commissioned by the government, in the scarcities of the years 1699 — 1709, to discover all concealed hoards, and bring to light the monopolists, frankly confesses, that he was not able to make seizure of so much as 100 quarters altogether. Traite de la Police, Supplement au tome 11. 25 138 ON PRODUCTION. book i. But what if it should turn out after all, that even the selfish and odious views of such speculators are productive of soine good? When corn is cheap, it is consumed with less provi- dence and frugality, and used as food for the domestic animals. The distant prospect of scarcity, or even a slight rise of price, is insufficient to check this improvidence betimes. If the great holders shut up their stores, however, the consequent anticipa- tion of a rise of price immediately puts the public on their guard, and awakens the particular frugality and care of the little consumers, of whom the great mass of consumption is composed. Ingenuity is set at work to find a substitute for the scarce article of food, and not a particle is wasted. Thus, the avarice of one part of mankind operates as a salutary check upon the improvidence of the rest; and, when the stock with- held at length appears in the market, its quantity tends to lower the price in favour of the consumer. With regard to the tribute, which the dealer is supposed to exact from both producer and consumer, it is a charge that will attach with equal justice upon every branch of commerce whatsoever. There would be some meaning in it, could pro- ducts reach the hands of the consumer without any advance of capital, without warehouses, trouble, combination, or any kind of difficulty. But, so long as difficulties shall exist, no- body will be able to surmount them so cheaply, as those who make it their special business. Legislation should take an en- larged view of commerce in the aggregate, small and great; it will find its agents busied in traversing the whole surface of the territory, watching every fluctuation of demand and sup- ply, adjusting the casual or local deficiency of price to meet the charges of production, and excess of price above the ca- pacity of consumption. Is it to the cultivator, to the con- sumer, or to the public administration, that we can safely look for so beneficial and powerful an agency? Extend, if you please, the facility of intercourse, and particularly the ca- pacities of internal navigation, which alone is suited to the transport of a commodity so cumbrous and bulky as grain ; vigi- lantly watch over the personal security of the trader; and then leave him to follow his own track. Commerce can not make good the failure of the crop; but it can distribute whatever there may be to distribute, in the manner best suited to the wants of the community, as well as to the interests of pro- duction. And doubtless it was for this reason, that Smith pronounced the labour of the corn dealer to be favourable to the production of corn, in the next degree to that of the culti- vator himself. The prevalence of erroneous views of the production and commerce of articles of human subsistence have led to a world of mischievous and contradictory laws, regulations, and ordi- nances, in all countries, suggested by the exigency of the moment, and often extorted by popular importunity. The CHAP. xyii. ON PRODUCTION. 139 danger and odium thus heaped upon the dealers in grain have frequently thrown the business into the hands of inferior per- sons, qualified neither by information nor ability for the busi- ness; and the usual consequence has followed; namely, that the same traffic has been carried on in secret, and at far greater expense to the consumers; the dealers to whom it was abandoned being of course obliged to pay themselves for all the risk and inconvenience of the occupation. Whenever a maximum of price has been affixed to grain, it has immediately been withdrawn or concealed. The next step was, to compel the farmers to bring their grain to market, and prohibit all private sales. These violations of property, with all their usual accompaniments of inquisitorial search, personal violence, and injustice, have never affiDrded any con- siderable resource to the government employing them. In po- lity as well as morality, the grand secret is, not to constrain the actions, but to awaken the inclinations of mankind. Mar- kets are not to be supplied by the terror of the bayonet or the sabre.* When the national government attempts to supply the popu- lation by becoming itself a dealer, it is sure to fail in satisfy- ing the national wants itself, and at the same time to extin- guish all the resources, that freedom of commerce would offer; for nobody else will knowingly embark in a losing trade, though the government may. During the scarcity prevalent throughout many parts of France, in the year 1775, the municipalities of Lyons, and some other towns attempted to relieve the wants of the inhabi- tants, by buying up corn in the country, and re-selling it at a loss in the towns. To defray the expense of this operation, they at the same time obtained an increase of the octroi, or tolls upon goods entering their gates. The scarcity grew worse and worse, for a very obvious reason; the ordinary dealers naturally abandoned markets, where goods were sold below the cost price, and which they could not resort to with- out moreover paying extra toll upon entry. t * The French Minister of tlie Interior, in his report presented in De- cen\ber, 1817, admits that the markets were never so ill supplied, as im- mediately after the decree of May 4, 1812, prohibiting all sales out of open market. The consumers crowded thither, having no where else to resort to; while the farmers, being obliged to sell below the current price, pre- tended to have nothing for sale. •j- In all ages and in ail places this effect will follow. The Emperor Ju- lian, A. D. 362, caused to be sold at Antioch 420,000 modii of wheat im- ported from Chalcis and Egypt for the purpose, at a price lower than the average of tlie market; the supplies of private commerce were immediately stopped in consequence, and the famine was aggravated. Vide Gibbon, c. 24. The principles of Political Economy are eternal and immutable; but one nation is acquainted with them and another not. The metropolis of the Roman empire was alwa3's destitute of subsistence, when the government; withheld the gratuitous largesses of grain drawn 140 ON PRODUCTION. book i. The more necessary an article is, the more dangerous it is to reduce its "price below the natural level. An accidental dearness of corn, though doubtless a most unwelcome occur- rence, is commonly brought about by causes out of all human power to remove.* There is no wisdom in heaping one ca- lamity upon another, and passing bad laws because there has been a bad season. Governments have met with no better success in the matter of importation, than in the conduct of internal commerce. The enormous sacrifices made by the commune of Paris and the general government, to provision the metropolis in the winter of 1816-17 with grain imported from abroad, did not protect the consumer from an exorbitant advance in the price of bread, which was besides deficient both in weight and quality; and the supply was found inadequate after all.t On the subject of bounties on import, it is hardly necessary to touch. The most effectual bounty is the high price of the article in the country, where the scarcity occurs, amounting sometimes to as much as 200 or 300 per cent. If this be not sufficient to tempt the importer, I know of no adequate in- ducement that the government could hold out to him. Nations would be less subject to famine, were they to em- ploy a greater variety of aliments. When the whole popula- tion depends upon a single product for subsistence, the misery of a scarcity is extreme. A deficiency of corn in France is as bad as one of rice in Hindustan. When their diet consists of many articles, as butcher's meat, poultry, esculent roots, ve- getables, fruits, fish, &c., according to local circumstances, the supply is less precarious; for these articles seldom fail all at a time. J from a tributary world; and these very largesses were the real cause of the scarcity felt and complained of. • One of the most frequent causes of famine is, indeed, of human crea- tion, and that is war, which both interrupts production, and wastes exist- ing- products. This cause is, therefore, within human control; but we can hardly expect it to be effectually exerted, until g-overnments shall entei-- tain more accurate notions of their own, as well as of the national interests; and nations be weaned of the puerihty of attaching- sentiments of admira- tion and glory to perils encountered without necessity or reason. f It is mere mockery to talk of the paternal care, solicitude, or benefi- cence of government, which are never of any avail, either to extend the powers of authority, or to diminish the suffering of the people. The so- licitude of the government can never be doubted; a sense of intense per- sonal interest will always guide it to the conservation of social order, by which it is sure to be the principal gainer. And its beneficence can have little merit; for it can exert none, but at the expense of its subjects. \ Custom, the tyrant of weak minds, and of such, unfortunately, is the great mass of mankind, and of the lower classes in particular, is always a formidable opponent to the introduction of a new article of food. I have observed in some provinces of France, a decided distaste for the paste pre- pared in the Italian method, although a most nutritious substance, and wel'l CHAP. XVII. ON PRODUCTION. 141 Scarcity would also be of less frequent recurrence, if more attention were paid to the dissemination and perfection of the art of preserving, at a cheap rate, such kinds of food, as are offered in superabundance at particular seasons and places; fish for instance; their periodical excess might in this way be made to serve for times of scarcity. A perfect freedom of in- ternational maritime intercourse would enable the inhabitants of the temperate latitudes to partake cheaply of those produc- tions, that nature pours forth in such profusion under a tropi- cal sun.* I know not how far it would be possible to preserve and transport the fruit of the banana; but the experiment has in a great measure succeeded with respect to the sugar-cane, which furnishes, in a thousand shapes, an agreeable and whole- some article of diet, and is produced so abundantly by all parts of the world, lying within 38° of latitude, that, but for our pre- sent absurd legislative provisions, it might be had much cheaper than butcher's meat, and for the same price as many indigenous fruits and vegetables. t To return to the corn-trade, I must protest against the in- discriminate and universal application of the arguments I have adduced to show the benefits of libert)'-. Nothing is more dan- gerous in practice, than an obstinate unbending adherence to calculated for keeping the flour sound and good. Probably, nothing but the frequent recurrence of scarcity during the political agitations of the nation could have extended the cultivation and consumption of the potatoe, so as to have made it a staple article of food in many districts. The appe- tite for that vegetable would be still more general, were a little more at- tention bestowed upon preserving and ameliorating the species, and the practice of raising it from the seed rather than the root more strictly ob- served. * Humboldt tells us, in his Essai pal. sur la nouvelle Espagne, c. ix., that an equal area of land in that country will produce bananas, potatoes, and wheat, in the following proportions of weight: — Kilogrammes. Bananas ... ..... 106,000 Potatoes 2,400 Wheat - - 800 The product of bananas is, therefore, in weight, 133 times that of wheat, and 44 times that of potatoes. But a large deduction must be made for the aqueous particles of the banana. A demi-hedare of fertile land in Mexico, by proper cultivation of the larger species of banana, may be made to feed more than 50 individuals; whereas the same extent of surface in Europe, supposing it to yield eight- fold, will give an annual product of no more than 576 Mis. of wheat flour, which is not enough for the sustenance of two persons. It is natural that Europeans, on their first arrival in a tropical region, should be surprised at the very limited extent of cultivated ground, encirchng the crowded cabins of the native population. f The same author informs us, that, In St. Domingo, a superficial square of 3403 toises, is reckoned at an average capable of producing 10,000 lbs. weight of sugar; and that the total consumption of that commodity in France, taking it at the fair average of 20,000,000 Mis., might be raised upon a superficial area of seven square leagues. 142 ON PRODUCTION. book i, system, particularly in its application to the wants and errors of mankind. The wiser course is, to approximate invariably to the standard of sound and acknowledged principles, to lead towards them by the never-failing influence of gradual and in- sensible attraction. It is well to fix beforehand a maximum of price beyond which exportation of grain shall either be pro- hibited, or subjected to heavy duties; for, as smuggling can not be prevented entirely, it is better that those who are re- solved to practise it, should pay the insurance of the risk to the state, than to individuals. We have hitherto regarded the inflated price of grain as the only evil to be apprehended. But England, in 1815, was alarmed by a prospect of an opposite evil; viz: that its price would be reduced too low, by the influx of foreign grain. The production of this article is, like that of every other, much more costly in England than in the neighbouring states; owing to a variety of causes, which it is immaterial here to explain; amongst others, chiefly to the exorbitance of her taxation. — Foreign grain could be sold in England at two-thirds of its cost price to the English grower. It, therefore, became a most important question, whether it were better to permit the free importation, and thus, by exposing the home producer to a ruinous competition with the foreign grower, to render him incapable of paying his rent and taxes, to divert him from the cultivation of wheat altogether, and place England in a state of dependence for subsistence upon foreign, perhaps hostile nations; or, by excluding foreign grain from her markets, to give a monopoly to the home producer at the expense of the consumer, thereby augmenting the difiiculty of subsistence to the labouring classes, and, by the advanced price of the ne- cessaries of life, indirectly raising that of all the manufactured produce of the country, and proportionately disabling it to sustain the competition of other nations. This great question has given rise to the most animated con- test both of the tongue and the pen; and the obstinate con- tention of two parties, each of which had much of justice on its side, leaves the by-standers to infer, that neither has chos- en to notice the grand cause of mischief; that is to say, the necessity of supporting the arrogant pretensions of England to universal influence and dominion, by sacrifices out of all proportion to her territorial extent. At all events, the great acuteness and intelligence, displayed by the combatants on either side, have thrown new light upon the interference of authority in the business of the supply of grain, and have tended to strengthen the conclusion in favour of commercial liberty. The substance of the argument of the prohibitionists may be reduced to this: that it is expedient to encourage domestic agriculture, even at the expense of the consumer, to avoid the risk of starvation by external means j which is seriously to be CHAP. XVII. ON PRODUCTION. 143 apprehended on two occasions in particular; first, when the power of influence of a belligerent is able to intercept or check the import, which might become necessary; secondly, when the corn growing countries themselves experience a scarcity, and are obliged to retain the whole of their crops for their own subsistence.* It was replied by the partisans of free-trade, that, if England were to become a regular and constant importer of grain, not one, but many foreign countries would grow into a habit of supplying her: the raising of corn for her market in Poland, Spain, Barbary, and North America, would be more exten- sively practised, and the sale of their produce would become equally indispensable to them, as the purchase would be to England: that even Buonaparte, the most bitter enemy En- gland had ever encountered, had taken her money for the licence to export corn: that crops never fail at the same time all over the world; and that an extensive commerce in grain would lead to the formation of large stores and depots, which will ofier the best possible security against the recurrence of scarcity; and that, accordingly, as they asserted, there are no countries less subject to that calamity, or even to violent fluc- tuations of price, than those that grow no corn at all; for which they cited the example of Holland, and other nations similar- ly circumstanced, t However, it can not be disputed that, even in countries best able to reckon on commercial supply, there are many serious inconveniences to be apprehended from the ruin of internal tillage. Subsistence is the primary want of a nation, and it is neither prudent nor safe to become dependent upon distant supply. Admitting that laws, which, for the protection of the agricultural, prohibit the import of grain to the prejudice of the manufacturing interest, are both unjust and impolitic, it should be recollected that, on the other hand, excessive taxa- tion, loans, overgrown establishments, civil, military, or diplo- matic, are equally impolitic and unjust, and fall more heavily upon agriculture than upon manufacture. Perhaps one abuse may make another necessary, to restore the equilibrium of pro- duction, otherwise industry would abandon one branch, and take exclusively to another, to the evident peril of the exist- ence of society. * Malthus. Inquiry into the Nature and Progress of Rent. Grounds of an Opinion, &c. on Foreign Corn. f Ricardo. Essay 07i the Influence of the Low Price of Corn, &,c. 144 ON PRODUCTION. book i. CHAPTER XVIII. OP THE EFFECT UPON NATIONAL WEALTH, RESULTING FROM THE PRODUCTIVE EFFORTS OF PUBLIC AUTHORITY. There can be no production of new value, consequently no increase of wealth, where the product of a productive concern does not exceed the charge of production.* Thus, whether government or individuals be the adventurers in the losing concern, it is equally ruinous to the nation, and there is so much less value in the country. It is of no avail to pretend, that, although the government be a loser, its agents, tne industrious people, or the workmen it employs, have made a profit. If the concern can not support itself and pay its own way, the receipt must fall short of the outlay, and the difference fall upon those, who supply the ex- penditure of the state; that is to say, the tax-payers.t The manufacture of Gobelin tapestry, carried on by the go- vernment of France, consumes a large quantity of wool, silk, and dyeing-drugs; furthermore, it consumes the rent of the ground and buildings, as well as the wages of workmen em- ployed; all which should be reimbursed by the product, which they are very far from being. This establishment, instead of a source of wealth to the nation at large, for the government is fully aware of the loss to itself, is, on the contrary, a source of perpetual impoverishment. The annual loss to the nation is the whole excess of the annual consumption of the concern, including wages, which are one item of consumption, above the annual product. The same may be said of the manufacture of porcelain at Sevres, and I fear of all manufacturing concerns carried on upon account of governments. We are told, that this is a necessary sacrifice; that otherwise the sovereign would be unprovided with objects of royal boun- ty and of royal splendour. This is no place to inquire, how far the munificence of the monarch and the splendour of his palaces contribute to the good government of the people. I take for granted that these things are necessary; yet, admit- * It must not be forgotten, that the consumption of the value of the pro- ductive agency, exerted in the course of production, is quite as real as that of the raw material. And under this term, productive agency, I comprise that of capital as well as of human beings. f This is equally true, when the government speculates with its own private or peculiar funds, as with the produce of the national lands; for whatever is thus expended might have gone towards alleviating the public burthens. CHAP. xvm. ON PRODUCTION. 145 ting them to be so, there is no reason why the national sacri- fices, requisite to support this magnificence and liberality, should be aggravated by the losses incurred by a misdirection of the public means. A nation had much better buy outright what it thinks proper to bestow; it would probably obtain for less money an object full as precious; for individuals can al- ways undersell the government.* There is a further evil attending the productive efibrts of the government; they counteract the individual industry, not of tliose it deals with, for they take good care to be no losers, but of its competitors in production. The state is too formi- dable a rival in agriculture, manufacture and commerce; it has too much wealth and power at command, and too little care of its own interest. It can submit to the loss of selling below prime cost; it can consume, produce, or monopolize in very little time so large a quantity of products, as violently to de- range the relative prices of commodities: and every violent fluc- tuation of price is calamitous. The producer calculates upon the probable value of his product when ready for market; no- thing discourages him so much, as a fluctuation that defies all calculation. The loss he suflTers is equally unmerited, as the accidental gains that may be thrown into his hands. His un- merited gains, if any there be, are so much extra charge upon the consumer. There are some concerns, I know, which the government must of necessity keep in its own hands. The building of ships of war can not safely be left to individuals; nor, perhaps, the manufacture of gunpowder. However, in France, cannon, muskets, caissons, and tumbrils are bought of private makers, and seemingly with benefit. Perhaps the same system might be further extended. A government must act by deputy, by the intermediate agency of a set of people, whose interest is in direct opposition to its own; and they will of course at- tend to their own in preference. If it be so circumstanced as to be invariably cheated in its bargains, there is no need to multiply the opportunities of fraud, by engaging itself in pro- duction and adventure; that is to say, embarking in concerns, that must infinitely multiply the occasions of bargaining with individuals. But, although the public can scarcely be itself a successful producer; it can at any rate give a powerful stimulus to indi- vidual productive energy, by well-planned, well-conducted, * The same may be observed of commercial enterprises undertaken by the public authority. Daring the scai'city of ISie-ir, the French govern- ment bought up coi-n in foreign markets; the price of com rose to an exor- bitant rate in the home market, and the government resold at a very high rate, although somewhat below the average of the market. Individual traders would have found this a very profitable venture; but the govern- ment was out of pocket 21 million of francs and upwards. Rapport au Roi du 24: Dec. 1818. 26 146 ON PRODUCTION. book i. and well-supported public works, particularly roads, canals, and harbours. Facility of communication assists production, exactly in the same wa}'- as the machinery, that multiplies manufactured pro- ducts, and abridges the labour of production. It is a means of furnishing the same product at less expense, which has ex- actly the same effect, as raising a greater product with the same expense. If we take into account the immense quantity of goods conveyed upon the roads of a rich and populous em- pire, from the commonest vegetables brought daily to market, up to the rarest imported luxuries poured into its harbours from every part of the globe, and thence diffused, by means of land-carriage, over the whole face of the territory, we shall readily perceive the inestimable economy of good roads in the charges of production. The saving in carriage amounts to the whole value the article has derived gratuitously from nature, if, without good roads, it could not be had at all. Were it possible to transplant from the mountain to the plain the beau- tiful forests that flourish and rot neglected upon the inacessi- ble sides of the Alps and Pyrenees, the value of these forests would be an entirely new creation of value to mankind, a clear gain of revenue both to the landholder and the consumer also. Academies, libraries, public schools, and museums, founded by enlightened governments, contribute to the creation of wealth, by the further discovery of truth, and the diffusion of what was known before; thus empowering the superior agents and directors of production, to extend the application of hu- man science to the supply of human wants.* So likewise of travels, or voyages of discovery, undertaken at the public charge; the consequences of which have of late years been ren- dered particularly brilliant, by the extraordinary merit of those, who have devoted themselves to such pursuits. It is observable too, that the sacrifices made for the enlarge- ment of human knowledge, or merely for its conservatiouy should not be reprobated, though directed to objects of no im- mediate or apparent utility. The sciences have an universal chain of connexion. One which seems purely speculative must advance a step, before another of great and obvious prac- tical utility can be promoted. Besides, it is impossible to say what useful properties may lie dormant in an object of mere curiosity. When the Dutchman Otto Guericke struck out the first sparks of electricity, who would have supposed they would have enabled Franklin to direct the lightning, and divert it from our edifices, an exploit apparently so far beyond the powers of man? But of all the means, by which a government can stimulate production, there is none so powerful as the perfect security of person and property, especially from the aggressions of arbi- * Supra, chap. 6. CHAP. XVIII. ON PRODUCTION. 147 trary power.* This security is of itself a source of public pros- perity, that more than counteracts all the restrictions hitherto invented for checking its progress. Restrictions compress the elasticity of production: but want of security destroys it altogether. (a) To convince ourselves of this fact, it is sufficient to compare the nations of western Europe, with those subject to the Ottoman power. Look at most parts of Africa, Arabia, Persia, and Asia Minor, once so thickly strownwith flourish- ing cities, whereof, as Montesquieu remarks, no trace now re- mains but in the pages of Strabo. The inhabitants are pillaged alike by bandits and pashas; wealth and population have van- ished; and the thinly scattered remnant are miserable objects of want and wretchedness. Survey Europe on the other hand; and though she is still far short of the prosperity she might at- tain, most of her kingdoms are in a thriving condition, in spite of taxes and restrictions innumerable; for the simple reason, that person and property are there pretty generally safe from violence and arbitrary exaction. There is one expedient, by which a government may give its subjects a momentary accession of wealth, that I have hither- to omitted to mention. I mean the robbery from another na- tion of all its moveable property, and bringing home the spoil, or the imposition of enormous tributes upon its growing pro- duce. This was the mode practised by the Romans in the later periods of the republic, and under the earliest emperors. This is an expedient of the same nature, as the acquirement of wealth by individual acts of illegal violence or fraud. There is no actual production, but a mere appropriation of the pro- ducts of others. I mention this method of acquiring wealth, once for all, without meaning to recommend it as either safe or honourable. Had the Romans followed the contrary system * Smith, in his recapitulation of the real causes of the prosperity of Great Britain, places at the head of the list, ' That equal and impartial adminis- tration of justice, whicli renders the rig'hts of the meanest British subject respectable to the greatest; and which, by securing' to every man the fruits of his own industry, gives the greatest and most effectual encouragement to every sort of industry.' JVealth of Nations, b. iv. c. 7. JPoivre, who was a great traveller, tells us, that he never saw a country really prosperous, which did not enjoy the freedom of industry, as well as security of person and property. (a) This security is in fact the main duty of all government. Were it not for the imperfections of human nature, — the propensity of mankind to vice, society might exist without government, for no man would injure another. It is to protect one against the vices of another, that the forms and institu- tions of society are established or supported; thus arming individual right with the aggregate of social strength. But the same moral imperfections, which drive mankind into the bonds of society, undermine and vitiate its in- stitutions. The very engine erected to protect, is directed to the injury and spoliation of individuals, and becomes occasionally more dangerous than individual wrong. T. 148 ON PRODUCTION. book i. with equal perseverance, had they studied to spread civiliza- tion among their savage neighbours, and to establish a friend- ly intercourse that might have engendered reciprocal wants, the Roman power would probably have existed to this day. CHAPTER XIX. OF COLONIES AND THEIR PRODUCTS. Colonies are settlements formed in distant countries by an elder nation, called the mother country. When the latter wishes to enlarge its intercourse with a country, already popu- lous and civilized, whose territory it has, therefore, no hopes of getting into its own possession, it commonly contents itself with the establishment of a factory or mercantile residence, where its factors may trade, in conformity with the local regu- lations; as the Europeans have done in China and Japan. When colonies shake off their dependence upon the mother country, they become substantive and independent states. It is common for nations to colonize, when their pupulation becomes crowded in its ancient territorial limits; and when particular classes of society are exposed to the persecution of the rest. These appear to have been the only motives for co- lonization among the ancients; the moderns have been actu- ated by other views. The vast improvements in navigation have opened new channels to their enterprise, and discovered countries before unknown; they have found their way to ano- ther hemisphere, and to the most inhospitable climates, not with the intention of there fixing themselves and their posteri- ty, but to obtain valuable articles of commerce, and return to their native countries, enriched with the fruits of a forced, but yet very extensive production. It is worth while to note this difference of motive, which has made so marked a difference in the consequences of the two systems of colonization. I am strongly tempted to call one the colonial system of the ancients, and the other, the colonial system of the moderns; although there have been many colo- nies in modern times established on the ancient plan, of which those of North America are the most distinguished, (a) (a) The distinction of the two systems is more imag'inary than real. Most of the early establishments of the Europeans in the West were made with the view of absolute migration. The French at St. Doming-o, the English at Barbadoes, the Spaniards almost universally, settled without tke inten- CHAP. XIX. ON PRODUCTION. 149 The production of colonies, formed upon the ancient system , is inconsiderable at the commencement; but increases with great rapidity. The colonists choose for their country of adop- tion a spot, where the soil is fertile, the climate genial, or the position advantageous for commercial purposes. The land is generally quite fresh, whether it have been the scene of a dense population long since extinguished, or merely the range of roving tribes, too small in number and strength to exhaust the productive qualities of the soil. Families, transplanted from a civilized to an entirely new country, carry with them theoretical and practical knowledge, which is one of the chief elements of productive industry: they carry likewise habits of industry, calculated to set these ele- ments in activity, as well as the habit of subordination, so es- sential to the preservation of social order; they commonly take with them some little capital also, not in money, but in tools and stock of different kinds: moreover, they have no landlord to share the produce of a virgin soil, far exceeding in extent what they are able to bring into cultivation for years to come. To these causes of rapid prosperity, should, per- haps, be superadded the chief cause of all, the natural desire of mankind to better their condition, and to render as comforta- ble as possible the mode of life they have adopted. The rapid increase of products in colonies, founded upon this plan would have been still more striking, if the colonists had carried with them a larger capital; but, as we have already observed, it is not the families favoured by fortune that emi- grate; those, who have the command of a sufficient capital to procure a comfortable existence in their native country, the scene of their halcyon days of infancy, will rarely be tempted to renounce habits, friends, and relations, to embark in what must always be attended with hazard, and encounter the in- separable hardships of a primitive establishment. This accounts for the scarcity of capital in newly-settled colonies; and is one reason why it bears so high a rate of interest there. In point of fact, capital is of much more rapid accumulation in new colonies, than in countries long civilized. It would seem as if the colonists, in abandoning their native country, leave behind them part of their vicious propensities; they cer- tainly carry with them little of that fondness for show, that costs so dear in Europe, and brings so poor a return. No qua- lities, but those of utility, are in estimation in the country they are going to; and consumption is limited to objects of rational desire, which is sooner satisfied than artificial wants. The towns are few and small; the life of agriculturists, which they tion of returning' home. The introduction of negro labour was an after- thought. Shivery was an estabhshed practice in all the ancient world; and colonies either made prize of the indigenes, or imported slaves from abroad, as soon as they were rich enough to buy them. T. 150 ON PRODUCTION. book i. must necessarily adopt, is of all others the most economical; finally, their industry is proportionately more productive, and requires a smaller capital to work upon. The character of the colonial government usually accords with that of individuals; it is active in the execution of its du- ties, sparing of expense, and careful to avoid quarrels; thus there are few taxes, sometimes none at ; II; and, since the go- vernment takes little or nothing from the revenues of the sub- ject, his ability to multiply his savings, and consequently to enlarge his productive capital, is very great. With very little capital to begin upon, the annual produce of the colony very soon exceeds its consumption. Hence, the astonishingly rapid progress in its wealth and population; for human labour be- comes dear in proportion to the accumulation of capital; and it is a well-known maxim, that population always increases ac- cording to the demand.* With these data, there is no difficulty in explaining the causes of the rapid advance of such colonies. Among the an- cients we find, that Ephesus and Miletus in Asia Minor, Ta- rentum and Crotona in Italy, Syracuse and Agrigentum in Sicily, very soon surpassed the parent cities in wealth and consequence. The English colonies in North America, which bear the closest resemblance of any in our times to those of ancient Greece, presents a picture of prosperity less striking perhaps, but quite as deserving of notice, and still in the atti- tude of advance. It is the invariable practice of colonies, founded upon this plan, and without any thoughts of returning home, to provide themselves an independent government; and, even where the mother-country reserves the right of legislation, that right will sooner or later be dissolved by the operation of natural causes, and matters be brought to that footing, on which justice and regard to its real interest should have prompted her to put them originally. But, to proceed to the colonies formed upon the colonial system of the moderns; the founders of them were for the most part adventurers, whose object was, not to settle in an adopted country, but rapidly to amass a fortune, and return to enjoy it in their former homes, t The early adventurers of this stamp found ample gratifica- tion of their extravagant rapacity, first in the cluster of the Antilles, in Mexico and Peru, and subsequently in Brazil and in the Eastern Indies. After exhausting the resources previ- ously accumulated by the aborigines, they were compelled to * Vide infra, under the head of Population, Book II, c. 11. ■}" There have been many exceptions in North America and elsewhere. The colonies of Spain and Portu.^al in the New World were of an ambig-u- ous character. Some of the colonists contemplated a return: others went to establish themselves and their posterity; but the whole plan of them has been subverted, since the commencement of the struggle for emancipation. CHAP. XIX. ON PRODUCTION. 151 direct their industry towards discovering the mines of these new countries, and to turn to account the no less valuable pro- duce of their agriculture. Successive swarms of new colonists poured in from time to time, animated for the most part with some hope of return, with the desire, not of living in affluence upon the land they cultivated, and leaving behind them a con- tented posterity and a spotless name, byt of making inordinate gain to be afterwards enjoyed elsewhere: this motive led them to adopt a system of compulsory cultivation, of which negro slavery was the principal instrument. But let me ask, in what manner does slavery operate upon production? Is the labour of the slave less costly, than that of the free labourer? This is an important inquiry, originating in the influence of the modern system of colonization upon the multiplication of wealth. Stewart, Turgot, and Smith, all agree in thinking, that the labour of the slave is dearer and less productive than that of the freeman, — Their arguments amount to this: a man, that neither works nor consumes on his own account, works as lit- tle and consumes as much as he can: he has no interest in the exertion of that degree of care and intelligence, which alone can ensure success: his life is shortened by excessive labour, and his master must replace it at great expense: besides, the free workman looks after his own support; but that of the slave must be attended to by the master; and, as it is impossible for the master to do it so economically as the free workman, the labour of the slave must cost him dearer.* This position has been controverted by the following calcu- lation: — The annual expense of a negro in the West Indies, upon the plantations most humanely administered, does not exceed 300 yr. : add the interest of his prime cost, say at ten per cent, for it is a life interest; the average price of a negro is about 2000 /r., so that, allowing 200 fr. for the annual in- terest, the whole expense of a negro to his owner is but 500 fr. per annum, (a) a sum doubtless much inferior to the charge of free labour in that part of the world. An ordinary free la- bourer may earn there 5, 6, 1 fr. per day, or even more. Taking the medium of & Jr., and reckoning but 300 working * Stewart (Sir Jas.) Inquiry into the Frin. of Pol. Econ. book ii. c. 607". Turgot. Reflexions sur la Formation et la Distribution des Richesses, § 23. Smitli. Wealth of Nations, book i. c. 8. book iii. c. 2. (a) In this calculation no account has been taken of the housing of the negro, the tools and implements supphed to him, or the clothing furnished by the master; neither does our author seem to make any allowance for the probable increase of agricultural production, which free negro labour might afford. Free European labour would doubtless be far more expensive, were it practicable. The interest of money is also estimated far too low, and the infant and the aged must be provided for by the master. T. 152 ON PRODUCTION. book i. days in the year, the annual wages will amount to ISOOyr. in- stead of 500. * Common sense will tell us, that the consumption of a slave must be less than that of a free workman. The master cares not if his slave enjoy life, provided he do but live; a pair of trowsers and a jacket are the whole wardrobe of the negro: his lodging a bare hut, and his food the manioc root, to which kind masters now and then add a little dried fish. A popula- tion of free workmen, taken one with another, has women, children, and invalids to support: the ties of consanguinity, friendship, love, and gratitude, all contribute to multiply con- sumption; whereas, the slave owner is often relieved by the effects of fatigue from the maintenance of the veteran: the ten- der age and sex enjoy little exemption from labour; and even the soft impulse of sexual attraction is subject to the avaricious calculations of the master. What is the motive, which operates in every man's breast to counteract the impulse towards the gratification of his wants and appetites? Doubtless, the providential care of the future. Human wants and appetites have a tendency to extend, — fru- gality to reduce consumption; and it is easy to conceive, that these opposite motives, working in the mind of the same in- dividual, help to counteract each other. But, where there is master and slave, the balance must needs incline to the side of frugality; the wants and appetites operate upon the weaker par- ty, and the motive of frugality upon the stronger. It is a well known fact, that the net produce of an estate in St. Domingo cleared off the whole purchase-money in six years; whereas in Europe the net produce seldom exceeds the -^-^ or -Jg- of the purchase money, and sometimes falls far short even of that. Smith himself elsewhere tells us that the planters of the English islands admit that the rum and molasses will defray the whole expenses of a sugar plantation, leaving the total produce of sugar as net proceeds: which, as he justly observes, is much the same as if our farmers were to pay their rent and expenses with the straw only, and to make a clear profit of all the grain. Now I ask, how many products are there, that ex- ceed the expenses of production in the same degree?(a) * It should be observed here, that the free labourers, who are so much better paid, are commonly engaged in occupations, which, though less la- borious, require a greater degree of intelUgence and personal skill. Tailors and watchmakers are generally free men. And the mere existence of slavery of itself enhances the price of free field-labour, by driving all com- petition out of the market. (fl) What reference can this inequality have to the relative position of the proprietor and the different productive agents one to another? It is a mere question of difference of interest of capital. Capital in the West Indies brings a return very different, in its ratio to rent or the profit of land, from what it yields in Europe. Land, the source of production, sells cheap, CHAP. XIX. ON PRODUCTION. 153 Indeed, this very exorbitance of profit shows, that the in- dustry of the master is paid out of all proportion with that of the slave. To the consumer it makes no difference. One of the productive classes benefits by the depression of the rest; and that would be all, were it not that the vicious system of production, resulting from this derangement, opposes the in- troduction of a better plan of industry. The slave and the master are both degraded beings, incapable of approximating to the perfection of industry, and, by their contagion, degrad- ing the industry of the free man, who has no slaves at his com- mand. For labour can never be honourable, or even respecta- ble, where it is executed by an inferior cast. The forced and unnatural superiority of the master over the slave is exhibited in the ajSectation of lordl)^ indolence and inactivity: and the faculties of mind are debased in equal degree; the place of in- telligence is usurped by violence and brutality. I have been told by travellers of veracity and observation, that they consider all progress in the arts in Brazil and other settlements of America as utterly hopeless, while slavery shall continue to be tolerated. Those states of the North American. Union, which have prescribed slavery, are making the largest strides towards national prosperity. ' The inhabitants of the slave states of Georgia and Carolina raise the best cotton in the world, but can not work it up. During the last war with England, they were obliged to send it overland to New York to be spun into yarn. The same cotton is sent back at a vast expense to be consumed at the place of its original growth in a manufactured state.(a) This is a just retribution for the toleration of a practice, by which one part of mankind is made to labour, and subjected to the severest privation, for the benefit of another. Policy is in this point in accordance with humanity.(6) It remains yet to be explained, what are the consequences because of the greater unhealthiness of climate, insecurity of tenure, abun- dance, &c. &c. T. (a) So it is now from Hindustan, where labour is free and most abundant. Cotton will flow towards machinery, which has become too powerful for the competition of human labour, even where it is the cheapest. That is, there- fore, not the effect of the toleration of slavery in those states. T. (b) Therefore our author has come to this correct conclusion, his reason- ing is neither logical nor satisfactory; indeed, the whole of this important subject is dismissed with a precipitation little suited to its importance. There are two motives of human industry, the hope of enjoyment, and the fear of suff'ering. The slave is actuated principally by the latter, the free agent by the former. Neither of these motives should have been thus cur- sorily adverted to, in the analysis of actual production, but have been fairly set forth in the outset, immediately after the detail of the sources of pro- duction; being both of them the stimuli, which give activity to those sources. After all that our author and others have done, much yet remains for the organization of the science. T. 27 154 GN PRODUCTION. book i. of the commercial intercourse between the colony and the mo- ther country, in regard to production; always taking it for granted, that the colony continues in a state of dependence, for the moment it shakes off the yoke, it has nothing colonial but its origin, and stands in relation to the mother-country, on exactly the same footing as any other nation on the globe. The parent-state, with a view to secure to the produce of its own soil and industry the market of colonial consumption, generally prohibits the colonist from purchasing European commodities from any one else, which enables her own mer- chants to sell their goods in the colony for somewhat more than they are currently worth. This is a benefit conferred on the subjects of the parent-state at the expense of the colonists, who are likewise its subjects. Considering the mother-coun- try and the colony to be integral parts of one and the same state, the profit and loss balance each other; and this restric- tion is nugatory, except inasmuch as it entails the charge of an establishment of custom or excise-officers; and thus increases the national expenditure. While, on the one hand, the colonists are obliged to buy of the mother-country, they are, on the other, compelled to sell their colonial produce exclusively to its merchants, who thus obtain an extra advantage without any creation of value, at the expense, likewise, of the colonists, by the enjoyment of an exclusive privilege, and of exemption from competition. Here, too, the profit and loss destroy each other nationally, but not individually; what a merchant of Havre or Bourdeaux gains in this way is substantial profit; but it is taken from the pockets of one or more subjects of the same state, who had equal right to have their interests attended to. It is true, in- deed, that the colonists are indemnified in another way; viz, either by the miseries of the slave population, as we have al- ready explained; or by the privations of the inhabitants of the mother country, as I am about to show. So completely is the whole system built upon compulsion, restriction, and monopoly, that these very domestic consumers are compelled to buy what colonial articles of consumption they require exclusively from the national colonies; every other colony, and all the rest of the world, being denied the liberty of importing colonial* produce, or subjected to the pay- ment of a heavy fine, in the shape of an import duty. It would seem, that the home-consumer should at any rate derive an obvious benefit, in the price of colonial produce, from his exclusive right of purchasing of the colonist. But even this unjust preference is denied him; for, as soon as the produce arrives in Europe, the home-merchant is allowed to re-export and sell it where he chooses, and particularly to those nations, that have no colonies of their own; so that after * Or equinoctial; the term is applied to the ordinary products of equi< noctial latitudes. CHAP. XIX. ON PRODUCTION. 155 all the planter is deprived of the competition of buyers, al- though the home-consumer is made to suffer its full effect. All these losses fall chiefly upon the class of home-consumers, a class of all others the most important in point of number, and deserving of attention on account of the wide diffusion of the evils of any vicious system affecting it, as well as of the functions it performs in every part of the social machine, and the taxes it contributes to the public purse, wherein consists the power of the government. They may be divided into two parts; whereof the one is absorbed in the superfluous charges of raising the colonial produce, which might be got cheaper elsewhere;* this is a dead loss to the consumer, without gain to any body. The other part, which is also paid by the con- sumer, goes to make the fortunes of West-Indian planters and merchants. The wealth thus acquired is the produce of a real tax upon the people, although, being centred in few hands, it is apt to dazzle the eyes, and be mistaken for wealth of colo- nial and cominercial acquisition. And it is for the protection of this imaginary advantage, that almost all the wars of the 18th century have been undertaken, and that the European states have thought themselves obliged to keep up, at a vast expense, civil and judicial, as well as marine and military, es- tablishments, at the opposite extremities of the globe.t When Poivre was appointed governor of the Isle of France, the colony had not been planted more than 50 years; yet he calculated it to have then cost France no less than 60 millions of Jr.; to be a source of regular and large out-going; and to bring her no return of any kind whatsoever.^ It is true, that the * Poivre, a writer of great information and probity, assures us, that white sugar of the best quality is sold in Cochin China, at the rate of 3 piastres or 16 fi: of our money per quintal of the country, which is equal to 150 livr. poids de marc, little more than 2 sous per Uvr.\ and that more tlian 80 millions o? livr. are thence exported annually to China at that rate. Add- ing 300 per cent, for the charges and profits of trade, which is a most li- beral allowance, the sugar of Cochin Cliina might, under a free trade, be sold in France at from 8 to 9 sous per Uvr. The English already derive from Asia a considerable quantity both of sugar and indigo, at a cheaper rate than those of the West Indies. And, doubtless, if the Europeans were to plant i)idependent and industrious co- lonies along the northern coast of Africa, the culture of equinoctial products there would rapidly gain ground, and supply Europe in greater abundance at a still cheaper rate. ■\ Arthur Young, in 1789, estimated the annual charge entailed on France, by the possession of St. Domingo, at 48 millions of francs. He has gone into detail to prove, that, if the sums spent on her colonies for 25 years only had been devoted to the improvement of any one of her own provinces, she would have acquired an annual addition of 120 millions o? francs, net revenue, consisting of actual products, without loss to any body. Vide his Journey in France. ^ (Etivres de Poivre, p. 209. In this estimate he takes no account of the charge of the military and marine establishment (A' France herself, of which a part should be set down to the colony. 156 ON PRODUCTION. book i. money spent on the defence of that settlement had the further object of upholding our other possessions in the East Indies; but, when we find that these latter were still more expensive both to the government and to the proprietors of the two com- panies, old and new, it is impossible to deny, that all we gain- ed by keeping the Mauritius at this enormous expense was, the opportunity of a further waste in Bengal and on the coast of Coromandel, The same observations will apply to such of our possessions in other parts of the world, as were of no importance, but in a military point of view. Should it be pretended, that these stations are kept up at a great sacrifice, not with the object of gain, but to extend and affirm the power of the mother-coun- try, it might yet be asked, why maintain them at such loss, since this power has no other object but the preservation of the colonies, which turn out to be themselves a losing con- cern?* That England has benefited immensely by the loss of her North American colonies, is a fact no one has attempted to deny.t Yet she spent the incredible sum of 1,800,000,000/r., in attempting to retain possession; a monstrous error in policy indeed; for she might have enjoyed the same benefits, that is to say, have emancipated her colonies, without expending a sixpence; besides saving a profusion of gallant blood, and gain- ing credit for generosity, in the eyes of Europe and of pos- terity. X * Vide the works of Benjamin Franklin, vol. ii, p. 60., for the opinion of that celebrated man, who had so much experience in these matters. I find it stated in the Travels of Lord Valentia, that the Cape of Good Hope, in 1802, cost England an access of from six to seven millions of francs per an- num above its own revenue. ■j- " Bristol was one of the chief entrepots of North American commerce. Her principal mei'chants and inhabitants joined in a most energetic repre- sentation to parliament, that their city would be infallibly ruined, by the ac- knowledgment of American Independence; adding, that their port would be so deserted, as not to be worth the charge of keeping up. Notwithstand- ing their representations, peace became amatter of necessity, and the dread- ed separation was consented to. Ten years had scarcely elapsed after this event, when the same worthy' persons petitioned the parliament, for leave to enlarge and deepen the port, which, instead of being deserted, as they had apprehended, was incapable of receiving the influx of additional ship- ping, that the commerce of independent America had given birth to." l)e Levis, Lettres Chinoises. ^ These remarks are not altogether applicable to the British dependen- cies in the East; because there tlie nation is rather a conqueror than a colo- nist, having the domination over thirty-two millions of inhabitants, and the absolute disposal of the revenue levied upon them. But the clear national profit derived from the acquisition, is by no means so considerable, as may be generally supposed; for the charges of administration and protection must be deducted. Colquhoun, in his Treatise on the V/ealth, Poiver, and Re- sources of the British Empire, which gives an exaggerated picture of themj CHAP. XIX. ON PRODUCTION. 157 The blunders committed by the ministers of George III., during the whole course of the first American war, in which, indeed, they were unhappily abetted, by the corruption of the parliament and the pride of the nation, were imitated by Na- Eoleon, in his attempt to reduce the revolted negroes of St. lomingo. Nothing but its distance and maritime position prevented that scheme from proving equally disastrous with the war of Spain. Yet, comparatively, the independence of that fine island might have been made equally productive of commercial benefit to France, as that of America had been to England.* It is high time to drop our absurd lamentations states the total revenue of the sovereign company, at 18,051,478/. sterling; and its expenditure at, 16,984,271/. ; leaving a surplus of 1,067,207/. (a) In all probability, were India in a state of national independence, the commerce between her and Great Britain would increase so much, as to produce to the latter an additional revenue, larger than the amount of that surplus, to say nothing of the increase of individual profits. * When I speak of the advantage of American emancipation to Great Bri- tain herself, I mean commercial, not political advantage. I know veiy well, that the latter is doomed to fall, and that by the instrumentality of her re- volted offspring. But this catastrophe will not have originated in the strug- gle for colonial independence: but in the insubstantial and perishable basis of British, and in the solidity and progressive character of American great- ness. (5) National power, resting upon dominion by land or sea, can never be permanent; because it arrays against itself the interests and passions of mankind: and it is utterly impossible, that any nation should henceforward enjoy external sway, so extensive, or so longlived as that of the Romans; knowledge is too far advanced; the means of resistance too well understood, and mutual intercourse too general and too free. (a) The position of the British power in India, has been every way im- proved by the late operations; for an account of which, and of the present financialresourcesof the company, vide Narrative of the late Operations, by H. T. Prinsep. It is by no means clear, that the independence of India would, at present, produce the advantages anticipated by our author; for those advantages would depend upon its better administration, to which the natives are at present hardly competent. T. (h) Our author seems here and elsewhere, to dwell with some satisfaction on the prospect of the pohtical degradation of Great Britain. But he for- gets, that the same productive povver, which lias raised her to pre-eminence, may still uphold her, if properly directed. The sources of her greatness are natural means, operated upon by her domestic industry: her external sway is rather the index of the existence and amount, than the essence of her superiority. Neither is the basis of American greatness quite so sub- stantial as he seems to imagine. In shoi't, every nation has in itself the seeds of wealtli and improvement, as well as of decay and impoverishment. Britain has industry, intelligence, and capital; her bane is heavy debt and taxation, aggravated by a poor-law system. America has industry and ter- ritorial extent; but she has negro-slavery, a more formidable source of mis- chief than any one of Britain's scourges. The southern states, which are now cultivated by negroes, will one day probably be the scene of negro dominion, and a thorn in the side of the giant republic. The sources of na- tional prosperity or decay, may be checked or stimulated, re-opened or de- stroyed by human agency. Our author reckons with too much confidence 158 ON PRODUCTION. book 2, for the loss of our colonies, considered as a source of national prosperity. For, in the first place, France now enjoys a greater degree of prosperity, than while she retained her colonies; witness the increase of her population. Before the revolution, her revenues could maintain but twenty-five millions of peo- ple: they now support thirty millions, (1819.) In the second place, the first principles of political economy will teach us, that the loss of colonies by no means implies a loss of the trade with them. Wherewith did France before buy the colonial products? with her own domestic products to be sure. Has she not since continued to buy them in the same way, though sometimes of a neutral, or even an enemy? I admit, that the ignorance and vices of her rulers for the time being have made her pay for those products much dearer, than she need have done; but now that she buys them at the natural price, (exclusive of course, of the import duties,) and pays for them as before with her domestic products, in what way is she a loser? Political convulsions have given a new direction to commerce; the import of sugar and cofiee is no longer confined to Nantes and Bordeaux; and those cities have suffered in consequence. But, as France now consumes at least as much of those articles as ever she did, all, that has not come by the way of Nantes or Bordeaux, must needs have found its way in some other channel. France can not have bought in any other way, than, as'of old, with the products of her own land, capital, and industry, for, excepting robbery and piracy, one nation has no other means of buying of another. Indeed, France might have benefited largely by the trade, which has supplanted her own colonial commerce, had not old prejudices and erroneous notions constantly opposed the natural current of human affairs. Perhaps it may be argued, that the colonies furnish commo- dities, which are no where else to be had. The nation, there- fore, that should have no share of territories so highly favoured by nature, would lie at the mercy of the nation, that should first get possession; for the monopoly of purchasing the colo- nial produce would enable her to exact her own price from her less fortunate neighbour. Now it is proved beyond all doubt, that what we erroneously call colonial produce, grows every where within the tropics, where the soil is adapted to its cultivation. The spices of the Moluccas are found to answer at Cayenne, and probably by this time in many other places; and no monopoly was ever more complete, than the trade of the Dutch in that commodity. They had sole pos- session of the only spice islands, and allowed nobody else to upon the perpetuation of ministerial folly and corruption; and, to say the truth, both the experience of the past, and the observation of the present, fully warrant him in so doing. But the progress of intelligence in the na- tion, may enforce the tardy acquiescence of authority. T. CHAP. XIX. ON PRODUCTION. 159 approach them. Has Europe been in any want of spices, or has she bought them for their weight in gold? Have we any reason to regret the not having devoted two hundred years of war, fought a score of naval battles, and sacrificed some hun- dreds of millions, and the lives of half a million of our fellow creatures, for the paltry object of getting our pepper and cloves cheaper by some two or three sous a pound? And this example, it is worth while to observe, is the most favoura- ble one for the colonial system, that could possibly be selected. One can hardly imagine the possibility of monopolizing sugar, a staple product of most parts of Asia, Africa, and America, so completely as the Dutch did the spice trade; yet has this very trade been snatched from the avaricious grasp of the mo- nopolist nation, almost without firing a shot. The ancients, by their system of colonization, made them- selves friends all over the known world; the moderns have sought to make subjects, and therefore have made enemies. Governors, deputed by the mother-country, feel not the slight- est interest in the diffusion of happiness and real wealth amongst a people, with whom they do not propose to spend their lives, to sink into privacy and retirement, or to conciliate popularity. They know their consideration in the mother- country will depend upon the fortune they return with, not upon their behaviour in office. Add to this the large discre- tionary power, that must unavoidably be vested in the depu- ted rulers of distant possessions, and there will be every in- gredient towards the composition of a truly detestable govern- ment. It is to be feared, that men in power, like the rest of man- kind, are too little disposed to moderation, too slow in their intellectual progress, embarrassed as it is at every step by the unceasing manoeuvres of innumerable retainers, civil, military, financial, and commercial; all impelled, by interested motives, to present things in false colours, and involve the simplest questions in obscurity, to allow any reasonable hope of accele- rating the downfall of a system, which for the last three or four hundred years must have wonderfully abridged the ines- timable benefits, that mankind at large, in all the five great di- visions of the globe,* have, or ought to have derived from the rapid progress of discovery, and the prodigious impulse given to human industry since the commencement of the sixteenth century. The silent advances of intelligence, and the irre- sistible tide of human affairs will alone effect its subversion. * The vast continent of New Holland, with its suiToiinding' islands, is now g-enevally considered by geographers as a distinct portion of the globe, un- der the denomination of Australia or Austrasia, which has been given to it on account of its position exclusively v.ithin tlie southern hemisphere. ON PRODUCTION. book i. CHAPTER XX. OF TEMPORARY AND PERMANENT EMIGRATION CONSIDERED IN REFERENCE TO NATIONAL WEALTH. When a traveller arrives in France, and there spends 10,000 //"., it must not be supposed that the whole sum is clear profit to France. The traveller expends it in exchange for the values he consumes: the effect is just the same, as if he had remained abroad, and sent to France for what he wanted, in- stead of coming and consuming it here; and is precisely simi- lar to that of international commerce, in which the profit made is not the whole or principal value received, but a larger or smaller per centage upon that principal, according to the cir- cumstances. The matter has not hitherto been viewed in this light. In the firm conviction of this maxim, that metal-money was the only item of real wealth, people imagined, that, if a foreigner came amongst them with 10,000 fr. in his pocket, it was so much clear profit to the nation: as if the tailor that clothes him, the jeweller that furnishes him with trinkets, the victu- aller that feeds him, gave him no values in exchange for his specie, but made a profit equal to the total of their respective charges. All that the nation gains is, the profit upon its deal- ing with him, and upon what he purchases: and this is by no means contemptible, for every extension of commerce is a pro- portionate advantage;* but it is well to know its real amount, that we may not be betrayed into the folly of purchasing it too dearly. An eminent writer upon commercial topics, tells us, that theatrical exhibitions can not be too grand, too splendid, or too numerous; for that they are a kind of traffic, wherein France receives all and pays nothing; a proposition which is the very reverse of truth; for France pays, that is to say, loses, the whole expense of the exhibition, which is productive of nothing but barren amusement, and leaves no value whatever to replace what has been consumed on it. Fetes of thiSjde- scription may be very pleasant things as affording amusen|43it, • A strange country lias some advantages over the traveller, and its dealings with him may be considered as lucrative; for his ignorance of the language and of prices, and often a spice of vanity, make him pay for most of the objects of his consumption above the current rate. Besides, the public sights and exhibitions, which he there pays for seeing, are expenses already incurred by the nation, which he nowise aggravates by his pre- sence. But these advantages, though real and positive, are very limited in amount, and must not be over-rated. CHAP. XX. ON PRODUCTION. 161 but must make a ridiculous figure as a speculation of profit and loss. What would people think of a tradesman, that was to give a ball in his shop, hire performers, and hand refreshments about, with a view to benefit in his business? Besides it may reasonably be doubted, whether a fete or exhibition of the most splendid kind, does in reality occasion any considerable influx of foreigners. Such an influx would be much more powerfully attracted by commerce, or by rich fragments of antiquity, or by master-pieces of art nowhere else to be seen, or by superiority of climate, or by the properties of medicinal waters, or, most of all, by the desire of visiting the scenes of memorable events, and of learning a language of extensive ac- ceptation. I am strongly inclined to believe, that the enjoy- ment of a few empty pleasures of vanity has never attracted much company from any great distance. People may go a few leagues to a ball or entertainment, but will seldom make a journey for the purpose. It is extremely improbable, that the vast number of Germans, English, and Italians, who visit the capital of France in time of peace, are actuated solely by the desire of seeing the French opera at Paris. That city has fortunately many worthier objects of general curiosity. In Spain, the bull-fights are considered very curious and attrac- tive; yet I can not think many Frenchmen have gone all the way to Madrid to witness that diversion. Foreigners, that have already come into the country on other accounts, are in- deed frequent spectators of such exhibitions; but it was not solely with this object that they first set out upon their journey, (a) Ca) This has become a matter of some interest to England, whose un- productive capitaUsts and proprietors have absohitely overwhelmed the society of France and a great part of Itaty, where they consume an im- mense revenue, derived from Britain by the export of her manufactures without any return. Thus their native country is, pro tanto, a producer without being a consumer; — the scene of exertion but not of enjoyment. — This circumstance, although nowise prejudicial to her productive powers, is extremely so to the comfort and enjo_yment and content of her popula- tion; for there are few enjoyments so personal and selfish, as not to be dif- fused in some degree or other at the moment and place of consumption. — Besides, the presence of the propi'ietor is always a benefit, especially in Great Britain, where so many public duties are gratuitously performed. — Ireland suffers in a worse degree; her gentry are attracted by England as well as the continent; and the consequences have long been matter of re- gret and complaint. Though it m.ight be impolitic to check the efflux by authoritative measures, it should at least not be directly encouraged and stimulated, as it really is, by the financial system, which the English minis- try so obstinately persevere in. Almost the whole of the taxation is thrown immediately upon consumption; whilst the permanent sources of production and the clear rent they yield to the idle proprietor are left untouched. — The proprietor has, therefore, an obvious interest, in effecting his con- sumption where it is least burthened '.vith taxation; that is to say, any where but in England. His property is protected gratuitously, and the charge of its protection defrayed by the ])roductive classes, who thus are 28 162 ON PRODUCTION. book r. The vaunted fetes of Louis XIV, had a still more mis- chievous tendency. The sums spent upon them were not sup- plied by foreigners, but by French provincial visiters, who often spent in a week, as much as would have maintained their families at home for a year. So that France was two ways a loser; first, of the sums expended by the monarch, which had been levied on the subjects at large; secondly, of all that was spent by individuals. The sum total of the consumption was thrown away, that a few tradesmen of the metropolis might make their profits upon it; which they would equally have done, had their industry and capital taken a more beneficial direction. A stranger, that comes into a country to settle there, and brings his fortune along with him, is a substantial acquisition to the nation. There is in this case an accession of two sources of wealth, industry and capital: an accession of full as much value, as the acquirement of a proportionate extension of ter- ritory; to say nothing of what is gained in a moral estimate, if the emigrant bring with him private virtue and attachment to the place of his adoption. "When Frederick William came into the regency," says the royal historian of the house of Brandenburgh, " there was in the country no manufacture of hats, of stockings, of serge, or woollen stuff of any kind. All these commodities were derived from French industry. The French emigrants introduced amongst us the making of broadcloths, baizes and lighter woollens, of caps, of stockings wove in the frame, of hats of beaver and felt, as well as dyeing in all its branches. Some refugees of that nation established themselves in trade, and retailed the products of their indus- trious countrymen. Berlin soon could boast of its goldsmiths, jewellers, watch-makers, and carvers; those of the emigrants, that settled in the low country, introduced the cultivation of tobacco, and of garden fruits and vegetables, and by their ex- ertions converted the sandy tract in the environs into capital kitchen-garden grounds." This emigration of industry, capital, and local attachment, is no less a dead and total loss to the country thus abandoned, than it is a clear gain to the country affording an asylum. It was justly observed by Christina, queen of Sweden, upon the revocation of the edict of Nantes, that Louis XIV. had used his right hand to cut off his left. Nor can the calamity be prevented by any measures of legal compelled to pay for the secimt_v of other people's property as well as their own, and are themselves unable to imitate their unproductive country- men, by running away from domestic taxation. A more unjust and dis- couraging- system could not have been devised. Its evils are daily increas- ing, and threaten the most serious diminution of the national resources- — But the ministers neither see the mischief themselves, nor will listen to the warnings of others. Many of them, indeed, have an interest in perpetuating an exemption, by wliich they benefit personally. T. CHAP. XX. ON PRODUCTION. 16S coercion. A fellow-citizen can not be forcibly retained, unless he be absolutely incarcerated; still less can he be prevented from exporting his moveable property, if he be so inclined. For, putting out of the question the channel of contraband, which can never be closed altogether, he may convert his effects into goods, whose export is tolerated or even encourag- ed, and consign, or cause them to be consigned, to some cor- respondent abroad. This export is a real outgoing of value: but how is it possible for government to ascertain, that it is intended to be followed by no return?* The best mode of retaining and attracting mankind is, to treat them with justice and benevolence; to protect every one in the enjoyment of the rights he regards with the highest reverence; to allow the free disposition of person and proper- ty, the liberty of continuing or changing his residence, of speaking, reading, and writing in perfect security, {a) Having thus investigated the means of production, and point- ed out the circumstances, that render their agency more or less prolific, it would be endless, as well as foreign to my sub- ject, to attempt a general review of all the various products, that compose the wealth of mankind: such a task would furnish materials for many distinct treatises. But there is one amongst these products, the uses and nature of which are very imper- fectly known, although the knowledge of them would throw much light upon the matter now under discussion: for which reason I have determined, before the conclusion of this part of my work, to give a separate consideration to the product, • In 1790, when the new authorities of France indemnified the holders of suppressed offices in paper-money^ these discarded functionaries for the most part converted their assigndts into specie, or other commodities of equal value, which they took or sent out of the country. The consequent national loss to France was nearly as great, as if they had received their indemnities in cash; for its paper representative had not then suffered any material depreciation. Even when the individual remains himself in the countiy, he can not be prevented from transferring liis fortune tiience, if iie be determined upon so doing. (a) England enjoys all these in a higher degree than any country in Europe; yet they are all more than counterbalanced by the severity and iniquity of taxation, as appears by the large efflux of all the classes not re- tained by local ties. Taxation under a free government may prove equally harassing with the oppression of a despotic one. But it ma}^ be doubted, whether Englishmen would in such numbers exchange the tyranny of taxa- tion for the inferior liberty of foreign society, were they not actually more fiwoured abroad, and allowed a greater license, than even the native popu- lation. At all events, the English government has the power of turning the tide, and bringing back the majority of the fugitives, by changing the form of its taxation, and transferring its pressure from floating to fixed pro-- perty, which can not emigrate: in short by relieving consumption, and tax- ing the clear revenue of the appropriated sources of produetion. Vidt $uprd, note {u) p. 230. T. 164 ON PRODUCTION. book i. money, which acts so prominent a part in the business of pro- duction, in the character of the principal agent of exchange and transfer. CHAPTER XXI. OF THE NATURE AND USES OF MONEY- SECTION T. General Reinarks. In a society ever so little advanced in civilization, no single individual produces all that is necessary to satisfy his own wants; and it is rarely that an individual, by his single exer- tion, creates even any single product; but even if he does, his wants are not limited to that single article; they are numerous and various, and he must, therefore, procure all other objects of his personal consumption, by exchanging the overplus of the single product he himself creates beyond his own wants, for such other products as he stands in need of. And, by the way, it is observable, that, since individual producers, in every line, keep for their own use but a very small part of their own products; the gardener, of the vegetables he raises, the baker, of the bread he bakes, the shoemaker of the shoes he makes, and so of all others; the great bulk, nay almost the whole of the products of every community, arrive at consump- tion by the medium of exchange. This is the reason, why it has been erroneously concluded, that exchange and transfer are the basis and origin of the pro- duction of wealth, and of commerce in particular: whereas they are only secondary and accessary circumstances; inas- much as, were each family to raise the whole of the objects of its own consumption, as we see practised in some instances in the back settlements of the United States, society might con- tinue to exist, without a single act of exchange or transfer. I make this remark, merely with a view to correctness of first principles, without any design to detract from the importance of exchange and transfer to the progressive advance of pro- duction; indeed, I set out with the position, that they are in- dispensable in an advanced stage of civilization. Admitting, then, the necessity of interchange, let us pause a moment, and consider, what infinite confusion and difiiculty CHAP. XXI. ON PRODUCTION. 163 must arise to all the difi'erent component members of society, who are for the most part producers of but a single article, or two or three at the utmost, but of whom even the poorest is a consumer of a vast number of different products; 1 say, what difficulty must ensue, were every one obliged to exchange his own products specifically for those he may want; and were the whole of this process carried on by a barter in kind. The hungry cutler must offer the baker his knives for bread; per- haps, the baker has knives enough, but wants a coat; he is willing to purchase one of the tailor with his bread, but the tailor wants not bread, but butcher's meat; and so on to infinity. By way of getting over this difficulty, the cutler, finding he can not persuade the baker to take an article he does not want, will use his best endeavours to have a commodity to ofi'er, which the baker will be able readily to exchange again for whatever he may happen to need. If there exist in the socie- ty any specific commodity that is in req^uest, not merely on account of his inherent utility, but likev/ise on account of the readiness with which it is received in exchange for the neces- sary items of consumption, and the facility of proportionate subdivision, that commodity is precisely what the cutler will try to barter his knives for; because he has learnt from experi- ence, that its possession will procure him without any diffi- culty by a second act of exchange, bread or any other article he may wish for. Now money is precisely that commodity. The two qualities, that give a general preference of value, in the shape of the current money of the country to the same amount of value in any other shape, are: — 1. The aptitude, in the character of an intermedial object of exchange, to help all who have any exchange or any purchase to make, that is to say, every member of the community, to- wards the specific object of desire. The general confidence, that money is a commodity acceptable to every body, inspires the assurance of being able, by one act of exchange only, to procure the immediate object of desire, whatever it may be; whereas, the possessor of any other commodity can never be sure, that it will be acceptable to the possessor of that particu- lar object of desire. 2. The capability of subdivision and precise apportionment to the amount of the intended purchase; which capability is a recommendation to all, who have purchases to make; in other words, to every member of the community. Every one is, therefore, anxious to barter for money the product whereof he holds a superfluity, and which is commonly that he himself produces; because, in addition to the other quality above stated, he feels sure of being able to buy with its value in that shape as small or as large a portion of corresponding value, as he may require; and because he may buy, whenever and wlier- ever he pleases, such objects as he may desire to have in lieu of the product he has sold originally. 166 ON PRODUCTION. book i. In a very advanced stage of civilization, when individual wants have become various and numerous, and productive operations very much subdivided, exchanges become a matter of more urgent necessity, as well as much more frequent and more complicated; and personal consumption and barter in kind becomes less practicable. For instance, if a man makes not the whole knife, but the handle of it only, as in fact is the case in towns where cutlery is conducted on a large scale, he does not produce any thing that he can turn to account; for what could he do with the handle without the blade? He can not himself consume the smallest part of his own product, but must unavoidably exchange the whole of it for the necessa- ries or conveniences of life, for bread, meat, linen, &c. But neither baker, butcher, nor weaver, can ever stand in need of an article, that is fit for nobody but the finishing cutler, who can not himself give either bread or meat in exchange; because he produces neither; and who must, therefore, give some one commodity, that, b)^ the custom of the country, may be expect- ed to pass currently in exchange for most others. Thus, money is the more requisite, the more civilized a na- tion is, and the further it has carried the division of ]abour.(a) Yet history contains precedents of considerable states, in which the use of any specific article, as money, was utterly unknown; as we are told it was among the Mexicans at the time of the discovery. We are infonned, that, just about the period of their conquest by the Spanish adventurers, they were begin- ning to employ the cocoa-nut as money, in the smaller trans- actions of commerce.*(l) I have referred to custom, and not to the authority of go- vernment, the choice of the particular article that is to act as money in preference to every other: for though a government may coin what it pleases to call crowns, it does not oblige the subject to give his goods in exchange for these crowns, at least not where property is at all respected. Nor is it the mere impression, that makes people consent to take this coin in ex- change for other products. Money passes current like any • Raynal. Hist. pJdl. et. pol. lib. vi. (a) The utility of money is intense, in the compound ratio of the division of labour and the variety of individual consumption. A sugar colony in the West Indies, though highly productive in proportion to its population, requires little money to facilitate the transfer of the produce; because the bulk of the population, the negroes, have very little variety of consump- tion: the}- are fed, clothed, &c. in the wholesale, and in the plainest and most unifoiTO manner. Yet, possibly, the division both of agricultural and manufacturing labour on each plantation may ba carried to considerable length. T. (1) [Not the cocoa-nut, but grains ofmeao. This, however, is the eiTor of the translator.] Aiisbii.'an Editou. CHAP. XXI. ON PRODUCTION. 167 other commodity; and people may at liberty barter one arti- cle for another in kind, or for gold in bars, or silver bullion. The sole reason why a man elects to receive the coin in pre- ference to every other article, is, because he has learnt from experience, that it is preferred by those, whose products he has occasion to purchase. Crown pieces derive their circula- tion as money from no other authority than this spontaneous preference: and if there were the least ground for supposing, that any other commodity, as wheat, for instance, would pass more currently in exchange for what they calculate upon wanting themselves, people would not give their goods for crown pieces, but would demand wheat, which would then be invested with all the properties of money. And this has oc- curred occasionally in practice, where the authorized or go- vernment money has consisted of paper destitute of credit or public confidence. Custom, therefore, and not the mandate of authority, desig- nates the specific product that shall pass exclusively as money, whether crown pieces or any other commodity whatever.* The more frequent recurrence of the exchange of every in- dividual product for the commodity, money, than for any other product, has attached particular names to this transac- tion; thus, to receive money in exchange is called, selling, and to give it, buying. In this way originated the use of money. These positions are by no means purel)' speculative; for on them must all ar- guments, and laws, and regulations, on the subject of money, be grounded. A system built upon any other foundation can possess neither beauty nor solidity, and must fail to fulfil the object of its construction. With the view of throwing the utmost possible light upon the essential properties of money, and the principal contin- gencies it is subject to, 1 shall treat of these particulars in se- parate sections, and endeavour to enable such, as may give me their attention, to follow with ease the chain of connection, notwithstanding that classification; and themselves to arrange in one comprehensive view the whole play of the mechanism, and the causes of that derangement, which human folly or mis- fortune may occasionally effect. • When the intercourse between the Ein-opeans and the negroes of the river Gambia first commenced, tiie commodity most in request with them was iron, for the purposes of war and of tillage. Iron, therefore, became tlie standard of comparison of value. In a little time, it became a luere nominal standard in their mercantile dealings; and a bar of tobacco, consist- ing of 20 or 30 leaves of that herb, was given for a bar of rum, consisting of four or five pints, according to the abundance or scarcity of the article. In such a state of society, each- product successively performs the func- tions of money, in reference to all other products; which lea^■es the commu- nity subject to all the inconveniences of barter in kind, the chief of which is, the inability to offer any one article in general request and accepta- tion, and capable of ready apportionment in amount to other commodities at large. Vide Travels of Mungo Park, vol. i, c. 2. 168 ON PRODUCTION. book i. SECTION n. Of the Material of Money. If, as it would appear by the reasoning in the preceding section, money be employed as a mere intermedial object of exchange between an object in possession and the object of desire, the choice of its material is of no great importance. Money is not desired as an object of food, of household use, or of personal covering, but for the purpose of re-sale, as it were, and re-exchange for some object of utility, after having been originally received in exchange for one such already. Money is, therefore, not an object of consumption; it passes through the hands without sensible diminution or injury; and may perform its office equally well, whether its material be gold or silver, leather or paper. Yet, to enable it to execute its functions, it must of necessity be possessed of inherent and positive value; for no man will be content to resign an object possessed of value, in exchange for another of less value, or of none at all. There are some other less essential requisites, which add to its efficiency. A material, wherein these are not combined, is unfit for the purpose, and can not hope to engross its functions .either generally or permanently. We are told by Homer, that the armour of Diomede had cost nine oxen. A warrior, that wished to arm himself at half the price, must have been puzzled to pay four oxen and a half. Wherefore, the article employed as money must be ca- pable of being readily and without injury apportioned to the different objects of desire, and subdivided in such manner, as to admit of exchanges of the exact amount required. Again, we read, that in Abyssinia, they make use of salt for money. If the same custom prevailed in France, a man must take a mountain of salt to market to pay for his weekly pro- visions. Wherefore, the commodity employed as money must not be so abundant, as to make it necessary to transfer a large quantity, on each recurring act of exchange. At Newfoundland, it is said, that dried cod performs the office of money; and Smith makes mention of a village in Scot- land, where nails are made use of for that purpose.* Besides many other inconveniences, that substances of this nature are subject to, there is this grand objection, that the quantity may be enlarged almost at pleasure, and in a very short space of time, and thereby a vast fluctuation effected in their relative * Wealth of Nations, book i. c. 4. CHAP. xxr. ON PRODUCTION. 16.9 value. But who would readily accept in exchange an article, that might perhaps, in a few moments lose the half or three- fourths of its value? Wherefore, the commodity employed as money must be of such difficult acquisition, as to ensure those who take it from the danger of sudden depreciation. In the Maldive Islands, and in some parts of India and Afri- ca, shells, called cowries, are employed as money, although they have no intrinsic value, except that they serve for orna- ment to some rude tribes. This kind of money would never do for nations that carry on trade with many parts of the globe; a medium of exchange of such very limited circulation would offer insuperable objections. It is natural for people to receive most willingly in exchange that article, which is the most uni- versally received in like manner by other people in their turn. We need not, then, be surprised, that almost all the commer- cial nations of the world should have selected metal to perform the office of money; when once the more industrious and com- mercial communities had declared their choice, all the rest had an evident inducement to follow their example. At times, when the metals now most abundantly produced were yet rare, people were content to make use of them for the purpose. The legal currency of Lacedsemon was of iron; that of the early Romans of copper. In proportion as those metals were extracted from the earth in greater quantity, they became liable to the objection above stated in respect to all products of too little comparative* value; and it is long since the precious metals, that is to say, gold and silver, have been almost universally adopted. To this use they are particularly applicable: 1. As being divisible into extremely minute portions, and capable of re-union, without any sensible loss of weight or value; so that the quantity may be easily apportioned to the value of the article of purchase. 2. The precious metals have a sameness of quality all over the world. One grain of pure gold is exactly similar to ano- ther, whether it came from the mines of Europe or of America, or from the sands of Africa. Time, weather, and damp, have no power to alter the quality; the relative weight of any speci- fic portion, therefore, determines at once its relative quantity and value to every other portion: two grains of gold are worth exactly twice as much as one. 3. Gold and silver, especially with the mixture of alloy, that they admit of, are hard enough to resist very considera- ble friction, and are therefore fitted for rapid circulation, * The money of Lacedxinon is a proof of tlie position, that public autho- rity is competent of itself to give currency to its money. The laws of Ly- curgtis du'ected the money to be made of iron, purposely to prevent its be- ing easily hoarded, or transferred in large quantities; but they were inopera- tive, because they went to defeat these, the principal purposes of money. Yet no legislator was ever more rigidly obeyed than Lycurgus. 2.9 170 ON PRODUCTION. book i. though, indeed, in this respect, they are inferior to many kinds of precious stones. 4. Their rarity and consequent dearness is not so great that the quantity of gold or of silver, equivalent to the generality of goods, is too minute for ordinary perception; nor, on the other hand, are they so abundant and cheap, as to make a large value amount to a great weight. It is possible, that, in progress of time, they may become liable to objection on this score; es- pecially if new and rich veins of ore should be discovered: and then mankind must have recourse to platina,orsome other yet unknown metal, for the purposes of currency. Lastly, gold and silver are capable of receiving a stamp or impression, certifying the weight of the piece, and the degree of its purity. Although the precious metals used for money have generally some mixture of baser metal, generally of copper, by way of alloy, the value of the baser metal, thus incorporated, is reck- oned for nothing. Not that the alloy is itself destitute of value; but because the operation of disuniting it from the purer metal, would cost more than it would be worth, after it was extracted. For this reason, a piece of coined gold or sil- ver, mixed with alloy, is estimated by the quantity of precious metal only contained in it* SECTION III. Of the Accession of Value a Commodity receives by being vested with the character of Tnoney. Fkom the foregoing sections it will appear, that money is in- debted for its currency, not to the authority of the government, but to its being a commodity bearing a peculiar and intrinsic value. But its preference, as an object of exchange, to all other commodities of equivalent value, is owing to its charac- teristic properties as money; and to the peculiar advantage it derives from its employinent in that character; namely, the advantage of being in universal use and request. The whole population, from the lowest degree of poverty to the highest * The present silver coin of France contains one part copper, to nine parts fine silver: the relative value of copper to silver being as 1 to 60, or thereabouts. So that the copper contained in the whole silver coinage, amounts to about 1-600 of the total value of the silver coin, or 1 cent, in & fr. Supposing it were attempted to disengage the copper, it would not pay the expenses of the process of separation; to say nothing of the value of the impression, that must be destroyed. Wherefore, it is reckoned for nothing in the valuation of the coin. A piece of 5/r. presents the idea of the 22 1-2 grammes of fine silver contained in it, though actually weighing 25 gr., in- clusive of the alloy. CHAP. XXI. ON PRODUCTION. 171 of wealth, must effect exchanges, must buy tlie objects of want, must be consumers of money; or, in other words, must obtain possession of the commodity, that acts as the medium of ex- change, the commodity generally admitted to be best suited, and most frequently employed for that purpose. A man that has any other commodity, jewels for instance, to ofier in ex- change for the necessaries or luxuries he may have occasion for, can not get those necessaries or luxuries by the process of exchange, until he has found a consumer for his jewels; nor can he even then be sure, that such a consumer will be able to give him, in return, the very identical article he may want: whereas, a man, with money in his pocket, is quite certain, that it will be acceptable to the person, of whom he would buy any thing; because that person will, in turn, be himself obliged to become a purchaser in like manner. * With the com- modity, money, he can obtain all he wants by a single act of exchange only, called a purchase; whereas, with all others tvvo acts at least are necessary; a sale and a purchase. This is the sum total of its advantages in the character of money: but it must be obvious to every body, that the preference, thus shown it as money, is a consequence of its actual use as such. I must here observe, that the adoption of any specific com- modity to serve as money considerably augments its intrinsic value, or value as an article of commerce. A new use being discovered for the commodity, it unavoidably becomes more in request; the employment of a great part, the half or perhaps three-fourths of the whole stock of it on hand, in this new way can not fail to render the whole more scarce and dear, (a) Were the actually existing stock of silver and gold applied to other use, than the fabrication of plate or ornaments, the quantity would be abundant and much cheaper than it is at present; that is to say, whenever they were exchanged for other commodities, more of them would be given or received in proportion to the value obtained in exchange. But a large portion of these metals being destined to act as money, and ex- clusively occupied in that way, there is less remaining to be manufactured into jewellery and plate, and the scarcity of course adds to the value. On the other hand, if they were never used in plate or jewellery, there would be more of them applicable to the purpose of money, and money would grow cheaper, that is to say, more of it would be necessary to pur- chase an equal quantity of goods. The employment of the * The other property of money, the capability of subdivision, and appor- tionment of the value parted with, must not be lost sight of: by it the jew- eller is enabled to exchange a minute portion of his precious commodity for the smallest item of his household expenditure. (a) This point has been well observed upon by Tm^got liejl. sur hi Form, et Distrih. des Rich. 172 ON PRODUCTION. book i. precious metals in manufacture makes them scarcer and dearer as money; in like manner as their employment as money makes them scarcer and dearer in manufacture. * Hence it naturally follows, that these metals being, by rea- son of their employment as money, raised to such a price, as f)recludes their so general use in the form of plate and jewel- ery, it is in consequence found less convenient to use them in that form. The luxury costs more than it is worth. Thus, massive gold plate has gone completely out of fashion, particu- larly in those countries, where the activity of commerce, and the rapid progress of wealth, make gold in great demand for the purposes of money. The richest individuals content them- selves with gilt plate, that is to say, plate covered with a very thin coat of gold; solid gold is used only in smaller articles of manufacture, and those in which the value of the workman- ship exceeds that of the metal. In England, plate is made very light, and people of affluence often content themselves with silver-plated goods. The ostentation of displaying a large service of that metal costs the interest of a considerable capital. The increase of the value of metals is, generally speaking, attended with some disadvantages; inasmuch as it places many articles of comfort and convenience, silver dishes, spoons, &c., beyond the reach of most private families; but there is no dis- advantage in such increased value of the metal in its character of money; on the contrary, there is a greater convenience in the transfer of a less bulky commodity, on every change of residence, and every act of exchange. The selection of any commodity, to act as money in but one part of the world, increases its value every where else. — There is no doubt, that, if silver should cease to be current as money in Asia, the value of that metal in Europe would be affected, and more of it would be given in exchange for all other commodities: for one use of silver in Europe is, the pos- sibility of exporting it to Asia. The employment of the precious metals as money by no means renders their value stationary; they remain subject to * Ricardo and some other writers maintain, that the charges of obtaining the metal wholly determine its price or relative value in exchange for all other commodities. According to their notions, therefore, the want or de- mand nowise influences that price; a position indirect contradiction to daily and indisputable experience, which leads us invariably to the conclusion, that value is increased by increase of demand. Supposing that, by the dis- coveiy of new mines, silver were to become as common as copper, it would be subject to all the disqualifications of copper for the purposes of money, and gold would be more generally employed. The consequent increase of the demand for gold would increase tlie intensity of its value; and mines would be worked, that are now abandoned, because they do not defray the expense. It is true, that the ore would then be obtained at a heavier rate; but will any one deny, that the increased value of the metal would be owing to the increased demand for it ? It is the increased intensity of that demand, that determines the miner to incur the increased charge of production. CHAP. XXI. ON PRODUCTION. 173 local as well as temporary fluctuations of value, like every other object of commerce. In China, half an ounce of silver will purchase as many objects of use or pleasure as an ounce in France; and an ounce of silver in France will generally ^o much farther in the purchase of commodities, than it will in America. Silver is more valuable in China than in France, and in France than in America. Thus money, or specie, as some people call it, is a commo- dity, whose value is determined by the same general rules, as that of all other commodities; that is to say, rises and falls in proportion to the relative demand and supply. And so in- tense is that demand, as to have sometimes been sufficient to make paper, employed as money, equal in value to gold of the same denomination; of which the money of Great Britain is a present example. It must not be imagined, that the paper-money of that coun- try derives its value from the promise of payment in specie, which it purports to convey. That promise has been held out ever since the suspension of cash payments by the Bank in 1797, without any attempt at performance, which many peo- ple consider impossible.* Gold is only procurable piece-meal, and by payment of an agio or per centage; in other words, by giving a larger amount in paper for a smaller amount in gold. Yet the paper, though depreciated, is invested with value far exceeding that of its flimsy material. Whence, then, is that value derived? From the urgent want, in a very ad- vanced stage of society and of industry, of some agent or me- dium of exchange. England, in its actual state, requires, for the effectuation of its sales and purchases, an agent or medium equal in value, say to 1,284,000 lbs. weight of gold; or, what is the same thing, to 1,200,000,000 lbs. weight of sugar; or, what is still the same thing, to 60,000,0001. sterling of paper, taking the Bank of England paper at 30 millions and the paper of the country Banks at as much more, faj This is the * Before the Bank of England can pay off its notes in cash, the govern- ment, its principal debtor, must discharge its debts in specie; which it can not do, unless it purchase the specie, either with its savings, or with the proceeds of further taxation. In doing so, it would, in effect, substitute a new and very costly engine of circulation, which must be purchased by the state, for the present one, which, although much out of order, and altogether destitute of intrinsic value, is yet made to do the business well enough. faJ It must not be supposed, that our author is ignorant of the wide dif- ference between Bank of England and country bank paper, viz: that the one is paper money, the principal; the other, its convertible representa- tive. This position is perfectly correct. The credit, embodied, as it were, in the provincial paper, is equally an agent of circulation with the inconvertible principal, the paper-money; which, but for its presence and rivalry, would be required in double the quantity, to maintain the same 174 ON PRODUCTION. book i, reason, why the 60 millions of paper, though destitute of in- trinsic value, are, by the mere want of a medium of exchange, made equal in value to 1,284,000 lbs. weight of gold, or 1,200,000,000 lbs, weight of sugar. As a proof, that this paper has a peculiar and inherent value, when its credit was the same as at present, and its volume or nominal amount was enlarged, its value fell in proportion to the enlargement, just like that of any other commodity. — And, as all other commodities rose in price, in proportion to the depreciation of the paper, its total value never exceeded the same amount of 1,284,000 lbs. weight of gold, or, 1,200,000,000 lbs. weight of sugar. Why? Because the busi- ness of circulating all the values of England required no larger value. No government has the power of increasing the total national money otherwise than nominally. The increased quantity of the whole reduces the value of every part; and vice versa. * Since the national money, whatever be its material, must have a peculiar and inherent value, originating in its employ- ment in that character, it forms an item of national wealth, in the same manner as sugar, indigo, wheat, and all the other commodities that the nation may happen to possess.! It fluc- tuates in value like other commodities; and like them too is consumed, though less rapidly than most of them. Where- fore, it would be wrong to subscribe to the opinion of Gar- nier {a), who lays it down as a maxim, that, " so long as silver remains in the shape of money, it is not an item of actual wealth in the strict sense of the word; for it does not directly and immediately satisfy a want, or procure an enjoyment." There are abundance of values incapable of satisfying a want, or procuring an enjoyment in their present existing shape. — A merchant may have his warehouse full of indigo, which is of no use in its actual state, either as food or as clothing; yet it is nevertheless an item of wealth, and one that can be con- verted at will, into another value fit for immediate use. Sil- * For the consequence of an excessive issue of paper-mone}'', vide infrci. Chap. 22, sect. 4., where the subject of paper-itioney is discussed. f The multiphcation of a paper-money, and its consequent depreciation, effects no augmentation of the wealth of the community, altliough it makes necessary a more hbei'al use of figures in the estimation; just in the same way as its valuation in wheat instead of silver would do. The total of na- tional wealth might be 20,000,000,000 kilogr. of wheat, and but 25,000,000 kilogr. of silver, and yet the value precisely the same. If the value of the money be less intense, it will require more of it to express the same degree of value. scale of money -prices. Great confusion has hitherto prevailed on this sub- ject, for want of a clear conception of the concurrent operation of money and its rival, credit. T. CaJ Gamier de Saintes, translator of the Wealth of Nations. CHAP. XII. ON PRODUCTION. 175 ver, in the shape of crown pieces, is, therefore, equally an ar- ticle of wealth with indigo in chests. Besides, is not the utili- ty of money an object of desire in civilized society? Indeed, the same writer elsewhere admits that, " specie in the coffers of an individual is real wealth, an integral part of his substance, which he may immediately devote to his per- sonal enjoyment; although, in the eye of political economy, this same coin is a mere instrument of exchange, essentially differing from the wealth it helps to circulate."* I hope what I have said is quite sufficient to show the complete analogy of specie to all other items of wealth. Whatever is wealth to an individual, is wealth to the nation, which is but an aggregate of many individuals; and is wealth also in the eye of political economy, which must not be misled by the notion of imaginary value, or regard as value any thing, but what all the members of the community, individually, as well as jointly, treat as value, not nominal, but actual. And this is one proof more, that there are not two kinds of truth in this, more than in any other science. What is true to an individual, is true to the government, and to the community. Truth is uniform; in the application only can there be any variety. SECTION ly. Of the Utility of Coinage, and of the Charge of its Exe- cution. No mention has hitherto been made of the value, that money derives from the impression and coinage. I have merely pointed out the various utility of gold and silver as articles of commerce, wherein originates their value; and considered their fitness to act as money, as part of that utility. Wherever gold and silver act as money, they must of course be constantly passing from hand to hand. Most people buy or sell several times a day; judge, then, what inconvenience must ensue, were it necessary to be always provided with scales to weigh the money paid or received; and what infinite blunders and disputes must arise from awkwardness or defec- tive implements. Nor is this all; gold and silver can be com- pounded with other metals without any visible alteration. The degree of purity can not be exactly ascertained, without a de- licate and complex chemical process. The transactions of ex- change are wonderfully facilitated, when the weight and stand- ard of each piece of money is denoted by an impression, that nobody can mistake. * Mrege des Frincipes d'Ewnomie Fublique, 1 re partie, c. 4., and the advertisement prefixed. 176 ON PRODUCTION. book i. Metals are reduced to an established standard, and divided into pieces of an established weight, by the art of coining. The government of each state usually reserves to itself the exclusive exercise of this branch of manufacture; whether with a view of gaining somewhat more by the monopoly, than it could, if every body were at liberty to practise it, or to hold out to the subjects a more solid security, than any private manufacturer could offer, which is more frequently the motive. In fact, though governments have too often broken faith in this particular, their guarantee is still preferred by the people to that of individuals, both for the sake of uniformity in the coin, and because there would probably be more dijEculty in detecting the frauds of private issuers. The coinage unquestionably adds a value to the metal coin- ed; that is to say, a lump of silver, wrought into a 5fr. piece, is better than an equal weight of bullion of like standard; and for a very simple reason. The fashion given to the metal saves the person, that takes it in course of exchange, all the charges of weighing and assaying, among which the loss of time and labour must be reckoned; just in the same manner, as a coat ready made is worth more than the materials it is to be made of. Even if the business of coining were open to all the world, and government confined itself to fixing the stand- ard, the weight, and the impression, that each piece should possess, still the holders of bullion would find it answer to pay a premium to the coiner, for coining their bullion into money; otherwise, they would have some difficulty in efiecting an ex- change, and would, perhaps, lose more on the exchange, than it would cost to have the bullion converted into coin. But the additional value, thus communicated to the precious metals by the coinage, must not be confounded with that, which bullion, as an article of trade, receive from the circum- stance of its employment as money. The latter attaches upon the whole stock of gold and silver in existence, a silver tank- ard is of greater'value, because that metal is employed as money, whereas, the additional value accruing from the coinage is pe- culiar to the specific portion coined, in like manner as the fashion is peculiar to the goblet; and is wholly independent of the value, that the commodity, silver, derives from its various utility. In England, the whole expense of coinage is defrayed by the government; the same weight of guineas is delivered at the mint in return for a like weight of bullion of the legal standard. The nation, in quality of consumer of money, is gratuitously presented with the charges of coining, which are levied by taxation upon them in their other character of payers of taxes. Yet gold, in the shape of guineas, has an evident advantage over bullion; not that of being ready weighed, for people are often at the pains of re-weighing, but that of being ready assayed. Consequently, it has happened sometimes, that bul- lion has been carried to the mint, not to be converted into coin, CHAP. XXI. ON PRODUCTION. 177 but merely to have the standard ascertained, and certified to the foreign or domestic purchaser.(a) For guineas are a better article of export than bullion, inasmuch as bullion, bearing the certificate of assay, is preferable to bullion without any such certificate. On the contrary, for the purposes of importation into England, gold bullion answers every purpose of guineas ready coined, and is of just the same value, weight and stand- ard being alike; for the mint makes no charge for converting the bullion into coin. Foreigners have, in fact, an object in keeping back the guineas, which have already received the certificate of assay, and remitting bullion to England to obtain a like gratuitous certificate. This system, therefore, makes it an object to export the coined metal, but holds out no encou- ragement to its reimportation.* The mischief is somewhat palliated by an accidental circum- stance, which never entered into the calculation of the legisla- ture. There is no other mint in England, but that of the me- tropolis, which is so completely overloaded with business, that it can not re-deliver the metal coined till many weeks, and often months, after it is brought for coinage, t The conse- * It is hardly necessary to repeat, that the specie exported is not so much value lost to the communit}'; for nobody will feel inclined to make a present of it to the foreigner. Its value is transmitted, for the purpose of obtaining a coiTesponding value in return; but the nation loses the value of the coin- age in this operation. When guineas are exported from England, she re- ceives in exchange the value of the metal only, and nothing for the impres- sion it bears. (/;) f Wealth of Nations, book i. c. 5. (c) (a) That is to say, to receive the certificate of coinage, for use, not in the character of money, but as an article of commerce. The assay is charged for at the English mint, upon bullion re-delivered without coinage. And, before the export of coin was made free, the risk was probably equal to the value of the certificate conferred by coinage. These remarks apply to the coinage of gold only, silver being now subject to a seignorage of 45 in 66s. But silver is no longer the material of the metallic money, except for mi- nute and fractional exchanges. T. (&) This is hardly true to the full extent. The Spanish dollars pass cur- rent in many countries at a considerable advance on bullion of equal weight and fineness, and constitute the legal currency of some communi- ties, that have not undertaken the business of coinage themselves; as in Ha3'ti, and elsewhere. The difference is the local value of the coinage, which is paid for sometimes very liberally. But to whom is it paid? to the Spanish individual or to the Spanish government. If to the former, it is an undue advantage to the individual at the expense of the community; if to the latter, it is the recompense of productive agency. Were the gold coin- age of England subject to a seignorage like the silver, it would never be exported habitually, but to such nations, as were content to pay the extra value of the coinage. Indeed, our author presently says in express terms, that the value of the coinage is not always lost on exportation. T. (c) The practice has fluctuated since Smith's time, but the principle is invariable. T. 30 178 ON PRODUCTION. book i, quence is, that the owner, who leaves his bullion to be coined, loses the interest of its value during the whole time it remains in the mint. This operates as a small tax on coinage, and raises the value of the coin somewhat above that of bullion. For it is manifest, that the value would be exactly the same, if bullion and guineas were taken without distinction, weight for weight. So much for the effect of the English regulations on this head. All the other governments of Europe, if 1 mistake not, derive from the coinage a revenue more than equal to the charges of the process.* The exclusive privilege of issuing money which they have most properly engrossed, together with the severe penalties denounced againstprivate coiners, would enable them to raise the profit of the business very high, by the limitation of their issues; for the value of money, like that of every thing else, is always in the direct ratio to the demand, and in the in- verse ratio to the supply. In fact, when silver in the shape of coin is so rare and dear, that QO Jr. in coin will purchase the weight of 100 /r. of equal fineness in the shape of bullion, it is an indication, that the public attaches the same value to 9oz. of coined, as to lOoz. of uncoined metal. Wherefore, the government can, by its coin- age, in such case, give to 9 Jr. the value of 10 Jr., and make a profit of 10 per cent. But, if the coin become more abundant, and more of it be necessary in exchange for bullion, it may perhaps be necessary to give 95 fr. in coin for the weight of 100 yr. in bullion: in which latter case, the government can make a profit of no more than 5 per cent., upon the purchase and conversion of bullion into coin. If, in the latter case, the government, with a view to in- crease the ratio of its profit, instead of purchashig bullion it- self, were simply to charge a seignorage, say of 10 per cent, upon the bullion brought to the mint for coinage, none at all would be brought for that purpose by individuals, who would have to pay 10 per cent, for an operation, which added 5 per cent only to the value of the metal. Thus, the mint would have nothing to coin either on public or private account; and the government would find a high ratio of profit incompa- tible with an extended amount of coinage. • One of my German translators, the learned Professor Mwstadt, of Hei- delberg-, has observed upon this passage, that since 1810, the Russian g-o- vernnient has made no charge for the coinage. It might with equal reason execute gratuitously the business of letter-carriage, instead of charging for it to the individuals. I am periiaps incorrect in saying, that most governments make a profit over and above the expense of execution. The French government charges a seignorage, equal at most to defray the expense of the mere process. But the interest and wear and tear of the capital vested in buildings, machinery, &c. and the charge of administration, &c. are so much dead loss to the go- vernment; and probably many other governments are in the same predica- ment. CHAP. XXI. ON PRODUCTION. 179 Whence it may be concluded, that the duty or seignorage upon coinage, which has been so frequently discussed, is an absolute nullity; for that governments can not fix their own ratio of profit upon the execution of the coinage, but that it must depend upon the state of the bullion market, which again is regulated by the relative supplies of coined and uncoined metal, and the demand for them at the time being. It is to be observed, that, to the public at large, in its ca- pacity of consumer of coined bullion, it is a matter of perfect indifference, whether the coin be dear or cheap; for, so long as its value is not subject to sudden fluctuations, it will pass current for as much as it has been taken for. When the coinage of money is not executed gratuitously, and especially when it is paid for at a monopoly-price, it is a matter of perfect indifference to the state, whether or not its coin be melted down or exported; for it can neither be melted down nor exported, without having first paid the coinage in full, which is all that is lost by melting or exportation.* On the con- trary, the export of such coin is quite as advantageous, as that of any other manufactured commodity whatever, it is a branch of the bullion trade; and, unquestionably, a coin, so well exe- cuted as to be difficult to counterfeit, accurate in the weight and assay, and charged with a moderate duty on the coinage, may acquire a currency in different parts of the world, and yield the government, that issues it, a profit of no contempti- ble amount. Witness the gold ducats of Holland, which are in request throughout all the north of Europe at a higher rate than their intrinsic value as bullion; and the dollars of Spain, which are all coined at Lima and Mexico, and have been executed with so much regularity and integrity, as to pass current as money not only all over Spanish America, but likewise in the United States and in several parts of Europe, Africa, and Asia.t The Spanish dollar is a remarkable instance of the value at- tached to the metal by the process of coinage. When the Americans of the Union determined upon a national coinage of dollars, they contented themselves with simply re-stamping those of the Spanish mint, without varying their weight or standard. But the piece thus re-stamped would not pass cur- rent with the Chinese, and other Asiatics, at the same rate; 100 dollars of the United States would not purchase so much of other commodities as 100 dollars of Spain. The American Executive, nevertheless, continued to deteriorate the coin by giving it a handsome impression, apparently wishing to avail * The value of the coinage, or fashion of the metal, is not always lost in the export. The impression is, to a certain degree, a recommendation be- yond the limits of the authority which executes it, and raises the value somewhat higher, than that of bullion in bars. ■j- The 5 /»•. pieces of France, have by their invariable uniformity of weight and standard since their first issue, acquired a similar currency in many parts of the world. 180 ON PRODUCTION. book i. itself of this method of checking the export of specie to Asia. For this purpose it was directed, that all exports of specie should be made in dollars of its own coinage, hoping in this way to make the exporters give a preference to the domestic products of its own territory. Thus, after wantonly depre- ciating the Spanish dollar, without prejudice, it is true, to the specie remaining current within the territory of the Union, it went on further to enjoin its use in the least profitable way, viz. in the commercial intercourse with those nations, that set the least value on it. The natural course would have been, to suffer the value exported to go out of the country in the form, that might offer the prospect of the largest returns. Self-interest might have been safely relied on in this par- ticular. (1) But what are we to think of the wisdom of the Spanish go- vernment, which was enabled, by the confidence in its good faith in the execution of its coinage, to export dollars with a profit, and sell them abroad at an advance upon their intrinsic value; and yet thought fit to prohibit so advantageous a traffic, which would have furnished a vent to a product of the national soil, worked up by domestic industry for an ample recom« pense? Though a government be the exclusive coiner of money, and is by no means bound to coin gratuitously, it can not with justice deduct the expense of coinage from its payments, in discharge of its own contracts. If it has engaged to pay a million, say for supplies advanced, it can not honestly say to the contractor: " We bargained to pay a million, but we pay you in specie just coined; and therefore shall deduct 20,000/r., more or less, for the charges of coinage.^' In fact, all pecu- niary engagements, contracted by government or individuals, virtually imply a promise to pay a given sum, not in bullion but in coin. The act of exchange, wherein the bargain origi- nated, is effected with the implied condition, on behalf of one of the contracting parties, to give a commodity somewhat more valuable than silver bullion; namely, silver in crown pieces, or coin of some denomination or other. The virtual contract of government is to pay in coined money; and since, in consequence of that implied condition, it obtains a greater quantity of goods, than it will, if the bargain be to pay in bul- (1) This paragraph contains three eiTors in relation to the coinage of dollars by the United States, and the exportation of specie, v/hich it is of im- portance to point out: 1st. Spanish dollars art not, and never have been, simply re-stamped at our mint, without varying- their weight or standaivi: 2d. A pound, Troy, of Spanish dollars, contains 10oz.l5dvvts. of fine silver: A pound, Troy, of American dollars contains lOoz. 14d\vts. 5 grains of fine silver: 3d. No law has ever been enacted by Congress, directing the ex- portation of specie to be made in dollai's of our own coinage; nor has the executive the power to regulate, or in any manner interfere with the exporta- tion of specie from the United States. Ameeicast Editor. CHAP. XXI. ON PRODUCTION. 181 lion. In this instance, it offers the charge of coinage into the bargain at the time of concluding the contract, and thereby obtains better terms, than if it is in the habit of paying in bul- lion. The charges of coinage should be deducted from the metal brought to the mint to be coined, at the time of its re-delivery in a coined state. These considerations lead us to the necessary conclusions, — that the manufacture of bullion into coin increases the value of the metal, in the ratio of the additional convenience result- ing to the community, from the circumstance of coinage, and not an item further, whatever charges or duties the state may attempt to saddle it with;* that a government, by monopo- lizing the business of coining, may make a profit to the whole extent of this accession of value; that it can not possibly ad- vance this profit any further, in its discharge of engagements, fairly and freely entered into; and that it can not do so with regard to prior engagements, without committing an act of partial bankruptcy. Moreover, it is evident, that, in all dealings between indivi- duals, the public authority has still less power, by means of the impression of its die, to make the commodity, acting as money, pass for more than its intrinsic value, plus the value added by the fashion it receives. Vain will be any enact- ment, that the stamp impressed shall give to an ounce of sil- ver a specific or determinate value; it will never buy more goods, than an ounce of silver, bearing that impression, is worth at the time being. SECTION V. Of JUterations of the Standard Money. The first thing to be observed on this head is, that the pub- lic authority has generally taken upon itself to fix arbitrarily the commodity, that shall serve as money. This assumption, on its part, has little inconvenience in itself; for the interests of the nation and of the ruling power happen to be exactly the same. Should a government attempt to force an ill-adapted medium into circulation, it would sustain a loss itself on every bargain, and the people would, by degrees, adopt some other * In Spanish America, a hig-hei' duty is charged, amounting according to Humboldt to 11 1-2 per cent, on silver, and 3 per cent, on gold, over and above the actual charges of coinage; for the government allows no bullion to be exported in an uncoined state. So that, in fact, this is not a seignor- age, but a duty on exportation, exacted at the time of converting the bul- lion into coin. 182 ON PRODUCTION. book i, medium. Thus, the first issue of coined money among the Romans was their King Numa, and his coinage was of copper, which at that time of day was the properest metal for the pur- pose; for, before the time of Numa, the Romans knew no other money but copper in bars. On the same principle, modern governments have made choice of gold and silver, which would undoubtedly have been selected by the general accord of in- dividuals, without the interference of their rulers. But the sovereign power, being firmly persuaded, that its mandate was necessary and competent to invest any commo- dity whatever with the currency of money, succeeded in im- pressing its subjects with the same notion during the darker ages, and 'that too at the very time, that individuals, with a view to personal interest, were acting upon principles diame- trically opposite; for, whoever was dissatisfied with the au- thorized money, either abstained from selling altogether, or disposed of his goods in some other way. This error led to another of much more serious mischief, that has overset all order whatever. The public authority persuaded itself, that it could raise or depress the value of money at pleasure; and that, on every exchange of goods for money, the value of the goods adjusted itself to the imaginary value, which it pleased authority to affix to it, and not to the value naturally attached to the agent of exchange, money, by the conflicting influence of demand and supply. Thus, when Philip I. of France, adulterated the livre of Charlemagne, containing 12oz, of fine silver,* and mixed with it a third part alloy, but still continued to call it a livre, though containing but 8oz. of fine silver, he was nevertheless fully persuaded, that his adulterated livre was worth quite as much as the livre of his predecessors. Yet, it was really worth 1-3 less than the livre of Charlemagne. A livre in coin would purchase but 2-3 of what it had done before. However, the creditors of the monarch, and of individuals, got paid but 2-3 of their just claims; land-owners received from their tenants but 2-3 of their former revenue, till the renewal of leases placed matters on a more equitable footing. Abundance of injustice was committed and authorized: but, after all, it was impossible to make 8oz. of fine silver equal to 12. t * The measure of weight called a livre contained 12oz. in the time of Charlemagne. ■j- According to the principles established suprd Sect. 3. of this Chapter, there is reason to beheve, that the value of tlie adulterated livre of 8oz. of fine silver might have been kept up to that of the old livre of 12oz., if the volume of the coin had not been augmented. But the rise of money- prices, consequent upon the adulteration of the coin, is a ground of pre- sumption, that the government, with a view to profit by this monetary operation, ordered a re-coinage, and made 12 pieces out of 8, by the addi- tion of alloy, so as to increase the total quantity proportionately to the re- duction of the standard of quality. CHAP. XXI. ON PRODUCTION. 1S3 In the year 1113, the livre, as it was still called, contained no more than 6oz. of fine silver. At the commencement of the reign of Louis VII. it had been reduced to 4oz. St. Louis gave the name of livre to a quantity of silver weighing but 2oz. 6 gros. 6 grains.* At the era of the French revolution, the money bearing that name weighed only the 1-6 of an oz. ; so that it had been reduced to 1-72 of its original standard of weight or quality in the days of Charlemagne. I take no notice, at present, of the great fall experienced in the relative value of fine silver to commodities at large, which has been reduced so low as 1-4 of its former amount; but this is foreign to the subject of the present section, and I shall take occasion to speak of it hereafter. Thus the term, livre tournois, has at different times been applied to very different quantities of fine silver. The altera- tion has been effected, sometimes by reducing the size and. weight of the coin bearing that denomination, sometimes by deteriorating the standard of quality, that is to say, mixing up a larger portion of alloy, and a smaller one of pure metal; and, sometimes, by raising the denomination of a specific coin; mak- ing, for instance, what was before a 2//'. piece pass under the name of one of Sfr. As no account is ever taken of any thing but the pure silver, which is the only valuable substance in silver coin, all these expedients have had a similar effect; for this reason; that they all, in fact, reduced the quantity of silver contained in what was called a livre tournois. And this is what all French writers, in compliment to the royal ordinances, have dignified by the term, raising the standard; on the ground, that the nominal value of the coin is raised by these opera- tions; which might, with much more propriety, be said to lower the standard, since the metal, which alone constitutes the money, is thereby reduced in quantity. Though the quantity of metal in the livre has been continu- ally decreasing from the days of Charlemagne till the present period, many of our monarchs have, at different times, adopted a contrary course, and advanced the weight and standard of quality, particularly since the reign of St. Louis. The mo- tives for deterioration are evident enough: it is extremely con venient to pay one's debts with less money than one borrowed. But kings are not only debtors; they are very frequently credi- tors too. In the matter of taxation, they stand precisely in the same relative position to the subject, as landlords to their tenants. Now, if every body be enabled by law to pay their debts and discharge their contracts with a less amount of silver than bargained for, the subject, of course, can pay his taxes, and the tenant his rent, with a smaller quantity of that metal. And, although the king received less silver, yet he continued * We find in the Frolegomenes of Le Blanc, 25, that the silver sol of St. Louis weighed 1 gros. 7 1-2 grains which, multiplied by 20, makes 2oz. 6 gros. 6 grains, the livre. 1S4 ON PRODUCTION. booki. to spend as much as before; for the nominal price of commodi- ties rose, in proportion to the diminution of metal in the coin. When what was before 2> fr. was declared by law to be 4yr., the government was obliged to pay ^fr. where it before paid but ^ fr. ; so that it was necessary, either to increase the old, or to impose new taxes; in other words, the government, to obtain the same quantity of fine silver, was obliged to demand a greater number of livres from the subject. This course, however, was always odious, even when it really made no difference in the real pressure of taxation, and was often quite impracticable. Recourse was, therefore, had to restoration of the coin to the higher standard. The livre being made to contain a greater weight of silver, the nation really paid more silver in paying the same number of livres.^ Thus we find, that the ameliorations of the coin commence nearly about the same period, as the establishment of permanent taxation. — Before that innovation, the monarch had no personal motive for increasing the intrinsic value of the coin he issued. It would be a great mistake to suppose, that the frequent va- riations of standard alluded to, were effected in the same clear and intelligible manner, which I have adopted to explain them. Sometimes the alteration, instead of being openly avowed, was kept secret as long as possible ;t and this attempt at conceal- ment gave occasion to the barbarous technical jargon used in this branch of manufacture. At other times, one denomina- tion of coin was altered, while the rest were left untouched; so that, at a given period, a livre, paid in one denomination, contained more silver than if it paid in another. Finally, to throw the matter in still greater obscurity, the subject was commonly forced to reckon up his accounts, sometimes in livres and sous, sometimes in crowns, and to pay in coin represent- ing neither livre, sol, nor crown, but either fractions or multi- plies of these several denominations. Princes, that resort to such pettyfogging expedients, can be viewed in no other light, than as counterfeiters armed with public authority. The injurious effect of such measures upon credit, commer- cial integrity, industry, and all the sources of prosperity, may * The same expedient was resorted to by that monster of prodigality, the Roman Emperor Heliog'abalus. The taxes of the empire were payable in specific gold coin, called aurei, and not in gold by the tale: and the em- peror, to enlarge his receipts, made a new issue of aurei, weighing as much as 24oz. each. The virtuous Alexander Severus, actuated by an opposite motive, made a considerable reduction of the weight. ■\ Philip de Valois, in his official instructions to the officers of the mint, A. D. 1350, enjoins the utmost secrecy on the subject of the purposed adulteration, even with the sanction of an oath, for the express purpose of taking in the commercial classes: directing them " to put a good face upon the matter of the course of exchange of the mark of gold, so that the in- tended adulteration might not be discovered." Many similar instances are to be met with in the reign of King John. Le Blanc, Traite Hist, des Monnaies, p. 251. OHAP. XXI. ON PRODUCTION. 185 be easily conceived; indeed, it was so serious, that, at several periods of our history, the monetary operations of the state suspended all commerce whatever. Philip le Bel drove all foreigners out of the fairs of France, by compelling them to receive his discredited coin in payment, and prohibiting the making of bargains in a coin of better credit.* Philip de Va- lois did the same thing with respect to the gold coin, and with precisely the same result. Acotemporary chroniclert informs us, that almost all foreign merchants discontinued their deal- ings with France; that the French traders themselves, ruined by the frequent altera|:ions of the coin, and the consequent uncertainty of values, withdrew to other countries; and that the rest of the king's subjects, both noble and bourgeois, were equally impoverished with the merchants; for which reason, the annalist adds simply enough, the king was not at all be- loved. The examples I have cited are taken from the monetary system of France; but similar expedients have been practised in almost every nation, ancient or modern. Popular forms of government have been equally culpable with those of a des- potic character. The Romans, during the most glorious pe- riods of the republic, effected a national bankruptcy more than once, by deteriorating the intrinsic value of their coin. In the course of the first Punic war, the as, which was originally 12 oz. of copper, was reduced to 2oz.; and, in the second Punic, was again lowered to loz. J In the year 1722, the state of Pennsylvania, which acted, in this particular, as an independent government, even before the American war, passed a law, enacting, that 1/. sterling should pass for \l. 5,s.;§ and the United States, and France also, after declaring themselves republics, have both gone still further. *'It would require a separate treatise," says Steuart, "to in- vestigate all the artifices which have been contrived to make mankind lose sight of the principles of money, in order to palliate and make this power in the sovereign to change the value of the coin appear reasonable."|| lie might have added, that such a volume would be of little practical service, and by no means prevent the speedy adoption of some new device of the same kind. The only effectual preventive would be, the exposure of the corrupt system, that engenders such abuses: were that system rendered simple and intelligible, every abuse would be detected and extinguished in the outset. * Le Blanc, Traits Hist, des Monnaies, p. 27. -j- MattJdeu Villani. 4: Montesquieu, Esprit des Lois, liv. xxii. c. 1 1. § Smith's Wealth of Nations, book ii. c. 2. II Steuart's Inquiry into the Princ. Pol. Econ. 8vo. 1805, vol.ii. p. 30G. SI 186 ON PRODUCTION. book i. And let no governments imagine, that, to strip them of the power of defrauding their subjects, is to deprive them of a valuable privilege. A system of swindling can never be long-lived, and must infallibly in the end produce much more loss than profit. The feeling of personal interest is that which soonest awakens the intellectual faculties of mankind, and sharpens the dullest apprehensions. Wherefore, in matters affecting personal interest, a government has the least chance of outwitting its subjects. Individuals are not easily duped by measures tending to procure supplies to the state in an un- der-hand manner: and although they can not guard against di- rect outrage, or breach of public faith, yet it can never long escape their penetration, however artfully disguised and con- cealed. The government will acquire a character for cunning as well as faithlessness, and will lose entirely the powerful engine of credit, which will operate with infinitely more effi- cacy, than the mere trifle that fraud can procure. Yet, even that trifle will often be wholly engrossed by the agents of government, who are sure to turn every act of injustice towards the subject to their own private advantage. ' Thus, while the government loses its credit, its agents get all the profit; and the public authority is disgraced, for no other purpose, than to enrich its menials. The real interest of a government is, to look not to fictitious, disgraceful, and destructive resources, but to such as are really prolific and inexhaustible; and one can render it no better ser- vice, than to expose and render abortive those of the former kind, and to point out to it those of the latter. The immediate consequence of a deterioration of the coin is, a proportionate reduction of all debts and obligations payable in money ; of all perpetual or redeemable rent-charges, whether upon the state or upon individuals; of all salaries, pensions, and rack-rents; in short, of all values previously expressed in money; by which reduction, the debtor gains what the credi- tor loses. It is a legal authorization of a partial bankruptcv, or compromise, by every money-debtor with his creditor, for a sum less than his fair claim, in the ratio of the diminution of precious metal in the same denomination of coin. Thus, whatever government has recourse to this expedient, is not content with giving itself an illegitimate advantage, but urges all other debtors to do so likewise. The kings of France, however, have not always allowed their subjects to reap the same advantage in their private con- cerns, which the monarch proposed to himself by the opera- tion of increasing or diminishing the quantity of metal con- tained in a particular denomination of coin. Their personal motive was, on all such occasions, to pay less, or receive more silver or gold themselves, than in honesty they ought; but they sometimes compelled individuals, notwithstanding the altera- tion, to pay and receive in the old coin, or, if in the new, at CHAP. XXI. ON PRODUCTION. 187 the current rate of exchange between the two.* This was a close copy of a Roman precedent. When that republic, in the second Punic war, reduced the as of copper from two oz. to one, the republic paid its creditors 1 as instead of two, that is to say, 50 per cent, on their claims. But private accounts were kept in denarii; and the denarius, which till then was worth 10 asses, was, by law, made to pass for 16 asses; so that individuals paid 16 asses or oz. of copper only for every dena- rius, instead of paying 20 as they should have done to fulfil their engagements, that is to say, 10 asses of 2 oz. or 20 of 1 oz. each, for every denarius. Thus, the republic paid a divi- dend of 50 per cent, only, but compelled private persons to pay one of 80 per cent. A bankruptcy, effected by deterioration of the coin, has been sometimes considered in the light of a plain and simple bankruptcy, or mere reduction of the public debt. It has been thought less injurious to the public creditor to pay him iu adulterated coin, that he again may pay over at the same rate, as he receives it, than to curtail his claim by ■?, i, or in any other proportion. Let us see how the two methods differ. In either case, the creditor is equally a loser in all his pur- chases posterior to the bankruptcy. Whether his income be abridged by one half, or whether he find himself obliged to {)ay for every thing twice as dear as before, is to him precise- y the same thing. As to all his own existing debts, he may undoubtedly get rid of them on the same terms as the public has discharged his own claim; but what ground is there for supposing, that the public creditors are always in arrear in their private ac- counts with the rest of the community? They stand in the same relation to society as all other classes; and there is every reason to believe, that the public creditors have as much owing to them by one set of individuals as they owe themselves to another; in short, that the accounts will square. Thus, the in- justice they do to their private claimants is balanced by the injury they receive; and a bankruptcy, in the shape of a de- terioration of the coin, is to them full as bad, as in any other shape. But it is attended with other serious evils, destructive of national welfare and prosperity. It occasions a violent dislocation of the money-prices of com- modities, operating in a thousand different ways, according to the particular circumstances of each respectively, and thereby disconcerting the best planned and most useful speculations, and destroying all confidence between lender and borrower. Nobody will willingly lend when he runs the risk of receiving a less sum than he has advanced; nor will any one be in a * Vide the several ordinances of Philip le Bel in 1303; of Philip de Va- lois in 1329 and 1343; of John in 1354; and of Charles VI. in 1421. 188 ON PRODUCTION. book i. hurry to borrow, if he is in danger of paying more than he gets. Capital is, consequently, diverted from productive in- vestment; and the blow, given to production by deterioration of the coin, is comm.only followed up by the still more fatal oaes of taxation upon commodities, and the establishment of a maximum of price. Nor is the effect less serious in respect to national morality. People's ideas of value are kept in a state of confusion for a length of time, during which knavery has an advantage over honest simplicity, in the conduct of pecuniary matters. More- over, robbery and spoliation are sanctioned by public practice and example; personal interest is set in opposition to integrity j and the voice of the law to the impulse of conscience. SECTION VI. Of the reason why Money is neither a Sign nor a Measure. Money would be a mere sign or representative, had it no intrinsic value of its own; but, on the contrary, whenever it is employed in sale or purcbase, its intrinsic value alone is con- sidered. When an article is sold for a 5 fr. piece, it is not the impression or the name, that is given or taken in exchange, but the quantity of silver, that is known to be contained in it. As a proof of the truth of this position, if the government were to issue crown pieces made of tin or pewter, they would not be worth so much as those of silver. Though declared by law to be of equal value, a great many more of them would be required in purchase of the same commodities; which could not happen, if they were nothing but a mere sign. Violence, ingenuity, or extraordinary political circum- stances, have sometimes kept up the current value of a money, after a reduction of its intrinsic value; but not for any length of time. Personal interest very soon finds out whether more value is paid than is received, and contrives some expedient to avoid the loss of an unequal and unfair exchange. Even when the absolute necessit}^ of iinding some medium of circulation of value obliges a government to invest with value an agent, destitute either of intrinsic value or substantial guarantee, the value, attached to the sign by this demand for a medium, is actual value, originating in utility, and makes it a substantive object of traffic. A bank of England note is of no value what- ever as a representative; for it really represents nothing, and is a mere promise without security, given by a bank, which has advanced it to the government without any security; yet this note is, by its mere utility, possessed of as positive value in England, as a piece of gold or silver. CHAP. XXI. ON PRODUCTION. 189 But a bank-note, payable on demand, is the representative, the sign, of the silver or specie, which may be had whenever it is vvanted, on presenting the note. The money or specie, which the bank ^^ives for it, is not the representative, but the thing represented. When a man sells any commodity, he exchanges it, not for a sign or representative, but for another commodity called money, which he supposes to possess a value equal to the value sold. When he buys, he does so, not with a sign or represen- tative, but with a commodity of real, substantial value, equi- valent to the value purchased. A radical error, in this particular, has given rise to another of very general prevalence. Money having been pronounced to be the sign of all values whatever, it was boldly inferred, that, in every country, the total value of the money, bank and other notes, and credit paper, is equal to the total value of all other commodities. A position, that derives some show of plausibili- ty, from the circumstance, that the relative value of money de- clines when its quantity is increased, and advances when that quantity is diminished. It is obvious, however, that the same fluctuation affects all other commodities whatever. If the vintage be twice as pro- ductive one year as it is another year, the price of wine falls to half what it was the year preceding. In like manner, one may readily concede, that, should the aggregate of circulating specie be doubled, the prices of all goods would be doubled also; in other words, twice the quantity of specie would go to the purchase of the same articles. But this consequence by no means proves, that the total value of the circulating medium is always equal to the sum total of all the other items of wealth, any more, than that the sum total of the produce of the vin- tage is equal to the totality of other values. The casual fluc- tuation in the value of silver and of wine, in the cases supposed, is the effect of a difference in quantity of these respective commodities at two different tiroes, and has nothing to do with the quantity of other commodities. It has been already remarked, that the total value of the money of any country, even with the addition to the value of all the precious metals contained in the nation under any other shape, is but an atom, compared with the gross amount of other values. Wherefore, the thing represented would exceed in value the representative; and the latter could not command the presence or possession of the former.'^' * If credit-paper be thrown into the scale, it will not help us over this difficulty. The agent of cu'culation, whether in the form of specie or of paper, can never exceed in amount the total utility vested in it. The ex- pansion of the volume of a national money, whether of metal or of paper, is sure to befollovv'ed by a proportionate dilution of its value, which disables the whole from being' equal to the purchase of a greater jiortion of commo- dities at large: and the value, devoted to the business of circulation, is al- 190 ON PRODUCTION. book i. Nor is the position of Montesquieu, that money-price de- pends upon the relative quantity of the total commodities, to that of the total money of the nation* at all better founded. What do sellers and buyers know of the existence of any other commodities, but those, that are the objects of their dealing? And what difference could such knowledge make in the de- mand and supply in respect to those particular commodities? These opinions have originated in the ignorance at once of fact and of principle. Money or specie has with more plausibility, but in reality with no better ground of truth, been pronounced to be a mea- sure of value. Value may be estimated in the way of price; but it can not be measured, that is to say, compared with a known and invariable measure of intensity, for no such mea- sure has yet been discovered. Authority, however absolute, can never succeed in fixing the general ratio of value. It may enact, that John, the owner of a sack of wheat, shall give it to Richard for 24 /r.; and so it may that John shall give his sack of wheat for nothing. This enactment will probably rob John to benefit Richard; but it can no more make 24: Jr. the exact measure of the value of a sack of wheat, than it can make a sack of wheat worth nothing, by ordering it to be given for nothing. A yard or a foot is a real measure of length; it always pre- sents to the mind the idea of the self-same degree of length. No matter in what part of the world a man may be, he is quite sure, that a man of 6 feet high in one place is as tall as a man of 6 feet high in another. When I am told that the great pyra- mid of Ghaiz6 is 100 toises square at the base, I can measure a space 100 toises square at Paris, or elsewhere, and form an exact notion of the space the pyramid will cover; but when I am told, that a camel is at Cairo worth 50 sequins, that is to say, about 2500 grammes of silver, or 500 Jr. in coin, I can form no precise notion of tlie value of the camel; because, al- though I may have every reason to believe, that 500 Jr. are worth less at Paris than at Cairo, I can not tell what may be the difference of value. The utmost, therefore, that can be done is, merely to esti- mate or reckon the relative value of commodities; in other words, to declare, that at a given time and place, one commo- dity is worth more or less than another: their positive value it is impossible to determine. A house may be said to be worth 20,000//*.; but what idea does that sum present to the mind? The idea of whatever I can purchase witn it; which is, in fact, as much as to say, the idea of value equivalent to the house, and not of value of any fixed degree of intensity, or independ- ent of comparison between one commodity and another. ways a trifle, compared with the value it is employed to circulate. Vide infra, under the head of Bank-notes. * Esprit des Lois, liv. xxii. c. 7. CHAP. XXI. ON PRODUCTION. 191 When two objects of unequal value are both compared to different portions of one specific product, still it is a mere es- timate of relative value. One house issaid to be worth 20,000yr. another 10,000/r,; which is simply saying, the former is worth two of the latter. It is true, that, when both are compared to a product capable of separation into equal portions, as money is, a more accurate idea can be formed of the relative value of one to the other; for the mind has no difficulty in conceiving the relation of 2 integers to 1, or 20,000 to 10,000. But any attempt to form an abstract notion of the value of one of these integers must be abortive. If this be all that is meant by the term, measure ofvalue^ I admit that money is such a measure; but so, it should be ob- served, is every other divisible commodity, though not em- ployed in the character of money. The ratio of the one house to the other will be equally intelligible, if one be said to be worth 1000, and the other only 500, quarters of wheat. Nor will this measure of relative value, if we may so call it, convey an accurate idea of the ratio of two commodities one to the other, at any considerable distance of time or place. The 1000 quarters of wheat, or 20,000yn, will not be of any use in the comparison of a house in former, with a house in the present times; for the value of silver coin and of wheat have both varied in the interim. A house at Paris, worth 10,000 crowns in the days of Henry IV., would now be worth a great deal more, than another of that value now-a-days. So like- wise one in Lower Britanny, worth 20,000yn, is of much more value than one of that price at Paris; for the same reason, that an income of 10,000yr. is a much larger one in Britanny than at Paris. Wherefore, it is impossible to succeed in comparing the wealth of different eras or different nations. This, m political economy, like squaring the circle in mathematics, is impracti- cable, for want of a common mean or measure to go by. Silver, and coin too, whatever be its material, is a commo- dity, whose value is arbitrary and variable, like that of com- modities in general, and is regulated on every bargain by the mutual accord of the buyer and seller. Silver is more valua- ble, when it will purchase a large quantity of commodities, than when it will purchase a smaller quantity. It can not, therefore, serve as a measure, the first requisite of which is invariability. Thus, in the assertion of Montesquieu, when speaking of money, that " what is the common measure of all things, should of all things be the least subject to change,"* there are no less than three errors in two lines. For, in the first place, it has never been pretended, that money is the measure of all things, but merely that it is the measure of values; secondly, it is not even the measure of values; and, lastly, its value can not be made invariable. If it was the ob- * Esprit des Lois, liv. xxii. c. 3. 192 ON PRODUCTION. book i. ject of Montesquieu to deter governments from altering the standard of their coin, he should have laboured to enforce those sound arguments, which the question would fairly have supplied him with, instead of dealing in brilliant expressions, which serve to mislead and give currency to error. It would, however, often be a matter of curiosity, and some- times even of utility, to be able to compare two values at an interval of time or place; as, for instance, when there is occa- sion to stipulate for a payment at a distant place, or a rent for a long prospective term. Smith recommends the value of labour as a less variable, and, consequently, more appropriate, measure of absent or dis- tant value; he reasons thus upon the matter: " Equal quanti- ties of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength, and spirits, in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness. The price, which he pays, must always be the same, whatever may be the quantity of goods which he receives in return for it. Of them, indeed, it may sometimes purchase a greater and sometimes a smaller quantity; but it is their value which varies, not that of the la- bour which purchases them. At all times and places, that is dear, which it is difficult to come at, or which it costs much labour to acquire; and that cheap, which is to be had easily, or with very little labour. Labour alone, therefore, never vary- ing in its own value, is alone the ultimate and real standard, by which the value of all commodities can at all times and places be estimated and compared."* With great deference to so able a writer, it by no means follows, that, because labour in the same degree is always to the labourer himself of the same value, therefore it must al- ways bear the same value as an object of exchange. Labour, like commodities, may vary in the supply and demand; and its value, like value in general, is determined by the mutual * Wealth of Nations, book i. c. 5. On this point, Smith obsei'ves, that "labour was the first price, the original purchase-money, that was paid for all things. It was not by gold or silver, but by labour, that all the wealth of the world was originally purchased." I think I have succeeded in prov- ing that he is mistaken. Nature executes an essential part of the produc- tion of values; and her agency is in most cases paid for, and forms a portion of the value of the product. The profit of land, which is called rent, is paid to the proprietor, who does nothing himself, and stands in place of the original occupant; and it affects the value of the product, raised by the joint ag-ency of nature and industry: the portion of value contributed by na- ture is not the product of human labour. Capital also, which is, for the most part, the accumulated product of labour, concurs, like nature, in the business of production, and receives in recompense a portion of the pro- duct; but tlie gains, accruing to the capitalist, are quite distinct from the accumulated labour vested in the capital itself, which can be expended or consumed in toio, by one set of persons; while its share in the product, in other words, the interest paid for its use, may be consumed by another. ruAv. xxT. ON PRODUCTION. 193 accord of the adverse interests of buyer and seller, and fluctu- ates accordingly. The value of labour is affected materially by its quality. The labour of a strong and intelligent person is worth much more, than that of a weak and ignorant one. Again, labour is more valuable in a thriving community, where there is a lively de- mand for it, than in a country overloaded with population. In the United States, the daily wages of an artificer amount in silver to three times as much as in France.* Are we to infer, that silver has then but i of its value in France? The artificer is there better fed, better clothed, and better lodged; which is a convincing proof, that he is really better paid. Labour is probably one of the most fluctuatinj^ of values, because at times it is in great request, and at others is offered with that distress- ing importunity occasionally witnessed in cities where indus- try is on the decline. Its value has, therefore, no better title to act as a measure of two values at great distances of time or place, than that of any other commodity. There is, in fact, no such thing as a measure of value, because there is nothing possessed of the in- dispensable requisite, invariability of value. In the absence of an exact measure, we must be content to approximate to accuracy; and, to this end, many commodities of well known value will serve to give a notion, more or less correct, of the value of any specific product. At the same point of time and place, there is little difficulty in the approxima- tion: the value of any given article may be readily measured by almost all others. To ascertain pretty nearly the value of an article amongst the ancients, we must find out some article which there is reason to think has subsequently undergone lit- tle change of value, and then compare the quantity of that ar- ticle given by the ancients and moderns respectively, in ex- change for the article in question. Wherefore, silk would be a bad object of comparison; because it was, in the time of Csesar, procurable from China only, at a most extravagant ex- pense, and, being then no where produced in Europe, must of course have been much dearer than at present. Is there any commodity that has varied less in the intervening period? and, if there be any such, how much of it was then given for an ounce of silk? These are the two points we must inquire into. If any one article can be discovered, that was produced with equal ease and perfection at the two periods, and the consump- tion of which had a natural tendency to keep pace with its abundance, this article would probably have varied little in value, and may be taken as a tolerable measure of other values. Ever since the earliest times recorded in history, wheat has been the staple food of the great mass of the population, in all the principal nation^; of Europe; consequently, their relative • Humboldt reckons it at from S/r. 50 cents, to 4:fr. of our money. JSssa^- Pol. sur la Nouvelle Espagne, torn. iii. p. 105. oct. ed. 33 194 ON PRODUCTION. book i. population must have been influenced by the abundance or scarcity of this article of food, more than of any other: the ratio of the demand to the supply must have been, therefore, at all times nearly the. same. There is, besides, no product which I know of, that has undergone less alteration in the costs of production. The agricultural skill of the ancients was in most respects equal, and in some perhaps superior to our own. Capital, indeed, was dearer amongst them; but that difference was little felt; for, in ancient times, the proprietor was commonly both farmer and capitalist; and the capital em- barked in agriculture yielded less return than other invest- ments; because, as more honour was attached to this, than to the other branches of industry, commerce and manufacture, the influx of capital, as well as of labour, into that channel, was greater than into the other two. And, during the middle ages, in spite of the general declension of all the arts, the til- lage of arable land was prosecuted with a skill little inferior to that of the present day. Whence I infer, that the same quantity of wheat must have borne nearly the same value among the ancients, during the middle ages and at the present time. But, as there has all along been a vast diSerence in the produce of the harvest in one year and another, grain being sometimes so abundant, as to sell extremely low, and at other times so scarce, as to occa- sion famine, the value of grain must be taken on an average of years, whenever it is made the basis of any calculation. So much for the estimation of values at distant periods of time. There is equal difficulty in the estimation at great distances of place. The staple articles of national food, which, as such, maintain the greatest uniformity in the ratio of the demand ^ and supply, are very different in different climates. In Europe, wheat is the staple; in Asia it is rice: the relative value of neither the one nor the other in Asia and Europe is tolerably steady; nor has the value of Rice in Asia any rela- tion to the value of wheat in Europe. Rice is beyond ques- tion less valuable in India, than wheat is in this part of the world; for, besides that the cultivation is less expensive, it yields two crops in the year. This is one reason, why labour is so cheap in India and China. The article of food in most general use is, therefore, but a bad measure of value at great distances of place. Nor are the precious metals by any means a correct one: their value is indubitably not so great in North America and the West Indies, as in Europe, and much greater in every part of Asia, as the constant efflux of specie thither sufficiently proves. — Yet the frequency of communication between these different parts of the world, and the facility of transport, give us reason to suppose them the least liable to fluctuation of value on their passage from one climate and another. There is happily no necessity, for the purposes of commerce, CHAP. XXI. ON PRODUCTION. 195 to compare the relative value of goods and of metals in two distant parts of the world; it is quite enough to know their re- lation to other commodities in each country. When a mer- chant remits to China half an ounce of silver, it is of little im- portance to him, whether it has more relative value in China than in Europe. All he wants to know is, whether he can buy with it at Canton a pound of tea of a certain quality, which he can re-sell in Europe, say for two ounces of silver. With these data, and in expectation of receiving, at the close of the speculation, a gross profit of an ounce and a half of sil- ver, he calculates whether that profit will leave him a suffi- cient nett profit, after covering the charges and risk out and home; and this is all he cares about. If, instead of bullion, he remit goods, it is enough for him to know; 1. the relation between the value of these goods and silver in Europe; that is to say, how much they will cost; 2. the relation between their value and that of Chinese products at Canton; that is to say, what he can get in exchange for them; and, lastly, the re- lation between these latter and silver in Europe; that is to say, what they will be worth when imported. It is evident that every repetition of this operation brings into question nothing more than the relative value of two or more articles at the same time, and at the same place. For the common purposes of life, or, in other words, when nothing more is requisite, than to compare the value of two objects, at no great distance of time or place, most commodities possessed of any value at all may serve as a measure; and if, in describing the value of an object, even where there is no question of either buying or selling, the estimation is more generally made in the precious metals, or in money, than in any other commodity, it is simply, because its value is more generally known, than that of other commodities.* But, in all bargains for a long prospective period, as for the reserva- tion of a perpetual rent, it is more advisable to reckon in wheat: for the discovery of a single mine might perhaps greatly reduce the present value of silver; whereas the tillage of all North America could not sensibly alter the value of wheat in Europe: for the number of mouths to be fed in America, would increase almost in the ratio of the improved cultivation. But long prospective stipulations regarding value must unavoidably, under any circumstances, be very precari- ous, and can never give any certain notion of the value that is likely to be received. Perhaps the most improvident course of all is, to stipulate for a particular denomination of money; * The difference of value in different objects has, throug-hout this work, been noted in money-price, or what they will fetch in money; extreme correctness not being necessary for illustration. Even in the exact science of geometry, the figures are given merely to make the demonstrations more inteUigible; strict accuracy is necessary in the reasoning and conclu- sions only. 196 ON PRODUCTION. book i. for the same denomination may be fixed to any variation of weight or qualit)^ whatever; and the contracting party may find he has bargained for a name, rather than a value, and that he runs the risk of paying, or being paid, in mere words. I have dwelt thus long upon the refutation of incorrect ex- pressions, because they appear to have acquired too general a circulation;* and because they often confirm people in false notions and ideas, which ideas sometime serve as the basis of erroneous systems, that in their turn give birth to conduct equally erroneous. SECTION VII. Of a Particularity, that should be attended to, in estimat- ing the Sums mentioned in History. In reducing the money of former ages into money of the pre- sent day, the best informed historians have contented them- selves with converting the actual quantity of gold and silver, designated by the term made use of by the authority cited, into the current money of their own times. But this is not enough: the actual sum, the real amount of the metal, can give no correct notion of its then value, Avhich is the very point we want to arrive at. It is, therefore, necessary to reckon besides the fluctuations of value that the metal itself has undergone. A few examples will best explain my meaning: Voltaire tells us, in his Essay on Universal History ,t that Charles V. enacted, that the sons of France should have an annual revenue settled on them of 12,000 livres: and, as he reckons this sum to be equal to 100,000 livres of the present day, he naturally enough observes, that this was no great pro- vision for the sons of the monarch. But let us examine the grounds for this calculation of Voltaire. First, he reckons that the mark of fine silver was, in the time of Charles V., worth about 6 livres; at this rate, 12,000 livres will make 2000 marks of silver, which, at their relative value at the date of Voltaire's writing, would in fact amout to 100,000 livres, or thereabouts. But 2000 marks of fine silver were worth in the reign of Charles V. much more than in the reign of Louis XV. Of this we shall be convinced, by a comparison of the relative average, at the two different periods, of pure silver to wheat, which we will take as one of the least variable. • After the appearance of three editions of this work, iS'JswioJZC?* publish- ed his Nouveaux Prlncipes d'Econ. Pol,- wherein amongst many excellent chapters, there is one entitled, <' Money, the sign, token, and measure of ▼alue." Liv. v. c. 1. I Edit, de Kehl, oct. torn. xvii. p. 394. CHAP. XXI. ON PRODUCTION. 1D7 Dupr6 of St. Maur, whose book* is an ample repository of learned information upon the value of commodities, gives it as his opinion, that, from the reign of Philip Augustus, who died A. D. 1223, until about the year 1520, the setier of wheat (Paris measure) was worth, on the average, as much as i of a mark of fine silver; i. e. about 512 grains weight. About the year 1536, when the mark of silver was of the value of 13 livres turnois, or rather passed under the denomi- nation of 13 livres turnois, the ordinary price of a setier of wheat was about 3 livres turnois, i. e. -^-^ of a mark of fine silver, amounting to 1063 grains weight of that metal. In 1602, under the reign of Henry IV., the mark of fine silver being at that time equal to 22 livres, the average price of the setier of wheat was 9liv. IQs. 9d.', i. e. 2060 grains of fine silver.t Since that period, the setier of wheat has, one year with another, been constantly worth about the same weight of sil- ver. In 1789, when the mark was equivalent to 54 liv. 19s. the average price of wheat was, according to Lavoisier, 24 liv. the setier, i. e. 2012 grains of fine silver. I have not reckoned the fractions of grains, for in these matters it is enough to ap- proximate to accuracy; indeed, the price of the setier, taken at the average of Paris and the environs, is itself but loosely calculated. The result of this comparative statement is, that the setier of wheat, whose relative value to other commodities has varied little from 1520 down to the present time, has undergone great fluctuations, being worth, A. D. 1520 - - 512 ^r. of pure silver. 1536 - - 1063 do. - do. 1602 - - 2060 do. - do. 1789 - - 2012 do. - do. which shows, that the value of pure silver must have varied considerably since the first of these dates; inasmuch as, on every act of exchange, four times as much of it must now be given for the same quantity of commodities, as was given three centuries ago. We shall see by-and-by,J why the discovery of the American mines, and the influx into the market of about ten times as much silver as before, has operated to re- duce its value only in the ratio of 4 to 1. Now to the application of this information to the royal stipend in question: if pure silver was worth in the time of Charles V. four times as much as in the age of Voltaire, the settlement of 2000 marks upon the sons of France was equivalent to 8000 marks at the present, that is to say, more than 400, 000 ^r. of Rapport entre V Argent et les Denrces, p. 2>5. For these calculat Variaiions dans le i, Book II. Chap. 4. ■j- For these calculations I am indebted to the Essai sur les Monnaies, and the Variations dans les Prix, both bj' Dupre de Saint Maur. 198 ON PRODUCTION. book i. our present currency. Which makes the observation of Vol- taire upon the inadequacy of the provision much less appli- cable. Raynal, though he wrote avowedly upon commercial mat- ters, has committed a similar error, in estimating the public revenue in the reign of Louis XII. at 36 millions of our pre- se-nt money (francs^) on the ground, that it amounted to 7,650,000 liv. of 11 liv. to the mark of silver. This sum, in- deed, was equal to 695,454 marks of silver: but it would not be enough merely to reduce the mark into livres of the pre- sent day; for the same quantity of silver was then worth four times as much as it is now: so that, before reducing them into modern money, they should be multiplied by four, which will swell the public revenue under Louis XII. to a sum of 144 millions oi francs of present currency. Again, we read in Suetonius, that Cassar made Servilius a present of a pearl worth 6 millions of sestertii, which his translators. La Harpe and Levesque, estimate to be equal to 1, 200,000 /r. present money. But a little lower down, we find, that Csesar, on his return to Italy, disposed of the gold bullion, accruing from the plunder of Gaul, for coin, at the rate of 3000 sestertii to the pound of gold. Which shows the pearl of Ser- vilius to have been much under-rated. The Roman pound, according to Le Blanc, weighed 10 2-3 of our ounces; and 10 2-3 oz. of gold in Caesar's time, were worth as much as 32 ounces of that metal at the present day: for it may reasonably be reckoned, that the value of gold has fallen in the ratio of 3 to 1."^ Now 32 oz. of gold 'are worth nearly 3036 /n, which may therefore be looked upon as about the real value of 3000 sestertii: at which rate, the pearl in question must have been worth 6,072,000 /r. and the Roman sestertius, somewhat more than d. franc of our money; which is greatly beyond the ordinary estimate. t * 12 oz. of silver were given for one oz. of gold, in Cesar's time. Wherefore, silver having- fallen in tlie ratio of 4 to 1, 1 oz. of gold was worth as much in his daj-s, as"48 oz. of pure silver, at the present period. But 48 oz. of silver are now worth 3 oz. of gold, or thereabouts: so that gold must have fallen in the ratio of about 3 to 1. f The same error of calculation has led these translators involuntarily to Tinder-rate the prodigality of the worst of the emperors. Thus we are told, that Caligida, in less' than a year, squandered the whole of the treasure ac- cumulated by Tiberius, amounting to 2700 millions of sestertii, which La Harpe translates into no more than 540 millions of livres.- whereas, suppos- ing the value of gold to have varied little between the days of Caesar and of Caligula, which is probable enough, it will be found to amount to very near- ly 3000 miUions of livres. Indeed, it seems hardly possible, that a less sum would have sufficed for the monstrous extravagancies recorded of him. Horace, Epist. 2. lib. ii., speaks of an estate, that, from the context, mu-st have been a considerable one, as being of the value of 300,000 sestertii, which, according to my view, amounted to 303,600/a of our present money. His commentator, Dacier, perverts the meaning of the passage, by estimat- ing the estate in question, at 22,500 /r. only. CHAP. XXI. ON PRODUCTION. 199 When Csesar laid hands upon the public treasures of Rome, in spite of the opposition of the tribune Metellus, he is stated to have found them to consist of 41 30lbs. of gold, and S0,000lbs. of silver; which Vertot estimates to have amounted to 2,911,100 liv. tourn.; but upon what grounds I am at a loss to imagine. To form a tolerably correct notion of the treasure seized by Caesar upon his usurpation, the 4130lbs. of gold should be re- duced into oz. of the French standard, at the rate of 10 2-3 oz. to the Roman lb.* which makes 44,052 oz. But, as the same weight of gold was then worth three times as much as at pre- sent, the value will appear to have been 132,156 oz. or 12,530,346 //•., supposing the standard of quality in the gold to have been the same as at present. The 80,000lbs. weight of silver also were then worth as much as 320,000lbs. at the present period, i. e. 20,91 5,735 /r., reckoning the Roman lb. at 10 2-3 oz., and taking the standard of quality to have been the same. Wherefore, the sum appropriated by the usurper amount- ed to 33,446,081 /r. of our money; which is greatly above Vertot's estimate of about 3 millions only. From this specimen we may judge, how little reliance can be placed on the calculations of other historians, of less infor- mation and accuracy, than those I have been quoting. Rollin, in his Ancient, and Fleury, in his Ecclesiastical History, have reckoned the talentuni, mina and sestertius^ according to the scale made out by some learned persons, under the adminis- tration of Colbert. This scale is liable to many objections: 1. it establishes upon very questionable data, the respective quantities of the precious metals contained in the coins of the ancients, which is a primary source of error: 2. the value of the precious metals had considerably varied, between the pe- riod of antiquity in question and the ministry of Colbert, which is another source of error: 3. the scale of reduction, drawn up under the direction of that minister, was calculated at the rate of 26 liv. 10 sous, to the mark of silver, being the then mint price of silver bullion; but this rate was altered be- fore the days of Rollin, which is a third source of error. Last- ly, since the date of his publication, that rate has been still further altered, and a livre turnois conveys to us the idea of a smaller quantity of silver, than it did in his time; and this is a fourth source of error. Thus, whoever now takes up that work, relying on the calculations therein contained, will en- tertain a most erroneous idea of the income and expenditure of the states of antiquity, as well as of their commerce, their re- sources, and every part of their system and organization. * Le Blanc, Traits Monnaies, p. 3, estimates the lloman lb. of 12 oz. at the actual weight of only 10 2-3 oz. of our standard, taking- as a guide, the weight of some of the coins of the emperors which are in a high state of preservation. The valuation, I have here given of the oz. of gold, takes it at the mint standard; viz. with a proportion of 1-10 alloy; for 1 take it for granted, that the gold, thus laid hands upon by Caesar, was not pure gold, but coin with a mixture of alloy. 200- ON PRODUCTION. book r. Not that I would be understood to say, that a writer of his- tory can ever have sufficient data, to give his readers, in all cases, a correct notion of vahies in general; but, for the sake of a closer approximation to accuracy, than has hitherto been effected, in reducing the sums of ancient times, and even of the middle ages, into modern money, I would recommend, what indeed is generally done, first, to inquire from those learned in antiquity, the actual weight of precious metal con- tained in the coin in question: secondly, as far back as the Emperor Charles V., that is to say, about the year 1520, that quantity, if gold, must be multiplied by 3 only, and if silver, by 4;* because the discovery of the American mines has oc- casioned a fall in nearly that proportion: and lastly, to reduce that quantity of gold or silver into the current money of the period, at which he may happen to be writing. From the year 1520 downwards, the value of silver progres- sively declined until the latter end of the reign of Henry IV., that is to say, towards the beginning of the seventeenth cen- tury. We may judge of the depression of its value by the in- creasing price of any given commodity, in the manner explain- ed in the preceding section. To acquire a correct notion of the value of the mark of silver during this period, it will be necessary to allow for a diminution in the ratio of the increas- ed real, that is, metal, and not nominal or coin, price of com- modities in general, or of any one, as wheat for instance, in particular. From the beginning of the seventeenth century, there will be no occasion for any further allowance, after having reduc- ed .the money of the time being into marks of silver; for there does not appear to have been any further sensible decline in the value of silver, since most commodities have been procu- rable for the same metal-price. It will be sufficient, there- fore, to reduce them into the money current for the time be- ing, according to the then current value of the mark of fine silver, t * Until the period specified, the patio of gold to silver in Europe was 1 to 12. At present, it is in most nations of Europe 1 to 14, or 1 to 15; so that, taking' the average ratio in ancient times at 1 to 11^^ and in modern times at 1 to 15, gold will have increased in relative value to silver in the pro- portion of 4 to 3. Wherefore, if gold be multiplied by 3, and silver by 4, the result will be equal. -j- I am disposed to believe, that the value of both gold and silver began again to decline about the commencement of the present century, for more gold and silver are now given for most of the commodities least liable to vary in the costs of production. (a) (a) There is reason to believe, that the tide has noAV set strongly the other way: 1. Because tlie working of the mines of Spanish America, the great source of the production, especially of silver, has been suspended or abandoned in consequence of the revolutionary movements. 2. Because most of the European nations, and the United States also, are making a si- CHAP. XXI. ON PKODUGTlOiN. 201 By way of illustration, let us take the statement we find in the Memoires de Sully, viz. that this minister accumulating, in the vaults of the Bastile, a sum of 36 millions of livres tournois, to further the designs of his master against the house of Aus- tria. If we wish to know the actual value of that hoard, we must, in the first place, examine what weight of fine silver it amounted to. The mark of fine silver was then represented by 22 livres tournois; consequently 36 millions of livres make 1,636,363 marks, 5 oz. of silver. There has been no sensible variation in the value of that metal since the period in ques- tion; for the same quantity of metal would then buy the same quantity of wheat as at present. Now, at the present time, 1,636,363 marks, 5 oz. or, in other terms, 399,588,018, 5 grammes of fine silver, coined into money, will make exactly 88,797,31 5 /r. A sum, indeed, that would go no great way in modern warfare; but it must be considered, that war is now conducted on a very different principle, and has become infi- nitely more wasteful, in reality as well as in name. SE13TI0N VIIL Of the Msence of any fixed ratio of Value between one Metal and another. The same error, which led public functionaries to believe, that they could fix the relative value of any metal to commo- dities, has also induced them to determine by act of law the re- lative value of the metals emploj'-ed as money, one to the other. Thus, it has been arbitrarily enacted, that a given quantity of silver shall be worth 24 liv. , and that a given quantity of gold shall likewise be worth 24 liv. In this manner, the ratio of the nominal value of gold to that of silver came to be legally established. The pretension of authority was in both cases equally vain and impotent; and what has been the consequence? The re- lative value of the two metals to other commodities has, in fact, been constantly fluctuating, as well as the relative value of the metals themselves, when exchanged one for the other. Before the recoinage of gold, in pursuance of the arret of 13th October, 1785, the louis d'or was commonly sold for 25 liv. and some sous of the silver coin. Consequently, people took multaneous effort to restore the convertibility or par of their paper, which is the same thing as discovering a fresh kind of utihty in the metal. 3. Be- cause the contraction of credit, the rival of money, consequent upon the general decline of prices which this simultaneous attempt has occasioned, must still necessarily further enlarge the utility of the metal. T. 33' 203 ON PR0DUCTION. book i> good care not to pay in gold coin the sums bargained for in silver; otherwise they would really have paid 25 liv. and 8 or 10 sous for every 24 liv. of the sums stipulated. Since the recoinage in 1785, when the quantity of gold in the louis d'or was reduced by one-sixth, its value has nearl}' kept pace with that of 24 liv. in silver; so that gold and silver have been paid indifferently. However, it has still continued most customary to pay in silver, partly from long habit, and partly because the gold coin, being more liable to be clipped or counterfeited, was received with more caution and liable to more frequent cavils about the weight and quality. In England a different arrangement has produced an effect directly contrary. In the year 1728, the natural course of ex- change fixed the relative value of gold to silver at 15 9-124 to 1; say 15 1-14 to 1, for the sake of simplicity; 1 oz. of gold was sold for 15 1-14 oz. of silver, and vice versa. Accordingly, that ratio was established by law, 1 oz. of gold being coined into the nominal sum of 3/. 17^. lO^c?. and 15 1-14 oz. of sil- ver into the same sum. Thus, the government attempted per- manently to fix a ratio, that is, in the nature of things, perpetu- ally varying. The demand for silver gradually increased; its use for plate and other domestic purposes became more gene- ral; the India trade received an additional stimulus, and took off silver in preference to gold, for this reason, that the rela- tive value of silver to gold is higher in the East than in Europe; so that, by the end of the last century, the ratio of these metals one to the other in England became about 14^ to 1 only; and the same quantity of silver, that was coined into 3/. 17*. 1 04 c?., would then sell in the market for 4/. in gold There was thus a profit on melting down the silver, and a loss on payments in that metal; for which reason, thenceforward, un- til the parliamentary suspension of specie payments by the Bank of England in 1797, paj^ments of course were commonly made in gold. Since 1797, all payments have been made in paper. But, if England shall return to a metallic currency, framed upon the former monetary principles and regulations, it is probable, that payments will be made in silver instead of gold, as before the suspension; for gold has risen in relative price to silver in the English market, probably in consequence of the large ex- port of specie for commercial purposes, and greater difficulty of prevention in gold than in silver. Gold bullion in the En- glish market is now to silver bullion in the ratio of about 1 to 15i, although the mint ratio is still 1 to 15 1-14. A payment in gold instead of silver would, therefore, be a gratuitous sa- crifice of the difference between 15 1-14 and 15^. Hence may be drawn this conclusion; that it is impossible in practice to assign any fi?:ed ratio of exchangeable value to commodities, whose ratio is for ever fluctuating, and, therefore, that gold and silver must be left to find their own mutual level, CHAP. XXI. ON PRODUCTION. 2C3 in the transactions in which mankind may think proper to employ them.* The above remarks upon the relative value of gold and sil- ver are equally applicable to silver and copper, as well as to all other metals whatever. There is no more propriety in de- claring, that the copper contained in twenty sous shall be worth the silver contained in a livre tournois, than in enacting, that the silver contained in 24 liv. tournois shall be worth the gold in a louis d'or. However, little mischief has been occa- sioned by fixing the ratio of copper to the precious metals, be- cause the law does not authorize the payment of sums stipu- lated in livres tournois andjrancs in either copper or the pre- cious metals indifferently; so that, in reality, the only metal money recognised by law as le^al tender, for sums above the value of the lowest denomination of silver coin, is silver or gold. SECTION IX. Of Money as it ought to be.. From all that has been said in the preceding sections may be inferred my opinion of what money ought to be. The precious metals are so well adapted for the purposes of money, as to have gained a preference almost universal; and, as no other material has so many recommendations, no change in this particular is desirable. So also of their division into equal and portable particles. They may very properly be coined into pieces of equal weight and quality, as has heretofore been the practice among most civilized nations. Nor can there be any better contrivance, than the giving them such an impression, as shall certify the weight and quali- ty; or than the exclusive reservation to government of the * The relative position of gold and silver, in respect to value, is by no means determined by the respective supply of each from the mines. Hum- boldt states, in his Essai Pol. sur la Nouvd'le Espagne, torn. iv. p_. 222, oct. that silver is produced from the mines of America and Europe jointly, in the ratio to gold, of 45 to 1. Now the ratio of their value, instead of being- 45 to 1, is only In Mexico - - 15 5-8 - - - to 1 — France - - 15 1-2 - ... 1 — China from 12 to 13 - - 1 — Japan — 8 - 9 - - 1 The difference is probably owing to the superior utility and demand of sil- ver for the purposes of plate, &c. as well as of money. It would seem, that this cause operates more forcibly in the East than in the West; for gold jew- ellery is relatively cheaper there than in our part of the world. 204 ON PRODUCTION. book i. right of impressing such certificate, and, consequently, of coin- ing mony, for the certificate of a number of coiners, all work- ing together and in competition one with the other, could never give an equal security. Thus far, then, and no further, should the public authority intermeddle with the business of money. The value of a piece of silver is arbitrary, and is established by a kind of mutual accord on every act of dealing between one individual and another, or between the government and an individual. Why, therefore, attempt to fix its value before- hand? since, after all, the fixation must be imaginary, and can never answer any practical purpose, in the money transac- tions of mankind. Why give a denomination to this fixed, imaginary value, which money can never possess? For what is a dollar, a ducat, a florin, a pound sterling, or a franc; what, but a certain weight of gold or silver of a certain established standard of quality? And, if this be all, why give these re- spective portions of bullion any other name, than the natural one of their weight and quality? Five grammes of silver, says the law, shall be equivalent to z. franc: which is just as much as to say, 5 grammes oi %\\- ver is equivalent to 5 gram^mes of silver. For the only idea, presented to the mind by the word franc, is that of the 5 grammes of silver it contains. Do wheat, chocolate, or wax, change their name by the mere act of apportioning their weight? A pound weight of bread, chocolate, or of wax can- dles, is still called a pound weight of bread, chocolate or wax candles. Why, then, should not a piece of silver, weighing 5 gramm.es, go by its natural appellation? Why not call it simply 5 grammes of silver? This slight alteration, verbal, critical, and nugatory as it may seem, is of immense practical consequence. Were it once admitted, it would be no longer possible to stipulate in nominal value: every bargain would be a barter of one sub- stantial commodity for another, of a given quantity of silver for a given quantity of grain, or butcher's meat, of cloth, &c. &c. Whenever a contract for a long prospective period was entered into, its violation could not escape detection: a person taking an obligation to pay a given quantit}^ of fine silver, at a day certain, would know precisely how much silver he would have to receive at the period assigned, provided his debtor continued solvent. The whole monetary system would thenceforth fall to the ground; a system replete with fraud, injustice, and robbery, and moreover so complicated, as rarely to be thoroughly un- derstood, even by those who make it their profession. It would ever after be impossible to effect an adulteration of the coin, except by issuing counterfeit money; or to compound with creditors, without an open, avowed bankruptcy. The coinage of money would become a matter of perfect simplici- ty, a mere branch of metallurgy. CHAP. xxT. ON PRODUCTION. 205 The denominations of weight, in common use before the in- troduction into France of the metrical system, that is to say, the once, gros, grain, had the advantage of conveying the no- tion of portions of weight, thathad remained stationary for many ages, and were applicable to all commodities whatever, with- out distinction: so that the once could not be altered for the precious metals, without altering it at the same time for sugar, honey, and all commodities sold by the weight: but, in this f articular, the new metrical system is infinitely preferable, t is founded upon a basis provided by nature, which must remain invariable as long as our world shall last. The gramme is the weight of a cubic centimetre of water: the centimetre is the hundredth part of a metre, and the metre is ^^,^i^,__^ part of the arc formed by the circumference of the earth, from the pole to the equator. The term gramme may be changed, but no human power can change that portion of weight actu- ally designated by the term gram,me; and whoever shall con- tract to pay at a future date a quantity of silver, equal to 100 gramTues weight, can never pay a less quantity of silver, with- out a manifest breach of faith, whatever arbitrary measures of power may intervene. The power of a government to facilitate the transactions of exchange and contract, wherein the commodity, money, is employed, consists in dividing the metal into different pieces of one or more gramm^es or centigram,7nes, in such manner, as to admit of instant calculation of the number of gramm,es a given payment will require. It has been ascertained by the experiments of the Academy of Sciences, that gold and silver resist friction better with a slight mixture of alloy, than in a pure state. People versed in these matters say, besides, that this complete purity can not be obtained, without a very expensive chemical process: that would add greatly to the expense of coinage. There is no sort of objection to mixing alloy, provided the proportion be signified by the impression, which should be nothing more than a mere certificate of the weight and quality of the metal. I make no mention of the \.^xvcy% franc, decitne, centiTue, be- cause those names should never have been given to the coin, being, in fact, names indicative of nothing whatever. The laws of France, instead of enacting that pieces, calXedi francs, shall be coined, having the weight of 5 gram,^nes of silver, should have simply ordered a coinage of pieces of 5 grammes. In which case, a letter of credit or bill of exchange, instead of being drawn for, say 400yr., would be for 2000 grammes of silver of the standai'd of 9-10 silver to 1-10 alloy; or if prefer- red, for 130 gra-jnmes of gold of the same degree of purity; and the payment would be the most simple imaginable; for the pieces of coin, gold and silver, would be all fractions or multiples of the gramme of metal of that standard. However, it would still be necessary to enact, that no sum stipulated in grammes of silver or gold should be payable 206 ON PRODUCTION. book i. otherwise than in coin, unless under a special proviso; else, the debtor might discharge all claims in Dullion of somewhat less value than coin. This is obviously matter of" practical ar- rangement; the principle requiring nothing, but that the ob- ligation, after mentioning the metal and standard, should spe- cify on the face of it, whether payable in national coin or bul- lion. The only object of such a law would be, to save the con- tinual necessity of enumerating many particulars, that would thenceforward be implied. A government should never coin the bullion of private per- sons, without charging the profit, as well as the cost, of the operation. The monopoly of coinage will enable it to make this profit somewhat high: but it should be varied according to the state of metallurgic science, and the demand for circu- lation. Whenever the state has little to coin on its own ac- count, it had better lower its charges, than let its machinery and workmen remain idle; and, on the other hand, raise its charges, when the influx of bullion is rapid and superabundant. And in this, it would but intimate other manufacturers. As to the bullion bought and coined by government on its own account, the coin issued would reimburse the charges, and yield a pro- fit by its superior value in exchange; as I nave endeavoured to prove above in Section 4. To the marks indicative of weight and quality, should of course be superadded every device to prevent counterfeits. 1 have not occupied my reader's time with any observations on the relative proportion of gold to silver; nor was there any occasion to do so. Having avoided any specification of their value under any particular denomination, I shall pay no more attention to the alternating variations of that value, than to the fluctuations of the relative value of both to all other commodi- ties. This must be left to regulate itself; for any attempt to fix it would be vain. With regard to obligations, they would be dischargeable in the terms of contract: an undertaking to pay 100 grammes of silver would be discharged by the trans- fer of 100 grammes of silver; unless, at the time of payment, by mutual consent of the contracting parties, any other metal, or goods at a rate agreed on, should be substituted in prefer- ence. It would be difficult to calculate the advantage, that would accrue to industry in all its branches, from so simple an ar- rangement; but some notion of it may be obtained, by consi-, dering the mischiefs that have resulted from a contrary sys- tem. Not only has the relative pecuniary position of indivi- duals been repeatedly overset, and the best planned and most beneficial productive enterprises altogether thwarted and ren- dered abortive; but the interests of the public, as well as of private persons, are, almost every where, subject to daily and hourly aggression. A medium, composed entirely of either silver or gold, bear- ing a certificate, pretending to none but its real intrinsic value, CMAP. XXI. ON PRODUCTION. 207 and, consequently, exempt from the caprice of legislation, would hold out such advanta^jes to every department of com- merce, and to every class of society, that it could not fail to obtain currency even in foreign countries.. Thus, the nation, that should issue it, would become a general manufacturer of money for foreign consumption, and might derive from that branch of manufacture no inconsiderable revenue. We read in Le Blanc,* that a particular coin issued by St. Louis, and called agnels cfor, from the figure of a lamb impressed upon them, was in great request even among foreigners, and a fa- vourite money in commercial dealings, for the sole reason that it invariably contained the same quantity of gold, from the reign of St. Louis to that of Charles VI. Should France be so fortunate as to make this experiment, I hope none of those who do me the honour to read this work, will feel any regret at the drain of its money, to use the ex- pression of certain persons, who neither know nor choose to learn any thing of the matter. It is quite clear, that neither silver nor gold coin will go out of the kingdom, withoutleaving behind a value fully equivalent to the metal and the fashion it bears. The trade and manufacture of jewellery for export are considered lucrative to the nation; yei, they occasion an out- going of the precious metals. The beauty of the form and pattern adds, to be sure, greatly to the price of the metal thus exported; but the accuracy of assay and weight, and, above all things, the maintenance of the coin at an invariable stand- ard of weight and quality, would be an equal recommendation, and would undoubtedly be just as well paid for. Should it be objected, that the same system was adopted by Charlemagne, when he called a pound of silver a livre, and that notwithstanding the coin has been since repeatedly de- teriorated, until, at last, what was called a livre, contained, in fact, but 96 gr., I answer: — 1. That, neither in the time of Charlemagne, nor at any sub- sequent period, has there ever been a coin containing a pound of silver; that the livre has always been a money of account, an ideal measure. The silver coin of Charlemagne and his successors, consisted oisols of silver, the sol being a fractional part of the pound weight. 2. None of the coin has ever borne on the face of it the in- dication of the weight of metal it contained. There are extant in the collections of medals many pieces coined in the reign of Charlemagne. The impression was nothing more than the name of the monarch, with the occasional addition of the name of the town where the coin was struck, executed in very rude characters; which, indeed, is not to be wondered at, consider- ing that the monarch, though an avowed patron of literature, was himself unable to write. 3. The coin was yet further from bearing any thing indica- * Traite Hisi, des ihnnaks dt la Francfi J'rokgom. p. 4. 208 ON PRODUCTION. book i, live of the standard quality of the metal, and this was the thing first encroached upon; for the sol in the reign of Philip I. still contained the same fractional weight of the livre as ori- ginally; but it was made up of 8 parts of silver to 4 copper, in- stead of containing, as under the second race of monarchs, 12 oz. of fine silver, which was the then weight of the livre. The very singular state of the actual money of England, and the extraordinary circumstances, that have occurred in respect to it since the first editions of this work appeared, have given a decisive proof, that the mere want of an agent of circulation, or, of the commodity, money, is sufficient to support a paper- money absolutely destitute of security for its convertibility at a high rate of value, or even at a par with metal, provided it be limited in amount to the actual demand of circulation,* — Whence some English writers of great intelligence in this branch of science have been led to conclude, that, since the purposes of money call into action none of the physical and metallic properties of its material, some substance less costly than the precious metals; paper, for instance, may be employed in them with good effect, if due attention be paid to keep the amount of the paper within the demands of circulation. The celebrated Ricardo has, with this object, proposed an ingenious plan, making the Bank or corporate body, invested with the privilege of issuing the paper-money, liable to pay in bullion for its notes on demand. A note, actually convertible on de- mand into so much gold or silver bullion, can not fall in value below the value of the bullion it purports to represent; and, on the other hand, so long as the issues of the paper do not ex- ceed the wants of circulation, the holder will have no induce- ment to present it for conversion; because the bullion, when obtained, would not answer the purposes of circulation. If a casual interruption of confi.dence in the paper should bring it for conversion in too large quantity, the paper remaining in circulation must rise in value, in the absence of any other cir- culating medium, and there would be an inducement to bring bullion to the bank to be converted into paper.t • Vide our aiitbor's pamphlet, entitled, dc VAngkterre, et des Anglais, 1815, 3d edition, p. 50. et seq. ■\ Proposals for an economical and secure Currency, by D. Ricardo, 1816. It seems, the British legislature has since adopted the expedient of that writer, in 1819. The experiment is yet in progress; and whatever be its ultimate result, it must needs advance the interests of the science. CHAP. XXI. ON PRODUCTION. 209 SECTION X. Of a Copper and base Metal'* Coinage. The copper coin and that of base metal, are not, strictly speaking, money ; for debts can not be legally tendered in this coin, except such fractional sums, as are too minute to be paid in gold or silver. Gold and silver are the only metal-money of almost all commercial nations. Copper coin is a kind of transferable security, a sign or representative of a quantity of silver too diminutive to be worth the coining; and, as such, the government, that issues it, should always exchange it on demand for silver, when tendered to an amount equal to the smallest piece of silver coin. Otherwise, there is no security against the issue of an excess beyond the demand of circula- tion. Whenever there is such an excess, the holders, finding the base metal less advantageous than the gold and silver it repre- sents but does not equal in value, would strive to get rid of it in every way; whether by selling to a loss, or by employing it in preference to pay for low-priced articles, which would consequently rise in nominal price; or by proffering it to their creditors in larger quantity, than enough to make up the frac- tional parts of sums in account. The government, having an interest in preventing its being at a discount, because that would reduce the profit upon all future issues, generally au- thorizes the latter expedient. Before 1808, for instance, it was a legal tender at Paris to the extent of 1-40 of every sum due; which had exactly the same effect, as a partial debasement of the national currency. Every body knew, when a bargain was concluded, that he was liable to be paid in proportion of 1-40 copper or brass metal, to 39-40 silver, and made his calculation accordingly, on terms proportionably higher, than if no such regulation had existed. It is with this particular, precisely as with the weight and standard of the silver coin; sellers do not stop to weigh and assay every piece they receive; but the dealers in gold and silver, and those connected with the trade, are perpetually on the watch to compare the intrinsic, with the current, value of the coin; and, whenever their values differ, they have an op- portunity of gain; their operations to obtain which, have a constant tendency to put the current value of the coin on a level with its real value. * Billon, a compound of copper and silver, containing 1-4 or 1-2 only of the latter, and the residue of the former. It is used in the fractional coin- age of France, to supersede the employment of copper in large quantities. 34 310 ON PRODUCTION. book i. The obligation to receive copper in any considerable pro- portion, has, in like manner, an influence upon the exchange with foreigners. There is no question, that a letter of ex- change on Paris payable m francs is sold cheaper at Amster- dam, in consequence of the liability to receive part payment in copper or base metal; just as it would be, if t\\e franc were made to contain less of silver and more of alloy. Yet, it is to be observed, that, on the whole, the value of money is not so much affected by this circumstance, as by the mixture of alloy; for the alloy has positively no value what- ever, for the reasons above stated;* whereas, the copper money, payable in the ratio of 1-40, had a small intrinsic value, though inferior to the sum in silver, it was made to pass for: had it been of equal value, there would have been no oc- casion for an express law to give it currency. As long as a government gives silver on demand for the copper and base metal regularly presented, it can with little inconvenience give them very trifling intrinsic value; the de- mand for circulation will always absorb a very large quantity, and they will maintain their value as fully, as if really worth the fractional silver represented; on exactly the same princi- ple, as a bank-note passes current, and that too for years to- gether, without any intrinsic value, just as well as if really worth the sum it purports on the face of it to contain. In this manner, such a coinage can be made more profitable to the government than by any compulsion to receive it in part pay- ment; and the value of the legal coin will suffer no deprecia- tion. The only danger is that of counterfeits, which there is the stronger stimulus for avarice to fabricate, in proportion as the difference between the intrinsic, and the current, value grows wider. The last king of Sardinia's predecessor, in attempting to withdraw from circulation a base currency, issued by his father in a period of calamity, had more than thrice the quan- tity originally issued by the government thrown upon his hands. The sam.e thing happened to the king of Prussia, when, under the assumed name of the Jew Ephraim, he withdrew the base coin he had compelled the Saxons to receive, during his distresses in the seven years' war;t and for exactly the same reason. Counterfeits of the coin are usually executed beyond the national frontier. In England, it was attempted to remedy this evil in the year 1799, by a coinage of half- pence with a very fine impression, and executed with an at- tention and perfection, that counterfeiters can rarely bestow. • Supra, p. 170. ■}■ Mongez, Consider, sur les Monnaies, p. 31. CHAP. XXI. ON PRODUCTION. 211 SECTION XL Of the, preferable Form of Coined Money. The wear of the coin by friction is proportionate to the ex- tent of its surface. Of two pieces of coin of equal weight and quality, that will suffer least from continual use, which offers the least surface to the friction. The spherical or globular form is. consequently, preferable in this respect, as least liable to wear; but it has been rejected on account of its inconvenience. Next to this form, the cylinder, of equal depth and breadth is that, which exposes the smallest surface; but this is fully as inconvenient as the other; the form of a very flat cylinder has, consequently, been very generally adopted. However, from what has been already said, it will appear, that the less it is flattened the better; and that the coin should rather be made thick than broad. With regard to the impression, the chief requisites are, 1. that it specify the weight and quality of the piece; 2. that it be very distinct, and intelligible to the meanest capacity; 3. that the die oppose all possible difficulties to the defacing or reducing of the coin; that is to say, that it be so contrived, that neither the ordinary wear nor fraudulent practices should be able to reduce the weight without destroying the impression. The last coined English half pence have a cord, not project- ing, but indented in the thickness of the circumference, and occupying the central part of the circumference only, so as to make it liable neither to clipping nor wear. This mode might be adopted in the silver and gold coinage with certainty of success; and it is of much more consequence to prevent their deterioration. When the impression is in basso relievo, it should project but little, for the convenience of piling the pieces ond upon another, as well as to reduce the friction. On the same ac- count, a projecting impression should not be too sharp on the surface, or it would wear away too rapidly. With a view to prevent this, experiments have been made of dies executed in alto relievo; but it was found, that the coin was thereby too much weakened, and liable to be bent or broken. This plan, however, might possibly be practised with advantage, if the pieces were secured by greater thickness. The same motiveof giving to the coin the least possible sur- face, should induce the government to issue as large pieces as convenience will admit; for the more pieces there are, the greater is the surface exposed to friction. No more small 212 ON PRODUCTION. book?. pieces of coin should be issued, than just enough to transact exchanges of small amount, and to pay fractional sums. All large sums should be paid in large pieces of coin. SECTION xir. Of the Party, on whom the Loss oj the Coin by Wear should properly fall. It has been a question, who ought to defray the loss, con- sequent upon the friction or wear of the coin? In strict justice, the person who had made use of it, in like manner as the wearer of any other commodity. A man, that re-sells a coat after having worn it, sells it for less than he gave for it when new. So a man, that sells a crown piece for some other commodity, should sell it for less than he gave; that is to say, should re- ceive a smaller quantity of goods than he obtained it with. But the portion of a specific coin, consumed in its passage through the hands of any one honest person, is less than almost any assignable value. It may circulate for many years to- gether, without any sensible diminution of its weight; and, when the diminution is discovered, it ma)^ be impossible to tell, by which of the innumerable holders it was effected. I am aware, that each of them has imperceptibly shared the de- preciation of its exchangeable value, occasioned by the wear^ that the quantity of goods it would purchase has declined by an insensible gradation; that, although the depreciation has been imperceptibly progressive, it becomes at last very mani- fest; and, that worn money will not be taken at par with new coin. Consequently, I think, that, if an entire class of coin were gradually so reduced, as to make a recoinage necessary, its holders could not in reason expect that their reduced com should be exchanged for new at par, piece for piece. Their money should be received, even by the government, at no more than its real value; the silver it contains is less in quan- tity than at the first issue; and it has been received by the holders at a lower rate of value; they have given for it less goods, than the}- would have done in the outset. In fact, this is the course that rigid justice would prescribe; but there are two reasons, why it" should not be strictly en- forced. 1. Each individual piece of coin is not, if I maybe allowed the expression, a substantive article of commerce. Its ex- changeable value is calculated, not according to the weight and quality of the identical piece in question, but according to the average weight and quality of the coin in large quantities, as ascertained by common experience. A crown piece of an CHAP. XXI. ON PRODUCTION. 213 earlier date, and more worn, is yet freely received in exchange for one more new and perfect; the difference is sunk in the average. The mint issues new pieces every year of the full weight and standard, which prevents the coin from declining sensibly in value, in consequence of the friction, even for many years after its issue. This circumstance is illustrated by the fact, of the French pieces of 12 and 24 sous passing current at par with the crown- piece of 6 livres without any difficult}^; although the same nomi- nal sum, in the shape of the worn pieces of 12 and 24^., con- tained in reality about \ less silver than the crown-piece. The subsequent law, which prohibited their being taken by the public receivers or private persons at more than 10 and 2Q sous, rated them at their full intrinsic value, but below the rate, at which the then holders had taken them. For their value had been previously kept up to 12 and 24 sous in spite of the wear, by reason of their passing current at par with the crown-piece. Thus, the last holder was saddled with the en- tire loss of a friction, to which the innumerable hands they had passed through had all contributed. 2. The impression is equally effectual in giving currency at the last as at the first, although it becomes in course of time scarcely, if at all visible; witness the shillings of England. The coin derives, as above explained, a certain degree of value from the mere impression, which value has been admitted and recognised throughout, until it reaches the ultimate holder, who has in consequence received it at a higher rate, than he would a piece of blank bullion of equal weight. To saddle him with the difference, would be to make him lose the whole value of the impression, although it has been equally servicea- ble to perhaps a million of others. On these grounds, I am inclined to think, the loss by wear, and that of the impression, should be borne by the community at large; that is to say, by the public purse: for the whole so- ciety derives the benefit of the money; and it is impossible ta tax each individual, in the precise proportion of the use he has made of it. To conclude; every individual, that carries bullion to the mint to be coined, may be fairly charged the expenses of the process, and, if thought advisable, the full monopoly-profit. Thus far there is no harm done: his bullion is increased in value to the full amount of what he has been charged by the mint; otherwise, he would never have carried it thither. At the same time, I am of opinion, that the mint should always give a new piece in exchange for an old one on demand: which need nowise interfere with the utmost possible precautions against the clipping and debasing of the coin. The mint should refuse such pieces, as have lost certain parts of the impression, which are not liable to fair and unavoidable wear; and the loss in that case should fall on the individual, careless enough to take a piece thus palpably deficient. The promptitude, with 214 ON PRODUCTION. book i. which the public would take care to carry injured or suspicious pieces to the mint, would greatly facilitate the detection of fraudulent practices. With diligence on the part of the executive, the loss arising from this source might be reduced to a mere trifle, and the system of national money would be materially improved, as well as the foreign exchange. CHAPTER XXII. OP SIGNS OR REPRESENTATIVES OP MONEY. SECTION I. Of Bills of Exchange and Letters of Credit. A BILL of exchange, a promissory note or check, and a let- ler of credit, are written obligations to pay, or cause to be paid, a sum of money, either at a future time, or at a different place. The right conveyed by the assignment of these engage- ments, though not capable of being enforced immediately, or elsewhere than at the stipulated place, yet gives them an actual value, greater or less, according to circumstances. — Thus, a bill of exchange for \QOfr., payable at Paris at two months date, may be negotiated or sold, at pleasure, at the rate of, say 99 /r.; while a letter of credit of like amount, paya- ble at Marseilles in the same space of time, will, perhaps, be worth at Paris but dSfr. These engagements may be used as money in all transac- tions of purchase, as soon as they are invested with actual pre- sent value, by the prospect of their future value; indeed, most of the greater operations of commerce are effected through the medium of these securities. Sometimes, the circumstance of a bill of exchange being payable at another place will increase, instead of diminishing, its value; but this depends upon the state of commerce for the time being. If the merchants of Paris have large payments to make to those of London, they will readily give more mo- ney at Paris for a bill upon London, than it will produce to the holder at the latter place. Thus, although the pound sterling contain precisely as much silver as 24 fr. 74 cents^ they will. CHAP. XXII. ON PRODUCTION. 215 perhaps, give at Paris 25 fr., more or less, for every pound sterling payable in London.* This is what is called the course of exchange, being, in fact, a mere specification of the quantity of precious metal people will consent to give, for the transfer of a right to re- ceive a given quantity of the same metal at any other speci- fied place. The particular locality of the metal reduces or increases its value, in relation to the same metal situated else- where. The exchange is said to be in favour of any country, France for example, whenever less of the precious metal is there given for, than will be produced by, a bill of exchange upon another country; or whenever in the foreign country more of the pre- cious metal is given for a bill of exchange on France, than it will there produce to the holder. The difference is never very considerable, and can not exceed the charge of transport- ing the precious metal itself; for, if a foreigner, who wants to make a payment at Paris, can remit the sum in specie at less expense than he could be put to by the existing course of ex- change, he would undoubtedly remit in specie, t It has been imagined by some people, that all debts to fo- reigners can be paid by bills of exchange; and measures have been frequently suggested, and sometimes adopted, for the en- couragment of this fictitious mode of payment. But this is a mere delusion. A bill of exchange has no intrinsic value; it can only be drawn upon any place for a sum actually due at that place; and no sum can be there actually due, unless an equal value, in some shape or other, has been remitted thither: the imports of a nation can only be paid by the national ex- port; and vice versa. Bills of exchange are a mere represen- tative of sums due; in other words, the merchants of one coun- try can draw bills on those of another for no more, than the full amount of the goods of every description, silver and gold included, which they may have sent thither directly or indi- rectly. If one country, says France, have remitted to another country, Germany perhaps, merchandise to the value of 10,000, 000 yr., and the latter have remitted to the former to the amount of 1 2,000,000 y^., France can pay as much as ten millions by the means of bills of exchange, representing the value of her export; but the remaining two millions can not be so discharged directly, although possibly they may by bills of exchange upon a third country, Italy, for instance, whither she may have exported goods to that extent. * If the credit on London be payable in paper-money instead of specie, the course of exchange with Paris of the pound sterling, may, perhaps, fall to 21 fr. 18 fr. or even less, in proportion to the discredit of the paper of England. f In that expense I include the charge and risk of transport and of smug- gling also, if the export of specie be prohibited; which latter is propor- tionate to the difficulty of the operation. The risks are estimated in the rate of insurance. 216 ON PRODUCTION. book i. There is, indeed, a species of bills, called by commercial men, accommodation-paper, which actually represents no value whatever. A merchant at Paris, in league with another of Hamburgh, draws bills upon his correspondent, which the lat- ter pays or provides for, by re-drawing and negociating or selling bills at Hamburgh upon his correspondent at Paris. — So long as these bills are in possession of any third person, that third person has advanced their value. The negociation of such accommodation-paper is an expedient for borrow- ing, and a very expensive one; for it entails the loss of the banker's commission, brokerage and other incidental charges, over and above the discount for the time the bills have to run. Paper of this description can never wipe out the debt, that one nation owes another; for the bills drawn on one side balance and extinguish those on the other. The Hamburgh bills will naturally counterpoise those of Paris, being in fact drawn to meet them; the second set destroys the first, and the result is absolute nullity. Thus, it is evident, that one nation can not otherwise dis- charge its debts to another, than by remittance of actual value in goods or commodities, in which term I comprise the pre- cious metals, amongst others, to the full amount of what it has received or owes. If the actual values directly remitted thither are insufficient to balance the receipts or imports thence, it may remit to a third nation, and thence transport produce enough to make up the deficit. How does France pay Russia for the hemp and timber for ship-building imported thence? — By remittance of wines, brandies, silks, not merely to Rus- sia, but, likewise, to Hamburgh and Amsterdam, whence again a remittance of colonial and other commercial produce is for- warded to Russia. Governments have commonly made it their object to con- trive that the precious metals shall form the largest possible portion of the national import from, and the least possible por- tion of the national export to, foreign countries. I have al- ready taken occasion to remark, with regard to what is im- properly called the balance of trade, that, if the national mer- chant finds the precious metals a more profitable foreign re- mittance than another commodity, it is, likewise, the interest of the state to remit in that form; for the state can only gain and lose in the persons of its individual subjects; and, in the matter of foreign commerce, whatever is best for the individu- als in the aggregate, is best for the state also. * Thus, when impediments are thrown in the way of the export of the pre- cious metals by individuals, the effect is to compel an export in some other shape, less advantageous to the individual and the public too. * This position applies to foreign commerce only; the monopoly-profits of individuals in the home-market are not entirely national gains. In inter- nal dealings, the sum of the utility obtained is all that is acquired by the community. CHAP. XXII. ON PRODUCTION. 217 SECTION II. Of Banks of Deposit. The constant intercourse between a small state and its neigh- bours occasions a perpetual influx of foreign coin. For, al- though the small state may have a national coinage of its own, yet, the frequent necessity of taking the foreign instead of the national coin in payment, requires the fixation of the ratio of their relative value, in the current transactions of business. There are many mischiefs attending the use of foreign coin, arising chiefly from the great variation of weight and quality. It is often extremely old, worn, and defaced; not having par- ticipated in the general re-coinage of the nation that issued it, where, perhaps, it is no longer current; all which circumstan- ces, though considered in settling its current relative value to the local coin, yet, do not quite reduce it to the natural level of depreciation. Bills drawn from abroad upon such a state, being payable in the coin thus rendered current, are, in consequence, nego- ciated abroad at some loss; and those drawn upon foreign countries, and, consequently, payable in coin of a more steady and intelligible value, are negociated in the smaller state at a premium, because the holder of them must have purchased them in a depreciated currency. In short, the foreign coin is always exchanged for the local currency to a loss.(«) The remedy devised by states of this inferior class is the subject of the present section. They established banks,* where private merchants could lodge any amount of local na- tional coin, of bullion, or of foreign coin, reckoned by the bank as bullion; and the amount, so lodged, was entered as so * Venice, Genoa, Amsterdam, and Hamburgh had each an establishment of this nature. All have been swept away by the torrent of the revolu- tionary war; but there may be some use in examining the nature of institu- tions, that may some day or other be re-established. Besides, the investi- gation will throw light upon the history of the communities that established them, and of commerce in general. At any rate, it was necessary to enu- merate all the various expedients that have been resorted to as substitutes for money. (a) Why, our author has not told us; but it may be infen-ed, because the local currency is made up of foreign and domestic coin. This is by no means a necessary consequence; for the local authority may have left the con- tracts of individuals quite free; and their paper-dealings may be expressed in any coin that may be preferred. T, 35 218 ON PRODUCTION. book i. much money of the legal national standard of weight and quality. At the same time the bank opened an account with each merchant making such deposit, giving him credit for the amount of the deposit. Whenever a merchant wanted to make a payment, there was no occasion to touch the deposit at all; it was sufficient to transfer the sum required, from the credit of the party paying, to that of the party receiving. Thus, values could be transferred continually by a mere transfer in the books of the bank. The whole operation was conducted without any actual transfer of specie; the original deposit, which was entered at the real intrinsic value at the time of making it, remained as security for the credit transferred from one person to another: and the specie, so lodged with the bank, was exempt from any reduction of value by wear, fraud, or even legislative enactment. The money still remaing in circulation, wherever it was ex- changed for the bank deposits, that is to say, for entries in the bank books, necessarily lost in proportion to the reduction of its intrinsic value. And this loss occasioned the difference of value, or agio at Amsterdam, between bank money and circu- lating money, which was on the average from 3 to 4 per cent, in favour of the former. It will easily be imagined, that bills of exchange, payable in a currency so little liable to injury or fluctuation, must be ne- gotiable on better than ordinary terms. In fact, it was observ- able, that on the whole, the course of exchange was rather in favour of the countries, that paid in bank, and unfavourable to those that paid in circulating money only. The bank retained these deposits in perpetuity; for the re- issue would have been attended with serious loss; inasmuch as it would have been the same thing, as producing good money of the full original value, to be taken at par with the deterio- rated circulating coin, which passes current for — not its intrin- sic, but its average weight. The coin withdrawn from the bank would have been mixed up with the mass of circulation, and passed current at par with the rest. So that the withdraw- ing such deposits would have been a gratuitous sacrifice of the excess of value of bank above circulating money. This is the nature of banks of deposit; most of which com- bined other operations with the primary object of their insti- tution, but of them I shall speak elsewhere. They derived their profits, partly from a duty levied upon every transfer, and partly from operations incident to, and compatible with their institution; as, for example, advances made upon a de- posit of bullion. It is evident, that the inviolability of the deposit, confided to them, is essential to the success of such establishments. At Amsterdam, the four burgomasters, or municipal magistrates, were trustees for the creditors. Annually, on leaving office, they handed over the trust to their successors, who, after in- specting the account and verifying it by the registers of the CHAP. XXII. ON PRODUCTION. 219 bank, bound themselves by oath, to surrender their charge in- violate to their successors in office. This trust was scrupu- lously executed from the first establishment of the bank in 1 609 until 1672, when the forces of Louis XIV. penetrated as far as Utrecht. The deposits were then faithfully restored to the individuals. It would seem to have been afterwards less scru- pulously managed; for, when the French took possession of that capital in 1794, and called for a statement of the concern, it was found to be in advance of no less a sum than 10,624,793 florins to the India company, and to the provinces of Holland and West-Friezeland, which were wholly unable to re-pay it. In a country governed by a power without control or respon- sibility, it may be expected, that such a deposit would have been still more exposed to violation, (a) SECTION III. Of Banks of Circulation or Discount, and of Bank-notes^ or Convertible Paper. There is another kind of bank, founded on totally different principles; consisting of associated capitalists, subscribing a capital in transferable shares, to be employed in various pro- fitable ways, but chiefly in the discount of bills of exchange, that is to say, the advance of the value of commercial paper not yet due, with the deduction of interest for the time it has to run, which is called, the discount. These companies, with a view to enlarge their capital and extend their business, commonly issue notes, purporting to bear a promise to pay to bearer at sight, the gold or silver specifi- ed on the face of them. Their security for the due discharge of these engagements is, the commercial paper held by the bank, and subscribed by individuals in solvent circumstances; for the company gives its notes in discount, or, what is the same thing, in purchase of this paper. {a) Public banks of deposit are now quite obsolete, and will probably never be revived. In fact they are clumsy expedients suited only to the early stag'es of commercial prosperity, and are liable to many inconveni- ences. They hold out a strong temptation to internal fraud and violence, as well as to external rapacity; they withdraw from active utility a larg-e portion of the precious metals, which mig-ht pei'haps be tui'ned to better account elsewhere; and they yield a degree of facility of circulation no- wise superior to what may be afforded by the common process of banking, except perhaps in security, and infinitely more expensive to the public and to individuals. They have accordingly been every where supplanted by banks of circulation, or by the expedient of an inconvertible paper- money. T. 220 OJSr PRODUCTION. BOOK i. The private commercial paper, indeed, having a term to run before it falls due, can not be available in discharge of notes payable at sight; for which reason, every well-conducted bank of circulation confines its advances of cash, or notes payable in cash at sight, to the discount of bills at very short dates, and is careful to have always in hand a considerable amount of specie, probably a third, or as much as the half of the total amount of their circulating notes; and, even with all possible caution, it is at times greatly embarrassed, whenever a want of confidence in its solvency, or any untoward event, causes a sudden run upon the bank for cash. The bank of England has been obliged, on an occasion of this kind, to scrape toge- ther as many sixpences as it possibly could find, to gain time by the delay inseparable from payments in such a diminutive coin, until a part of the paper in its possession had fallen due. The discount bank of Paris, in the year 1788, being then un- der control of Government, had recourse to similar paltry ex- pedients. The profits of banks of circulation are very considerable; that portion of the notes, which is issued on the credit of pri- vate commercial paper, continues running at interest; for the advances have been made with the deduction of the discount. But the portion of the paper, issued on the credit of the specie in reserve, brings no profit; the interest lying dormant in the specie thus withdrawn from circulation. The banks of England and France make no advances to pri- vate persons, except on bills of exchange, and give no credit beyond the funds in hand. They indemnify themselves for the trouble of receiving and paying on account of individuals, by turning to account the floating balance left in their hands. These two establishments have, besides, undertaken the busi- ness of paying the interest upon the respective national debts, receiving an allowance for their trouble; furthermore, they oc- casionally make advances to the governments. From these various operations, they derive a great increase of their profits. The one last mentioned, however, is com- pletely at variance with the purposes of their establishment, as we shall presently find. The advances made to the old go- vernment of France by the then bank of discount, and those of the bank of England to the English government, compelled those bodies to apply to the respective legislatures to give their notes a compulsory circulation; thus destroying their funda- mental requisite of convertibility. The consequence has been, that the former of these banks went all to pieces, and the latter .... The establishment of several banks, for the issue of convert- ible notes, is more beneficial than the investment of any single body with the exclusive privilege; for the competition obliges each of them to court the public favour, by a rivalship of ac- commodation and solidity. Banks of circulation issue their notes either in the discount CHAP. XXII. ON PRODUCTION. 221 of bills of exchange, that is to say, in giving their notes paya- ble at sight, and circulating like cash, in exchange for private paper, payable at a future date upon which interest is deduct- ed; which is the course pursued by the present bank of France, and by all the English banks, public and private; or else in lending at interest to solvent individuals, like those of Scot- land. Merchants of good credit are, in the latter wa)^, sup- plied with the sums necessary for their current expenses and payments, and each of them is thereby enabled to embark his whole capital in his commercial enterprises, without being obliged to reserve any part to meet the calls upon him in the course of business. The merchant of Paris or London must contrive matters, so as to have always on hand either in his private coffers or in the bank, a sum sufficient to face the de- mands upon him; whereas, the merchant of Edinburgh is re- lieved from this necessity, and at liberty to invest the whole of his funds, in the confidence that the bank will advance him thfe money he may happen to require. («) A bank of circulation affords the advantage of economizing capital, by reducing the amount of the sum, kept in reserve for the current and contingent expenses of the individuals it accommodates. Bank bills or notes, payable on demand, and circulating as cash, play so important a part in the progress of national wealth, and have engendered such important errors in the brain of many writers of repute and information on other to- pics, that it will be worth while to examine their nature and consequences in a very particular manner. I should premise, that the residue of this section applies ex- clusively to bank-notes, depending solely upon the credit of the bank for their currency, and convertible at pleasure into cash or specie. It is a matter no less of curiosity than of importance, to in- quire whether bank-notes, or paper destitute of intrinsic value, be any addition to the stock of national wealth, and what, if any, is the possible extent of that addition; for, were there no limits to it, there could be no end to the wealth, that a state might acquire in a short time by the mere fabrication of some reams of paper. The solution of this grand problem may be set down as one of Smith's happiest efforts; yet it is not every body, that comprehends his reasoning; I will try to render it more generally intelligible. The wants of a nation require a certain supply of each par- (a) The two methods resolve themselves practically into one; for mer- chants of good credit can always procure discountable paper; and the sole essential difference is, that, in one case, the credit is individual and un- evidenced, in the other, evidenced, and, in most cases, joint also. The bank of England requires the names of more than one firm on the paper it discounts. Country bankers often content themselves with the security, or note of hand, of the borrower alone. T. 222 ON PRODUCTION. book t. ticular commodity, and the extent of that supply is determined by the relative prosperity of the nation for the time being. A surplus of each of those commodities beyond this demand is either not produced at all, or, if produced, must occasion a de- cline of relative local value: it, therefore, naturally finds its way out of the country, and goes in quest of a market, where it may be in higher estimation. Money is, in this respect, like all other commodities; it is a convenient agent, and, therefore, employed as such in all opera- tions of exchange; but the intensity of the demand for it is de- termined in each community, by the relative extent and ac- tivity of the exchanges negotiated within it. As soon as there is a supply of money sufficient to circulate all the commodities there are to be circulated, no more money is imported; or, if a surplus flow in, it emigrates again in quest of a market, where its value is greater, or where its utility is more desired. It is seldom or never that any body keeps in his purse or his cof- fers more specie, than enough to meet the current demand^of his business or consumption.* Every excess beyond these demands is rejected, as bearing neither utility nor interest; and the community at large is fully supplied with specie, as soon as each individual is possessed of the portion suitable to his condition and relative station in society. It may be safely left to private interest, to make the best use of the excess of specie beyond the demand for circulation. The notion, that every item of specie, that crosses the fron- tier, is so much dead loss to the community, is just as absurd as the supposition, that a manufacturer is so much the poorer, every time he parts with his money in the purchase of the in- gredient or raw material of his manufacture; or that individuals, the aggregate of whom makes up the nation, present foreigners gratuitously with all the money they part with. Taking it for granted, then, that the specie, remaining in circulation within the community, is limited by the national demand for circulating medium; if any expedient can be de- vised, for substituting bank-notes in place of half the specie, or the commodity, money, there will evidently be a super- abundance of metal-money, and that superabundance must be followed by a diminution of its relative value. But, as such diminution in one place by no means implies a cotemporaneous diminution in other places, where the expedient of bank-notes is not resorted to, and where, consequently, no such supera- bundance of the commodity, money, exists, money naturally resorts thither, and is attracted to the spot where it bears the highest relative value, or is exchangeable for the largest quan- tity of other goods: in other words, it flows to the markets where commodities are the cheapest, and is replaced by goods, of value equal to the money exported. * No account is here taken of the money hoarded, which, for the national interest, might just as well have remained in the mine. CHAP. XXII. ON PRODUCTION. 223 The money, that can emigrate in this manner, is that part only of the circulating medium, which has a value elsewhere than Avithin the limits of the nation; that is to say, the specie or metal-money. Since, however, specie does not emigrate with- out an equivalent return; and, since its value, which before existed in the shape of specie, and was exclusively engaged in facilitating circulation, thenceforth assumes the form of a va- riety of commodities, all items of the reproductive national capital, there follows this remarkable consequence; that the na- tional capital is enlarged to the full amount of all the specie exported upon the introduction of the substitute. Nor is the internal national circulation at all cramped for want of money by this export; for the functions of the specie, that has been withdrawn, are just as well performed by the paper substituted in its stead. However valuable an acquisition the national capital may thus receive, it must not be rated above its real amount. I have supposed, for the sake of simplicity, that half the specie might be replaced by circulating notes: but this is a monstrous proportion; particularly if it be considered, that paper can not retain its value as money any longer than while it is readily and instantly convertible into specie; I say, readily and instantly, because otherwise people would prefer specie, which is at all times, and without the least hesitation, taken for money. To insure this requisite convertibility, it is ne- cessary, that, besides having at all times a fund in reserve, in private bills or securities, or in specie, sufficient to meet all the notes that may be presented, the bank itself should be at all times within reach of the holders of its notes. Therefore, if the territory be of any extent, and the notes so generally cir- culated, as to form half of the circulating medium, the subor- dinate offices of the bank must be greatly multiplied to place them within reach of all the note holders. But, granting the possibility of such an arrangement, and admitting, that paper might supplant as much as half the re- quisite national currency of specie, let us see what would be the amount of the acquisition to the national capital. No writer of repute has ventured to estimate the requisite circulating specie of any nation, higher than 1-5 of the annual national product; some indeed have reckoned it as low as 1-30. Taking the highest estimate, viz. 1-5 of the annual product, which, for my own part, I consider greatly above the reality in any case; a nation, whose annual product should amount to 20 millions, would need but 4 millions of specie. Therefore, in case the half, or 2 millions, were supplanted by circulating paper, and employed in augmenting the national productive capital, that capital would be once for all augmented, by a value equal to 2-20 or 1-10 of the annual product of the nation. Again, the annual product of a nation would, probably, be much over-rated at 1-10 of the gross national productive capi- tal; but let it be set down at that rate, allowing 5 per cent, interest on productive capital, and 5 per cent, wages and profits 224 ON PRODUCTION. book i. of the industry it sets in motion. On this calculation, sup- posing the paper substitute to add to the national capital, in the ratio of 1-10 of its annual product, this addition will not, at the highest estimate, exceed 1-100 of the previous capital. Although the practicable issue of bank-notes procures to a nation of moderate wealth an accession of capital, much less considerable than people may fondly imagine, this accession is, notwithstanding, of very great value; for, unless the pro- ductive energy of the nation be extremely great, as in Great Britain, or the national spirit of frugality very general and per- severing, as in Holland, the annual savings withdrawn from unproductive consumption, to be added to productive capital, form, even in thriving states, a very inconsiderable portion of the gross annual revenue. Nations, whose production is sta- tionary, as every body knows, make no addition to their pro- ductive capitals; and the consumption of those on the decline annually encroaches on their capitals. Should the paper-issues of a bank at any time exceed the de- mands of circulation, and the credit enjoyed by the establish- ment, there follows a perpetual reflux of its notes, and it is put to the expense of collecting specie, which is absorbed as fast as collected. The Scotch banks, though productive of great benefit, have been obliged, upon such trying occasions, to keep agents in London constantly employed, in scraping specie to- gether at a charge of two per cent., which specie was instantly absorbed. The bank of England, in similar circumstances, was under the necessity of buying gold bullion, and getting it coined; and this coin was melted again as fast as it was paid by the Bank, in consequence of the high price of the metal, which was itself the effect of the constant purchases made by the Bank, to meet the calls upon it for specie. In this manner, it sustained the annual loss of from 2 J to 3 per cent., upon a sum of about 850,000/.,* more than 20 millions of our money. I say nothing of the situation of this bank of late years, since its notes have acquired a forced circulation, and, consequently, altered their nature entirely. The notes issued by a bank of circulation, even if it have no funds of its own, are never issued gratuitously; and, therefore, of course, imply the existence, in the coffers of the bank, of a value of like amount, either in the shape of specie, or of se- curities bearing interest; upon which latter only, the whole real advance of the bank is made; and this advance can never be made upon securities that have a long time to run; for the securities are the fund, that is to provide for the discharge of another class of securities, in the hands of the public at large, payable at the shortest of all possible notice; viz., at sight. Strictly speaking, a bank can not be at all times in a condition to face the calls upon it, and deserve the entire confidence of the public, unless the private paper it has discounted, be all, * Wealth of Nations, Book ii. c. 2. CHAP. XXII. ON PRODUCTION. 225 like its own notes, payable at sight; but, as it is no easy matter to find substantial assets, that shall bear interest, and at the same time be redeemable at sight, the next best course is to confine its issues to bills of very short dates; and, indeed, well-conducted banks have always rigidly adhered to this principle. From the preceding considerations may be deduced a con- clusion, fatal to abundance of systems and projects; viz. that credit-paper can supplant, and that but partially, nothing more than that portion of the national capital performing the func- tions of money, which circulates from hand to hand, as an agent for the facility of transfer; consequently, that no bank of circulation, or credit paper of any denomination whatever, can supply to agricultural, manufacturing, or commercial en- terprise, any funds for the construction of ships or machinery, for the digging of mines or canals, for the bringing of wasteland into cultivation, or the commencement of long-winded specula- tions; any funds, in short, to be employed as vested capital. The indispensable requisite of credit-paper is, its instant con- vertibility into specie; when the sum total of the paper issued does not exist in the coffers of the bank, under the shape of specie, the deficit should at least be supplied by securities of very short dates; whereas, an establishment, that should lend its funds to be vested in enterprises, whence they could not be withdrawn at pleasure, could never be prepared with such se- curities. An example will illustrate this position. Suppose a bank of circulation to lend 30,000 Jr. of its notes, circulating as cash, to a landholder on mortgage of his land, presenting the amplest security. This loan is destined by the landholder to the construction of necessary buildings, for the cultivation of the estate; for which purpose he contracts with a builder, and pays him the 30,000/r. of notes advanced by the bank. Now, if the builder, after a short lapse of time, be desirous of turn- ing the notes into specie, the bank can not pay him by a.trans- fer of the mortgage. The only property the bank has to meet the 30,000yr. of notes is a security, ample beyond doubt, but not available at the moment. The securities in the hands of a bank, I hold to be a solid basis for the whole of its issues of notes, provided those secu- rities be of solvent persons, and have not too long to run; for the securities will be redeemed either with specie, or with the notes of the bank itself. In the first case, the bank is suppli- ed with the means of paying its notes; in the second, it is sav- ed the trouble of providing for them. If, by any circumstance, the notes be deprived of their pow- er of circulating as specie, the task of replacing the metal for the paper-money does not devolve upon the bank; nor was it at the first saddled with the business of turning to account the metal money its notes rendered superfluous. For, as we have already observed, the bank can extinguish the whole of its paper with the private securities it holds. The inconvenience 36 326 ON PRODUCTION. book i. falls upon the public, which is under the necessity of finding a new agent of circulation, either by a re-import of the metal- money, or by the substitution of private paper; but probably the public would, in such circumstances, apply again to a bank conducted on sound principles.* This will serve to explain, why so many schemes of agricul- tural banks for the issue of circulating and convertible notes on ample landed security, and so many other schemes of a simi- lar nature, have fallen to the ground in very little time, with more or less loss to the shareholders and the public, t Specie is equivalent to paper of perfect solidity, and payable at the moment; consequently it can only be supplanted by notes of unquestionable credit, and payable on demand; and such notes can not be discharged by a bare security, even of the best pos- sible kind. For the same reason, bills of exchange in the nature of ac- commodation-paper, as it is called, can never be a sound basis for an issue of convertible paper. Such bills of exchange are paid when due by fresh bills, that have a further term to run, and are negotiated with the deduction of discount. When the latter fall due, they are met by a third set payable at a still later date, which are discounted in like manner. If the bank discounts such bills, the operation is no more than an expedi- ent for borrowing of the bank in perpetuity; the first loan being paid with a second, the second with a third, and so on. And the bank experiences the evil of issuing more of its notes, than the circulation will naturally absorb, and the credit of the establishment will support; for the notes, borrowed upon such bills, do not help to circulate and diffuse real value, because they represent and contain no real value themselves; conse- quently, they continually recur to be exchanged for specie. It is on this account, that the discount-bank of Paris, while it con- tinued to be well administered, did, as the present banks of France and of England do still refuse, as far as it is able, to discount accommodation-paper. The consequences are similar and equally mischievous, • Since the first publication of this passage, this very circumstance has happened in respect to the bank of Paris, in 1814 and 1815, when that capi- tal was besieged and occupied by the allied armies. The advances of the bank to the government, and to individuals, which could not be recalled immediately, did not exceed the capital of the establishment, for which the share-holders can not be called upon; and its paper-issues, payable to bearer, were all covered, either by specie in hand, or by commercial paper of short dates. By this means, notwithstanding the veiy critical circumstances of the moment, the merchants continued to employ its notes; which they could not well do without; and they were paid as usual in cash without interrup- tion, during the whole of the hostile occupation: which shows at once the utility of a bank of circulation, and the advantage of leaving inviolate the convertibility of its paper-issues. -fin 1803, the land-bank of Paris was, for this reason, obliged to suspend the payment of its notes in cash; and to give notice, that they would be paid off by instidments out of the pi'oceeds of its real securities. CHAP. XXII. ON PRODUCTION. 227 when a bank makes advances to government in perpetuity, or even for a very long period. (a) This was the cause of the failure of the Bank of England. Not being able to obtain pay- ment from government, it was unable to withdraw the notes in which the loan was made. From that moment its notes ceased to be convertible; they have since enjoyed a forced circulation. The government, being itself unable to supply the bank with the means of payment, discharged that body from its liability to its own creditors.* The holders of the notes of a bank issuing convertible pa- per run little or no risk, so long as the bank is well adminis- tered, and independent of the government. Supposing a total failure of confidence to bring all its notes upon it at once for payment, the worst that can happen to the holders is, to be paid in good bills of exchange at short dates, with the benefit of discount; that is to say, to be paid with the same bills ofex- • Thornton, in his tract on the Paper Credit of Great Britain, written ex- pressly with a view to justify the suspension of cash-payments by that es- tablishment, has attacked the positions of Smith upon this subject. He tells us, that the extraordinary run upon the bank, which broug-ht about the suspension, was occasioned, not by the excess of its issues, but, on the contrary, by their partial contraction. 'An excessive limitation of bank- notes,' he observes, • will produce failures, failures must cause consterna- tion, and consternation must lead to a run upon the bank for guineas.' By this reference to an extreme case, he endeavours to support his paradoxical opinions. When a convertible paper has succeeded in driving out of the country too large a portion of the metalic money, and the confidence in the paper happens suddenly to decline, great confusion and embarrassment ■will doubtless ensue, because the remaining agent of circulation is insuffi- cient to effect the business; but it is a great mistake to suppose, that tlie deficiency can be remedied by the multiplication of a paper, not enjoying the confidence of the public. If the bank of England was able to siu-vive the shock, it was because of the indispensable necessit}' of some agent of transfer, of some money or other, of paper in default of all others, in so commercial a country; because the government and the bankers of London, who were interested in the safety of the bank, unanimously agreed not to call upon it for cash, until it should be in a condition to pay; that is to say, until the government should have paid its advances in actual value. Tlie bank had lent to the government more than its whole capital; for to that extent it might have gone with safety, its capital not being wanted for tiie discharge or convertibility of its paper; had it not so done, the short bills in its possession would have been suilicient for the extinction of its converti- ble paper. (a) That is to say, advances its notes. A bank, like an individual, may advance its capital, which then becomes more or less vested or fixed. The whole capital of the Bank of England has been thus advanced; and there ■would have been no danger, had it not advanced its notes also. When the advances of paper are made upon transferable securities, stock, exchequer bills, and the like, those securities may be sold for cash, or for the notes of the bank itself, so long as they retain their value, and thus the safety and solvency of the bank maintained. But this operation is unnecessarily com- plex; for the government might itself have sold, and thus have saved the brokerage or profit accruing upon the operation to the Bank. T 228 ON PRODUCTION. book t. change, whereon the bank has issued its notes. («) If the bank have a capital of its own, there is so much additional security, but, under a government subject to no control, or to nominal control only,* neither the capital of the bank, nor the assets in its hands, offer any solid security whatever. The will of an arbitary prince is all the holders have to depend upon; and every act of credit is an act of imprudence. As far as I am capable of judging, such is the effect of banks of circulation and of their paper issues upon individual and national wealth. This effect is described by Smith in a quaint and ingenious metaphor. The capital of a nation he likens to an extensive tract of country, whereupon the cultivated dis- tricts represent the productive capital, and the high roads the agent of circulation, that is to say, the money, that serves as the medium to distribute the produce among the several branches of society. He then supposes a machine to be in- vented, for transporting the produce of the land through the air; that machine would be the exact parallel of credit-paper. Thenceforward the high roads might be devoted to cultiva- tion. 'The commerce and industry of the country, however,' he continues, 'though they may be somewhat augmented, can not be altogether so secure, when they are thus, as it were, suspended upon the Daedalian wings of paper-money, as when they travel about upon the solid ground of gold and silver. Over and above the accidents, to which they are exposed from the unskilfulness of the conductors of this paper-money, they are liable to several others, from which no prudence or skill of those conductors can guard them. An unsuccessful war, for example, in which the enemy got possession of the capital, and consequently of that treasure, which supported the credit of the paper-money, would occasion a much greater confusion in a country, where the whole circulation was carried on by paper, than in one, where the greater part of it was carried on * At the period of my writing, the Parliament of Great Britain represents the interests, not of the nation, but of the ministry, which is an ohgarchical faction, nominated by the king-. (a) Our autlior's view of the virtual constitution of this country is theo- retically just; and would be practically so, where there not another power, that really directs tlie public councils, though in a very inefficient and clumsy manner. The representative body represents, not interests but per- sons, and is wholly at the beck of an)' degree of folly or wickedness that may happen to get into office, liut violent abuses geiierate violent reme- dies; and, as the despot in Turkey is controlled by the fear of the bow"-string, so the corruption of an ill-chosen legislature is checked by public opinion, animated by freedom of speech and of the press. The legislative body is of little use, but as a means of rousing the energy of public opinion. Were the doors of Parliament closed, the paper of England might soon become as little effectual, as one that should be issued by the Ottoman Porte, or the Sophi. Whence may be seen the absolute necessity of preserving, at all hazards, the sole remaining check to abuse and national decay. 1'. CHAP. XXII. ON PRODUCTION. 229 by gold and silver. The usual instrument of commerce hav- ing lost its value, no exchanges could be made but either by- barter or upon credit. All taxes having usually been paid in paper-money, the prince would not have wherewithal either to pay his troops, or to furnish his magazines; and the state of the country would be much more irretrievable, than if the greater part of its circulation had consisted in gold and silver. A prince, anxious to maintain his dominions at all times in the state, in which he can most easily defend them, ought upon this account to guard, not only against that excessive multiplication of paper money, which ruins the very banks which issue it, but even against that multiplication of it, which enables them to fill the greater part of the circulation of the country with it.'*(«) Forgery alone is enough to derange the affairs of the best conducted and most solid bank. An^ forgery of notes is more to be apprehended, than counterfeits of specie. The stimulus of gain is greater. For there is more profit to be made by converting a sheet of paper into money, than by giving the appearance of precious metal to another metal, that has some though verj" little, intrinsic value, especially if it be compound- ed or covered with a small portion of the counterfeited metal; and perhaps, too, the materials for the former operation are less liable to discovery. Besides, the counterfeits of specie can never reduce the value of the specie itself, because the latter has an intrinsic and independent value as a commodity; where- as, the mere belief that there are forged notes abroad, so well executed, as to be scarcely distinguishable from the genuine, is enough to bring both forged and genuine into discredit. For which reason, banks have sometimes preferred the loss of paying notes they know to be forged, to the hazard of bringing the genuine ones into discredit, by the exposure of the fraud. (Z>) * Wealth of Nations, book ii. e. 2. (a) Smith is here speaking- of convertible paper, which is never paper- money. The difference is now beginning to be understood; in his time it was not perceived, although he instances tlie English colonies of North America, as having establislied an inconvertible paper. Most of tlie incon- veniences he mentions witli regard to convertible, attach also to inconverti- ble paper; whicli is also more liable to excessive issue, and to the abuse of the public authority. But it has advantages not possessed by its precur- sor, convertible paper. T. (b) The past experience of England has shown, that the danger of forge ry is far less than our autlio'r seems to imagine; for, with the most mo- derate skill of execution, it has been unable materially to affect the value of the paper at large even when tliat paper was most abundant. An ex- periment is about to be tried, for the furtlier reduction of this danger, and with every prospect of success. The injury to morals, and increase of crime and punishment, has, indeed, been most calamitous, but it must be remembered, tliat this branch of criminality only has thriven, and tliat otliers have been wonderfully checked. Highway robbery has almost 230 ON PRODUCTION. book i. One method of checking the immoderate use of notes is, to limit them to a fixed and high denomination of value; so as to make them adapted to the circulation of goods from one mer- chant to another, but inconvenient for the circulation between the merchant and the consumer. It has been questioned, whether a government has any right to prohibit the issue of small notes, while the public is willing to take them; and whe- ther such limitation be not a violation of that liberty of com- merce, which it is the chief duty of a government to protect. But the right undoubtedly is just as complete, as that of order- ing a building to be pulled down, because it endangers the public safety. SECTION IV. Of Paper-Money. The distinctive appellation of paper-money, I have reserv- ed exclusively for those obligations, to which the ruling pow- er may give a compulsory circulation in payment for all pur- chases, and discharge of all debts and contracts, stipulating a delivery of money. I call them obligations, because, though the authority that issues, is not bound to redeem them, at least not immediately, yet they commonly express a promise of re- demption at sight, which is absolutely nugatory; or of redemp- tion at a date expressed, for which there is no sort of security; or of territorial indemnity, the value of which we shall present- ly inquire into. Such obligations, whether subscribed by the government or by individuals, can be converted into paper-money by the public authority only, which alone can authorize the owners of money to pay in paper. The act is, indeed, an exertion, not of legitimate, but of arbitrary authority; being a deterioration of the national money in the extreme degree. Upon the principles above established, it should seem, that a money destitute of all value as a commodity, ought to pass for none in all free dealing subsequent to its issue; and this is always the case in practice sooner or later. The notes of what was improperly called Law's Bank, and the assigndts issued during the French revolution, were never regularly called in or cancelled; yet those of the highest denomination would not pass at present for a single sol. How, then, came they ever ceased; and no battel' engine of police could have been devised, for the detection of fraud or spohation, than a paper-money well conducted. The projected improvement in the execution, it is hoped, will check the crime of forgery, without reducing the present check upon all other branches of criminalit}'. T. CHAP. XXII. ON PRODUCTION. 231 to pass for more than their real value? Because there are many- expedients of fraud and violence, which will always have a temporary efficacy. In the first place, a paper, wherewith debts can be legally, through fraudulently, discharged, derives a kind of value from that single circumstance. Moreover, the paper-money may be made efficient to discharge the perpetually recurring claims of public taxation. Sometimes a tariffe or maximum of price is established; which, indeed, soon extinguishes the production of the commodities affected by it, but gives to the paper-money a portion of the value of those actually in existence. Besides, the very creation of a paper-money with forced circulation oc- casions the disappearance of metallic money; for, as it is made to pass at par with the paper, it naturally seeks a market, where it can find its true level of value. The paper-money is thus left in the exclusive possession of the business of circula- tion; and the absolute necessity of some agent of transfer, in every civilized community, will then operate to maintain its value.* So urgent is this necessity, that the paper-money of England, consisting of the notes of the bank, has been kept at par with specie, simply by the limitation of the issues to the demands of circulation. Nations precipitated into foreign wars, before they have had time previously to accumulate the requisite capital for carry- ing them on, and destitute of sufficient credit to borrow of their neighbours, have almost always had recourse to paper-money, or some similar expedient. The Dutch, in their struggle with the Spanish crown for independence, issued money of paper, of leather, and of many other materials. The United States of America, under similar circumstances, likewise had recourse to paper-money; and the expedient, that enabled the French republic to foil the formidable attack of the first coalition, has immortalized the name of assigndts. * Wherever a paper-money has been established, the difFerence between its value in the home market, where it has utility, and its value in foreig-u markets, where it has no utility, has afforded a fruitful field for speculation, that has enriched many adventurers. In 1811, 100 guineas in gold would purchase at Paris a bill of exchange on London, for 140/. sterling, payable in the paper which was the only currency of England. Yet the difference between gold and paper in the London market at the same period, was only 15 per cent. It was in this way, that the paper was of higher value in England than abroad. Accordingly, 1 find from returns with which I have been favoured, that gold in guineas or bullion was smuggled into the ports of Dunkirk and Gravehnes alone, in the years 1810, 11, 12, and 13, to the amount of 182,124,444 /r. There was a similar speculation in other com- modities at large; but it was attended with more risk and difficulty; the import into France being very hazardous, although the export from En- gland was encouraged in every possible way. Yet this traffic would soon have found its level, for it must have produced bills on England in such quantity, as to have brought the exchange to par at least, had not the con- tinental subsidies of England fui'nished a continual supply of bills on Lon- don without any return. 232 ON PRODUCTION. book i. Law has been unjustly charged with the whole blame of the calamities resulting from the scheme that bears his name. — That he entertained just ideas respecting money, may be gathered from the perusal of a tract* he published in his na- tive country, Scotland, to induce the Scotch government to establish a bank of circulation. The bank established in France, in 1716, was founded on the principles there set forth. Its notes were expressed in these words: " The Bank promises to pay the bearer at sight ****** livres in money of the same weight and standard as the money of this day. value received at Paris," &c. — The bank, which was then but a private associajtion, paid its notes regularly on demand: they were not yet metamorphosed into paper-money. Matters remained on this footing, and went on very well, till the year 171 9;t at which period the king, or rather the regent, repaid the shareholders, and took the ma- nagement into his own hands, calling it the Royal Bank. The notes were then altered to this form : " The Bank promises to pay the bearer at sight ****** livres in silver coin. Value received at Paris,^' &c. — This alteration, slight as it was in appearance, was a radical one in substance. The first note stipulated to pay a fixed quantity of silver, viz: the quantity contained in the livres current at the date of issuing the notes. The second merely engaged to pay livres, and so opened a door for whatever al- terations an arbitrary power might think proper to make in the real value expressed by the word livre. And this was called fixing the rate of the paper-money; whereas, on the contrary, it was unfixing, and making it a fluctuating value; and the fluctuations were truly deplorable. Law strenuously opposed the innovation; but principle was compelled to give way to power; and the crimes of power, when the consequen- ces began to be felt, were confidently attributed to the fallacy of the principle. The assigndts issued by the revolutionary government were worth even less than the paper-money of the regency. The latter gave a promise, at least, of paying in silver: and, though the payment might be greatly curtailed, by a deterioration of the silver-coin, yet sooner or later the paper might have been redeemed, if the government had but been more moderate in its issues, and more scrupulous in fulfilling its engagements. But the assigoicits conveyed no right to call for silver; nothing but a right to purchase or obtain the national domains. Let us see what this right was really worth. The original assigndts purported to be payable at sight the * This work was translated into French while Law continued in the office of" Controller-General of France; and is entitled Considerations on Commerce and Money. ■j- Vide Dutot. torn. ii. p. 200, for a detail of the beneficial effects of the institution, as originally conducted. CHAP. XXI. ON PRODUCTION. 233 Caisse de V Extraordinaire, where they were, in fact, never paid at all. It is true, they were received in payment for the national domains bought by individuals at a competition-price; but the value of these domains could never give any deter- minate value to the assigndts, because their nominal value increased exactly in proportion as that of the assigndts de- clined. The government was not sorry to find the price of national domains advance, because it was thereby enabled to withdraw a greater amount of assigndts, and, consequently, to re-issue new ones, without enlarging the quantity afloat. — It was not aware, that, instead of the national domains ad- vancing in price, the assigndts were undergoing a rapid de- preciation, and that the further that depreciation was pushed, the more assigndts must be issued in payment of an equal quantity of supplies. The last assigndts no longer purported to be payable at sight. The alteration was little attended to, because neither first nor last were, in fact, ever paid at all. But their vicious origin was made more apparent. The paper contained these words: " National domains — ^dssigndt of one hundred yr«wc.y," &c. — Now, what was the meaning of the term one hundred francs? What value did they convey the notion of? Was it the value of the quantity of silver, heretofore known under the designation of one hundred francs? No; for 100 fr. could not possibly be obtained with an assigndt io that amount. Did it convey the idea of as much land, as might be purchased for 100 fr. in silver? Certainly not; for that quantity of land could no more be obtained, even from the government, by an assigndt oi \Q0 fr., than 100 /r. in specie. The domains were disposed of at public auction for as many assigndts as they would fetch; and the value of this paper had latterly so far declined, that one of 100 fr. would not buy an inch square of land. In short, setting aside all consideration of the discredit at- tached to that government, the sum expressed in an assigndt presented the idea of no definite value whatever; and those securities could not but have fallen to nothing, even had the government inspired all the confidence, of v^^hich it was so eminently destitute. The error was discovered in the end, when it was impossible any longer to purchase the most trifling article with any sum of assigndts, whatever might be its anaount. The next measure was to issue manddts, that is to say, papers purporting to be an order for the absolute transfer of the specific portion of the national domains expressed in the manddt: but, besides that it was then too late, the opera- tion was infamously executed. 37 BOOK 11. OF THE DISTRIBUTION OF WEALTH. CHAPTER I. OF THE BASIS OF VALUE; AND OF SUPPLY AND DEMANIT. The principal phenomena of production have been investi- gated in my first book; wherein I have shown how human industry, with the aid of capital and of natural agents and properties, creates every kind of utility, which is the primary source of value; and in what way social institutions and public authority operate to the benefit or the prejudice of production. This second book will be devoted to the consideration of the distribution of wealth: to which end it will be necessary, first, to analyze the nature of value, the object of distribution; se- condly, to ascertain the laws, which regulate the distribution of value, when once created amongst the various members of society, so as to constitute individual revenue. The valuation of an object is nothing more or less than the affirmation, that it is in a certain degree of comparative esti- mation with some other specified object; and any other object possessed of value may serve as the point of comparison. A house, for instance, may be valued in corn or in money. To say that it is worth 20,000 Jr. conveys a more accurate notion of its value, than to say that it is worth 1000 hectolitres of wheat, solely because the habit of reckoning the value of all commodities in coin makes it easier for the mind to form an idea of the value of 20,000yr. in other commodities, that is to say, of the quantity of other commodities obtainable for that sum, than of that obtainable for 100 hectal. of wheat. Yet if wheat be 20 /r. the hectol., the degree of value expressed by each is the same. In every act of valuation, the object valued is the fixed da- tum. In the instance first given, the house is the datum: it 236 ON DISTRIBUTION. book ii. is a definite amount of materials, put together in a definite manner, upon a definite site. But the point of comparison is variable in amount, according to the degree of estimation in the mind of the valuer. If valued at 20,000yr. the house is reckoned to be equivalent to so many pieces of silver coin of the weight of 5 grammes, with a mixture of 1-10 alloy; if at 22,000 /r. or 18,000 /r. it is but a variation of the quantity of the commodity, that is the specific point of comparison. So likewise, if that point be wheat, the variable quantity of that commodity would express the degree of value. Valuation is vague and arbitrary, when there is no assu- rance that it will be generally acquiesced in by others. The owner of the house may reckon it worth 22,000/^. while an in- different person would value it at no more than 1 8,000 yr., and probably neither would be ri^ht. But if another, or a dozen other persons be willing to give for it a specific amount of other comrflodities, say 20,000 />. or 1000 hectol. of wheat, we may conclude the estimate to be a correct one. A house that will fetch 20,000 /r. in the market is worth that sum.* — But if one bidder onl}^ will give that price, and he is unable to re-sell it without loss, he will give more than it is worth. The only fair criterion of the value of an object is, the quantity of other commodities at large, that can be readily obtained for it in exchange, whenever the owner wishes to part with it; and this, in all commercial dealings, and in all money valua- tions, is called the current priceA What is it, then, that determines this current price of com- modities? The want or desire of any particular object depends upon the physical and moral constitution of man, the climate he may live in, the laws, customs, and manners of the particular society, in which he may happen to be enrolled. He has wants, both corporeal and intellectual, social and individual; wants for himself and for his family. His bear-skin and rein- * My brother, Louis Say, of Nantes, has attacked this position in a short tract, entitled, Principales Causes de la Richesse el de la Misere des Pieuples et des Purticuliers, 8vo. Paris. JOeierville. He lays down the maxim, that objects are items of wealth, solely in respect of their actual utility, and not of their admitted or recognised utility. In the eye of reason, his position is certainly correct; but, in this science, relative value is the only guide. Un- less the deg'ree of utility be measured by the scale of comparison, it is left quite indefinite and vag-ue, and, even at the same time and place, at the mercy of individual caprice. The positive nature of value was to be estab- hshed, before political economy could pretend to the character of a science, whose province it is to investigate its origin, and the consequences of its existence. ■\ In the earlier editions of this work, I had described the measure of value to be the value of the other product, that was the point of comparison, which was incorrect. The quantity and not the value of that other product, is the measure of value in the object of, valuation. This mistake gave rise to much ambiguity of demonstration, which the severity of criticism, both fair and unfair, has ti^ught me to correct. Fas tst et ah Iiosie doceri. CHAP. I. ON DISTRIBUTION. 237 deer are articles of the first necessity to the Laplander; whilst their very name is unknown to the lazzarone of Naples, who cares for nothing in the world if he get but his meal of maca- roni. In Europe, courts of justice are considered indispensa- ble to the maintenance of social union; whereas the Indian of America, the Tartar, and the Arab, feel no want of such es- tablishments. It is not our business here to inquire, wherein these wants originate; we must take them as existing data, and reason upon them accordingly. Of these wants, some are satisfied by the gratuitous agency of natural objects; as of air, water, or solar light. These may be denominated natural wealth, because they are the sponta- neous offering of nature; and, as such, mankind is not called upon to earn them by any sacrifice or exertion whatever; for which reason, they are never possessed of exchangeable value. Other wants there are, that can only be satisfied by the em- ployment of objects possessed of an utility, which they could not have been invested with without some modification by human agency, — without having undergone some change of condition, and without some difficulty having been surmount- ed for the purpose. Of this kind are the products of agricul- ture, commerce, and manufacture, in all their infinite ramifica- tions. To them alone is any value attached; and for a very obvious reason; because the very act of production implies an act of mutual exchange, in which the producer has given his personal agency for the product obtained by its exertion. Wherefore, he will hardly resign it Avithout receiving what is, in his estimation, an equivalent. These may be called, social wealth, both because an act of exchange is in itself a so- cial act, and because exclusive property in the product obtain- ed by personal exertion, or by an act of exchange, can only be secured by social institutions. Social wealth, it is to be ob- served, is the only part of human wealth, that can form the subject of scientific research. 1. Because it is the only part that is the object of human estimation, or at least of such esti- mation, as is not altogether arbitrary and mental. 2. Because it is the only one which is created, distributed, and destroy- ed, according to any rules which can be assigned by human science. The knowledge of the ground-work of the quality, value, or rather exchangeable value, leads to the perception of its origin. The items of social wealth are invested with value by the ne- cessity of giving something to obtain them; and that some- thing is productive exertion. When once obtained, when this sacrifice has been made in the attainment, the party is really more wealthy; he has wherewithal to satisfy more wants; and, if the object obtained by this sacrifice be unsuited to the per- sonal wants of the owner, he may make use of it for the at- tainment of some object of personal desire, by the way of ex- change for some other product; which other product will itself be the result of similar productive exertion; so that, in fact, 238 ON DISTRIBUTION. book ii. the exchange will be a mere mutual transfer of the productive exertion on either side, whereof the two products respectively are the result. When 15 kilogr. of wheat are given for 1 kilogr. of coffee, there is a mere transfer of the productive agency exerted in creating the one, for that exerted in the creation of the other.* Wherefore, there is a current value or price established for productive service as well as for products. For, if the agency exerted in the creation of 15 kilogr. of wheat can obtain as its reward, in the way of exchange, either 15 kilogr. of wheat or 1 kilogr. of coffee indifferently, what is there to prevent its obtaining in the same way any other equivalent product, say a yard of cotton cloth, 5 yards of ribbon, a dozen plates, or any thing else? Should the \5 kilogr. of wheat be exchangea- ble for a less amount of any of these commodities respectively, the productive agency exerted in the creation of wheat would be proportionately less rewarded, than that exerted in the creation of the specific commodity; and a portion of the former would be attracted to the latter branch of production, until the recompense of labour in each department should find its fair level. Each class of productive agency has a current price peculiar to itself. If the productive agency exerted in the production of 15 kilogr of wheat can obtain for itself but 1-15 of its own product, it will be entitled to no more than 1-15 of the value of any other product obtainable by exchange for that quantity of wheat; for instance, to 1-15 of 4/r., and so of other products. Thus it is obvious, that the current value of productive ex- ertion is founded upon the value of an infinity of products compared one with another;t that the value of products is not founded upon that of productive agency, as some authors have erroneously affirmed; J and that, since the desire of an object, * It is scarcely necessary to mention, that when commodities are ex- changed, not for one another, but for money, the case is no-wise varied. No seller ever takes money for his own consumption, or for any other pur- pose, than as an object of a second exchange; so that, in reality, the pro- duct sold is exchanged for the product bought with the price. When 15 kilogr. of wheat have been sold for 4/r. and ikilogr. of coffee bought with that 4/r., the wheat has actually been bartered for the coffee, and the mo- ney that has intervened has withdrawn itself as completely, as if it had never appeared at all in the transaction. Wherefore it is quite correct to say, that relative value is determined by the relation of commodities one to another, and not solely by that of each commodity to money. -{- Tt must not be inferred from this passage, that I mean to say, that the pro- ductive agency exerted in raising a product, whose charges of production have amounted to 4/r., although it is saleable for 3/r. only, is therefore worth but ofr. My position merely implies, that this amount of productive service has, in such case, raised a value of 3/r. only, though it might have raised a value of 4/r. i Ricardo, Prin. Pol. Econ. and Taxation, GHAP. I. ON DISTRIBUTION. ^39 and consequently its value, originates in its utility, it is the ability to create the utility wherein originates that desire, that gives value to productive agency; which value is proportionate to the importance of its co-operation in the business of produc- tion, and forms, in respect to each product individually, what is called, the cost of its production. The utility of a product is not confined to one human being, but applies to a whole class of society at the least, as in the case of particular articles of clothing; or to a whole community, as in that of most of the articles of food that are adapted to human consumption in general, without distinction of sex or age. For this reason, the demand for a specific object, or product, or act of productive exertion, has a certain degree of extent. The aggregate demand for sugar in France is said to exceed 500,000 quintals per annum. Even the individual demand of a specific product for individual consumption may be more or less urgent. Whatever be its intensity, it may be called by the general name of demand; and the quantity attainable at a given time, and ready for the satisfaction of those who are in want of the specific article, may be called the supply or amount in circulation. But this must be understood with some limitation; for there is no object of pleasure or utility, whereof the mere desire may not be unlimited, since every body is always ready to receive whatever can contribute to his benefit or gratification. There must, therefore, be some bounds to demand; and the most effectual limitation is, the ability to give some other equivalent product for the object of desire. All the porters in a commercial city might desire to have a coach and six for the more comfortable execution of their business, without rais- ing the price of horses and carriages a tittle. The objects, which each individual has to give as an equivalent for the ob- ject of his desire, are no other than the products of his own productive means, which are limited even in the case of the most wealthy member of society. Wealth is, in all countries, distributed in every degree of gradation, from the populous level of mediocrity to the soli- tary pinnacle of extreme affluence. Accordingly, the products most generally desirable are really demanded by a limited number only, because they alone have wherewithal to obtain them; and even their ability may be more or less according to circumstances. Whence it may be further concluded, that the same product or products may be in greater demand at a lower scale of price, and when attainable by less productive exer- tion, although nowise increased in utility, merely because ac- cessible to a greater number of consumers; and, on the con- trary, less in demand at a higher scale of price, because ac- cessible to a smaller number. Suppose that, in a severe winter, a method should be hit upon of manufacturing knit-waistcoats of woollen at Q Jr. apiece; probably all who should have Qfr. left, after satisfying .240 ON DISTRIBUTION. book n. more urgent wants, would provide themselves with these waist- coats: but those who should have but S/r. left must still go w^ithout. If the same article could be produced at ^fr. these latter also might all be provided and become consumers; and the consumption would be still further extended, if they should be produced at ^fr. only. In this manner, products formerly within reach of the rich alone have been made accessible to almost every class of society, as in the case of stockings. When a product is raised in price, whether by taxation or otherwise howsoever, the contrary effect is experienced; the number of its consumers is reduced; for it can only be obtain- ed by such, as can afford to pay for it; and the ability to pur- chase is not increased by the same causes, that operate to raise the price. Thus in England, the great majority of the popu- lation is wholly precluded from the consumption of vinous li- quors, and of many other articles; for their attainment involves so large a sacrifice of products, or of productive agency, that those only can attempt it, who have a great deal of either to spare. In such cases, not only is the number of consumers diminished, but the consumption of each consumer is reduced also. Though a consumer of coffee may not be compelled, by a rise of its price, to relinquish that beverage altogether, he must at all events curtail the amount of his consumption; which is then like that of two individuals, of whom one discontinues, and the other remains able and willing to continue the use of the article. In commercial speculation, as the purchaser does not buy for his own consumption, he proportions his purchases to what he expects to sell. Since, then, the quantity he can sell de- pends upon the price he can afford to sell at, he will buy less according as the price rises, and more according as it falls. In poor countries, objects of even the commonest use, and of inferior price, frequently exceed the means of a great pro- portion of the population. There are countries, where shoes, though cheap, are out of reach of most of the inhabitants. — The price of this commodity does not fall to a level with the means of the people; because that level is still below the bare cost of production. But, shoes of leather, not being abso- lutely necessary to existence, those who are unable to procure these, wear wooden ones, (saiots,) or go barefoot. When this is unhappily the case with an article of primary necessi- ty, part of the population must perish, or at least cease to be renewed. These are the causes of a general nature, that limit the demand for each product, and for all products in general. In respect to supply, it consists of the whole of any com- modity which the owners for the time being are disposed to part with for an equivalent, in other words, to sell at the cur- rent rate; and not merely of what is actually on sale at the time. The whole of this is also called the circulating or float- ing stock. Yet, strictly speaking, no commodity is in circu- lation, exept during the act of transit from the seller to the CHAP. I, ON DISTRIBUTION. " 241 purchaser, which is almost instantaneous. But the bare act of transit has no influence on the terms of the bargain, to which it is commonly subsequent; it is a mere matter of executive detail. The point of real importance is, the inclination of the owner to part with the object of property. A commodity is in circulation, whenever it is in quest of a purchaser, which it may be in the most urgent need of, without altering its lo- cality in the least. Thus, the stock in a shop or warehouse is in circulation; thus too, lands, rent-charges, houses, and the like, are said to be in circulation; and the expression is intelli- gible enough. Even industry is sometimes in circulation and sometimes not, according as it is either in quest of employ- ment, or already employed. For the same reason, an object ceases to be in circulation, the moment it is set apart, either for consumption or for ex- port to another market, or accidentally destroyed, or with- drawn by the caprice of its owner, or held back at a price, which amounts to a refusal to sell. Inasmuch as supply consists of those commodities only, which are to be had at the current price or ordinary rate of the market, a commodity raised by the cost of production above that level, will cease to be produced, or to form part of the supply. Wherefore, the supply will be more abundant, when the current price is high, and more scanty when that price has declined. Besides these universal and permanent limitations of supply and demand, there are others of a casual and transient nature, which always operate concurrently with the former. The prospect of an abundant vintage will lower the price of all the wine on hand, even before a single pipe of the expected vintage has been brought to market; for the supply is brisker, and the sale duller, in consequence of the anticipation. The dealers are anxious to dispose of their stock in hand, in fear of the competition of the new vintage; while the consumers, on the other hand, retard their fresh purchases, in the ex- pectation of gaining in price by the delay. A large arrival and immediate sale of foreign articles all at once, lowers their price, by the relative excess of supply above demand. On the contrary, the expectation of a bad vintage, or the loss of many cargoes on the voyage, will raise prices above the cost of production. Moreover, there are some particular products, which nature or human institutions have subjected to monopoly, and thus prevented from being supplied in equal abundance with those of a similar description. Of this kind are the wines of par- ticular and celebrated vineyards, the soil of which can not be extended by the extended demand. So the postage of letters is, in most countries, charged at a monopoly-price. Finally, whatever be the general or particular causes, that operate to determine the relative intensity of supply and de- mand, it is that intensity, which is the groundwork of price on 38 342 ON DISTRIBUTION. book ii. every act of exchange; for price, it will be remembered, is merely the current value estimated in money. The demand for all objects of pleasure, or utility, would be unlimited, did not the difficulty of acquirement, or price, limit and circum- scribe the supply. On the other hand, the supply would be infinite, were it not restricted by the same circumstance, the price, or difficulty of acquirement: for there can be no doubt, that whatever is producible would then be produced in un- limited quantity, so long as it could find purchasers at any price at all. Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheap- ness; the price is the point of equilibrium, where the momen- tum of the one ceases, and that of the other begins. This is the meaning of the assertion, that, at a given time and place, the price of a commodity rises in proportion to the increase of the demand and the decrease of the supply, and vice versa; or in other words, that the rise of price is in direct ratio to the demand, and inverse ratio to the supply. The utility of an object, or, what is the same thing, the de- sire to obtain it, may possibly be unable to raise its price to a level with its cost of production. In this case it is not pro- duced, because its production would cost more than the pro- duct would be worth. Probably the price that caviar^ would fetch at Paris would hardly equal the charge of producing it there; for it is so little in request there, that it scarcely would bring the lowest price that it could be procured for, and conse- quently it is not produced; but elsewhere, it is both produced and consumed in great quantities. When the price of any object is legally fixed below the charges of its production, the production of it is discontinued, because nobody is willing to labour for a loss: those, who be- fore earned their livelihood by this branch of production, must die of hunger, if they find no other employment; and those, who could have purchased the product at its natural price, are obliged to go without it. The establishment of the fixed rate, or maximum, is a suppression of a portion of production and consumption; that is to say, a diminution of the prosperity of the community, which consists in production and consump- tion. Even the produce already existing is not so properly consumed as it should be. For, in the first place, the proprie- tor withholds it as much as possible from the market. In the next, it passes into the hands, not of those who want it most, but of those who have most avidity, cunning, and dishonesty; and often with the most flagrant disregard of natural equity and humanity. A scarcity of corn occurs; the price rises in consequence; yet still it is possible, that the labourer, by re- doubling his exertions, or by an increase of wages, may earn wherewithal to buy it at the market price. In the mean time, * A pickle made of the roe of sturgeons, a favourite condiment of Rus- sian diet. CHAP. I. ON DISTRIBUTION. 243 the magistrate fixes corn at half its natural price: What is the consequence? Another consumer, who had already provided himself, and consequently would have bought no more corn had. it remained at its natural price, gets the start of the la- bourer, and now, from mere superfluous precaution, and to take advantage of the forced cheapness, adds to his own store that portion, which should have gone to the labourer. The one has a double provision, the other none at all. The sale is no longer regulated by the wants and means, but by the su- perior activity of the purchasers. It is, therefore, not sur- prising, that a maximum of price on commodities should ag- gravate their scarcity. A law, that simply fixes the price of things at the rate they would naturally obtain, is merely nugatory, or serves only to • alarm producers and consumers, and consequently to derange the natural proportion between the production and the de- mand; which proportion, if left to itself, is invariably established in the manner most favourable to both. Hope, fear, malevolence, benevolence, in short, every hu- man passion or virtue may influence the scale of price. But it is the province of moral science to estimate the intensity of their effect upon actual price in every instance, which is the only thing we are here to attend to. Neither need we advert to the operation of the causes of a nature purely political, that may operate to raise the price of a product above the degree of its real utility. For these are of the same class with actual robbery and spoliation, which come under the department of criminal jurisprudence, although they may intrude themselves into the business of the distribution of wealth. The functions of national government, which is a class of industry, whose°re- sult or product is consumed by the governed as fast as it is produced, may be too dearly paid for, when they get into the hands of usurpation and tyranny, and the people be compelled to contribute a larger sum than is necessary for the main- tenance of good government. This is a parallel case to that of a producer without competitors, whether he have got rid of them by force, or by accidental circumstances. He may raise his product to what price he will, even to the extreme limit of the consumer's ability, if his monopoly be seconded by au- thority. But it is the province of the statesman, and not of the political economist, to teach us how this evil may be avoided. In like manner, although it be the province of ethics, or of the knowledge of the moral qualities of man, to teach the means of ensuring the good conduct of mankind, in their mutual relations, yet, whenever the intervention of a super- human power appears necessary to effect this purpose, those who assume to be the interpreters of that power must be paid for their service. If their labour be useful, its utility is an im- material product, which has a real value; but, if mankind be no-wise improved by it, their labour, not being productive ot 244 ON DISTRIBUTION. book ii. utility, that portion of the revenues of society, devoted to their maintenance, is a total loss; a sacrifice without any return. («) With the most earnest wish to confine myself within my subject, it is impossible to avoid sometimes touching upon the confines of policy and morality, were it only for the purpose of marking out their points of contact. CHAPTER II. OF THE SOURCES OF REVENUE. It has been shown in Book I. , that products are raised by the productive means at the command of mankind, that is to say, by human industry, capital, and natural powers and agents. The products thus raised form the revenue of those possessed of these means of production, and enable them to procure such of the necessaries and comforts of existence, as are not furnished gratuitously, either by nature, or by their fellow creatures. The exclusive right to dispose of revenue is a consequence of the exclusive right, or property, in the means of produc- tion; and such of them, as are not the subject of human appro- priation, are not either items of productive means, or sources of revenue; they form no part of human wealth, which im- plies appropriation and exclusive possession; for there is no such tnmg as wealth, unless where property is known and (a) A national church is a human institution, whatever a priesthood may advance to the contrary. It is but a human means of promoting' national morality; and its efficacy to that end is the measure of its utility, which must at all times determine the propriety of continuing, or remodelling-, or absolutely discarding it. Hence the absurdity of assigning to such an establishment an invariable ratio of the national produce. We learn, that the whole surplus revenue of Egypt, in former times, was in the hands of the ecclesiastics; we must by no means conclude, that it was wrongfully SO; for possibly the business of promoting national morality may have been so urgent, as to have required the whole of that surplus. The efficacy of the peculiar institution is another thing; perhaps the state of human knowledge for the time being may have admitted of no alternative. Hence the impolicy, in Catholic countrieSj of continuing to the priesthood a scale of revenue which may have been not too high in the ages of intellectual darkness. Hence, hkewise, the impolicy, in any state, of upholding a na- tional ecclesiastical establishment, which the prejudices of the majority re- probate so strongly, as to set up a rival institution; as in Ireland. A double institution is thereby maintained, whereof one part is over-salaried by the state, without any benefit to national morality; and the other part is under- paid by individuals, with much less benefit than is practicable. T. CHAP. II. ON DISTRIBUTION. 245 established, and where possession is both acknowledged and secured. The origin or the justice of the right of property, it is un- necessary to investigate, in the study of the nature, and pro- gress of human wealth. Whether the actual owner of the soil, or the person from whom he derived its possession, have ob- tained it by prior occupancy, by violence, or by fraud, can make no difi'erence whatever in the business of the production and distribution of its product or revenue. Perhaps it is scarcely necessary to remark, that property in that class of productive means, which has been called human industry, and in that distinguished by the general name of capital, is far more sacred and indisputable, than in the re- maining class of natural powers and agents. The industrious faculties of man, his intelligence, muscular strength, and dex- terity, are peculiar to himself and inherent in his nature. — And capital, or accumulated produce, is the mere result of hu- man frugality and forbearance to exercise the faculty of con- suming, which, if fully exerted, would have destroyed pro- ducts as fast as they were created, and there never could have been the existing property of any one; wherefore, no one else, but he who has practised this self-denial, can claim the result of it with any show of justice. Frugality is next of kin to the actual creation of products, which confers the most unquestion- able of all titles to the property in them. These several sources of production are some of them alien- able, as land, implements of art, &c.; and some inalienable, as personal faculties. Some also are consumable, as are all the items of floating (a) capital; others, inconsumable, as land. Some, too, there are, that are neither alienable nor consumable, yet are capable of destruction; as the human faculties, intel- lectual and corporeal, which vanish with human existence. Such as are capable of consumption, as, for instance, the floating values, wnereon production expends its energies, may be consumed either in such manner as to occasion a re-pro- duction, in which case they will still constitute a part of the means of production; or in such manner as to yield no further production, in which case they cease to form any part of those means, and are devoted to pure destruction, more or less rapid. Although revenue, as well as the sources of production, is a constituent part of individual wealth, yet no one is reputed to reduce his fortune by the consumption of his revenue only, provided that he does not encroach upon his productive means; because revenue is a regenerating product, whereas the means (a) Capitaux nobiliaires, which has been rendered floating capital, wherein are comprised all products, which the English law terms personal chattels, and which are sometimes called moveables, although some of these are of very slow consumption, as diamonds and precious stones. T. 246 ON DISTRIBUTION. book ii. of production, so long as they continue to exist, are a constant and perpetual source of new products. The current value of these appropriable sources of produc- tion is established on the same principles, as that of all other objects; that is to say, by the conflicting influence of supply and demand. The only remark that need be made upon it is, that the demand does not originate in the enjoyment antici- pated from the immediate use of the particular source; for a field or an implement of trade yield to the owner no direct en- joyment, which is capable of estimation; their value has re- ference to the value of the product they are capable of raising, which itself originates in the utility of that product, or the satisfaction it may be capable of affording. With regard to those sources, that are inalienable, as are the human faculties of mind and body, they can never be the sub- ject of actual exchange, and their value is a matter of mere mental estimation, grounded upon the value they may be capa- ble of producing. Thus, the productive means of this descrip- tion, which yield to an artisan the wages of ^ fr. a day, or of lOOOyr. a year, may be reckoned equivalent to a vested capital yielding an equal annual revenue, (a) And now that we have taken this general and cursory view of the sources of production and of revenue in the aostract, we may enter upon a more minute analysis of their nature, which will lead us into the labyrinth of the science of Political Economy, and furnish us with a clue to some of its most in- tricate windings. The immediate result of these sources is not, strictly speak- ing, a product, but a productive service that helps us to a pro- duct. Products should, therefore, be considered as the result of an interchange of productive service on the one side, and of actual products on the other, subsequently to which, revenue appears for the first time in the shape of products; and these again may be exchanged for other products, into which latter form the same revenue will then be converted. The conception of this matter will be rendered clearer by a practical illustration. A piece of arable land yields an annual product, say of 300 setters of wheat, whereof 200 set., more or less, may be considered as resulting from the agency of the capital and industry employed in its cultivation, and the re- maining 100 set. as resulting from the natural productive pow- ers of the land. The revenue, yielded by the land to the pro- prietor, will have appeared first in the way of concurring pro- ductive service afforded by the object of property, the land; (a) They are of that value to the free individual, wherein they are vested. But, where human faculties are the subject of appropriation, as in the ex- treme case of negro slavery, or the less flagrant one of feudal vassalage, the value of the productive power vested in the appropriated human being is to the appropriator an equivalent to the surplus product, which that being is capable of affording, and not to the gross product. T. CHAP. II. ON DISTRIBUTION. 247 which productive service will have been transferred or lent to the cultivator for the sum of 100 set. of wheat, and this will be the first act of exchange. If these 100 set. of wheat be con- verted into specie, either by the proprietor himself or by the cultivator on his behalf, and in consequence of a mutual ar- rangement, this specie will still be the same identical revenue, though under the, secondary form of money. This analysis will conduct us to a knowledge of the real value of revenue, which falls in with the general definition of value given in the preceding chapter, viz: the amount of other objects obtainable by exchange for the object of intended transfer. What, then, is the object of transfer, for which re- venue is given in exchange? why, the productive service of those means, that the receiver of revenue may be possessed of. And what is obtained by the primary act of exchange, which we designate production? why, products. Wherefore, the value of revenue is large in proportion, not to the value, but to the quantity of the product obtained, to the sum total of utility created. Thus we find, that the ratio of national revenue, in the ag- gregate, is determined by the amount of the product, and not by its value.* It is not so with individual revenue; because a variation in the relative value of different products will operate to swell that of one individual, or class, at the expense of another. Could each member of society live on the primary products whereof his revenue is composed, the relative degree of re- venue would, like that of nations, in the aggregate, depend upon the amount of the product, upon the sum of utility cre- ated, and not upon its exchangeable value. But, in a state of society at all elevated above barbarism, tliis is impossible; each individual consumes a much less quantity of his own pe- culiar product, than of those of other people, which he buys with his own. The grand point, therefore, of individual im- portance to the producer is, the quantity of products not of his own creation, which he may be able to procure with his own productive means, or with the products created by their agency. Suppose, for instance, the land, capital, and personal faculties of a particular individual to be engaged in the culti- vation of saffron; as he will probably himself consume little or no saffron, his revenue will consist of such other objects, as his annual crop of saffron can be exchanged for; and the ratio of that revenue will be elevated by a rise in the price of saffron; while that of the consumers of that article will be proportionately reduced to the full extent of the rise of its * Hence the futility of any attempt to compare the wealth of different nations, of France and England for instance, by comparison of the value of their respective national products. Indeed, two values are not capable of comparison, when placed at a distance from each other. The only fair way of comparing the wealth of one nation, with that of another is, by a moral estimate of the individual welfare in each respectively. 248 ON DISTRIBUTION. book h. price. On the contrary, their revenue will be augmented in like manner by a fall of its price, to the prejudice of the re- venue of the grower. Every saving in the charges of production, that is to say, every saving in the productive agency exerted to raise the same product, is an increase of the revenue of the community to an equal extent; as, for example, the contrivance to raise as much upon one acre of land as before upon two, or to ef- fect with two days' labour, what before required as much as four; for the productive agency thus released may be directed to the increase of production, (a) And this accession of re- venue wall accrue to the individual benefit of the contriver, so long as the^contrivance can be confined to his own knowledge; but to that of consumers at large, as soon as the notoriety shall have awakened competition, and obliged him to limit his pro- fits to the actual charges of production. However revenue may be transformed by the various acts of exchange, commencing with the productive agency, which is the primitive exhibition of revenue, it remains the same in substance, until the moment of its ultimate consumption. The revenue yielded by an acre of arable land remains, in reality^ the same, both after its primary exchange, by the act of pro- duction, into the form of wheat, and after its secondary trans- formation into silver coin, even although the wheat have been consumed by the purchaser. But, as soon as the revenued in- dividual converts his silver coin into an object of consump- tion, and that object is simply consumed, the value of his re- venue thencefortn ceases to exist, and is destroyed and lost, although the silver coin, whose form it once assumed, continue in existence. It must not be imagined still to exist in the hands of the temporary holder of the coin, although lost to the re- ceiver of revenue; but is equally lost to mankind at large; for the actual holder of the coin must have obtained possession of (a) And will be so for the most part, though not entirely, wherever the members of the community have no other hope of subsistence, than from the product of their own productive means: for the whole surphis of re- venue thus created, is sure to go, in the end, to the appropriators of the natural sources of production j leaving those, whose productive means are merely personal, to employ them upon some other object, or upon an en- larged production of the same object. And this is a complete answer to the position of Sismondi and Malthus, that economy of human productive exertion makes the multiplication of unproductive consumers, not only pro- bable, but necessary. But where a poor-law or monastic establishment provides for the subsistence of the human agency thus rendered superfluous, there will probably be no increase of national revenue consequent upon a saving of productive agency; for the surplus labour is thereby released from the necessity of exertion in some other channel. With such institutions, the enlargement of productive power by machinery or otherwise may be very great, without any enlargement of national production, revenue, or wealth. T. CHAP. 11. ON DISTRIBUTION. 249 it by the transfer of other revenue of his own, or of some source of revenue before in his own possession. When revenue is added to capital, it thenceforth ceases to be revenue, or, as such, to be capable of satisfying the wants of the proprietor; it can only yield an increased revenue, be- ing an item of productive capital, consumable in the manner of capital, that is to say, in such way as to yield a product in exchange and return for the value consumed. When capital or land, or personal service, is let out to hire, its productive power is transferred to the renter or adventurer in production, in consideration of a given amount of products agreed upon beforehand. It is a sort of speculative bargain, wherein the renter takes the risk of profit and loss, according as the revenue he may realize, or the product obtained by the agency transferred, shall exceed or fall short of the rent or hire he is to pay. Yet one revenue only can be realized; and, though a borrowed capital may yield to the adventurer an annual product of 10 per cent., instead of 5 per cent, which he pays in the shape of interest, yet the revenue of the capital, the productive service it affords, will not be 10 per cent; for in that gross product is included the recompense of the pro- ductive agency, both of the capital and of the industry that has turned it to account. The actual revenue of each individual is proportionate to the quantity of products at his disposal, being either the imme- diate fruit of his productive means, or the result of those trans- formations from its primitive state, which his revenue may have undergone, until it have assumed the shape of the ultimate object of his consumption. The ratio of that quantity, or of utility inherent in it, can only be estimated from its current price in the dealings of mankind. In this sense, the revenue of an individual is equal to the value derived from his produc- tive means; which value, however, is the greater, in respect to the objects of his consumption, in proportion to the cheap- ness of tnose objects, which augments his command of other than his own immediate products. In like manner, the revenue of a nation is the more consider- able, in proportion to the intensity of the value whereof it consists, i. e. of the value of its aggregate productive powers, and to its high relative degree to the value of the objects of external attamment. The value of productive agency must be high, even where that of products is low; for it should be al- ways recollected, that, since the intensity of value depends upon the quantity of objects obtainable in exchange, revenue, or, in other words, the agency of the national sources of pro- duction, is large, in proportion to the abundance and cheapness of the products derived from them. 39 250 ON DISTRIBUTION. book n. CHAPTER III. OP REAL AND RELATIVE VARIATION OF PRICE. The price of an article is the quantity of money it may be worth; current price, the quantity it may be sure of obtaining- at the particular place. Its locality is material, for the desire of a specific object varies in relation to the quantity procura- ble according to the locality. The price obtained upon the sale of an article represents all other articles procurable with that price. To say, that the price of an ell of broadcloth is AOfr., implies, that it is ex- changeable either for so much coined silver, or for so much of any other product or products as may be procurable with that sum. Money-price is selected for the purposes of illustration^ in preference to price in commodities at large, merely for greater simplicity; but the real and ultimate object of exchange IS, not money, but commodities. Price, in this sense, may be divided into buying-price and selling price; that is to say, the price given to obtain posses- sion of an object, and the price obtainable for the relinquish- ment of its possession. The price paid for every product, at the time of its original attainment or creation, is, the charge of the productive agency exerted, or the cost of its production.* Tracing upwards to this original price of a product, we unavoidably come to other products; for the charge of productive agency can only have been defrayed by other products. The daily wages of the weaver engaged in producing broad-cloth are products; they consist either of the articles of his daily subsistence, or of the money wherewith he may procure them; both which are equal- ly products. Wherefore the production, as well as the sub- sequent interchange of products, may be said to resolve itself into a barter of one product for another, conducted upon a comparison of their respective current prices. But there is one important particular, that requires the most assiduous at- tention, the neglect or oversight of which has led to abun- dance of error and misrepresentation, and has made the works of many writers calculated only to mislead the students in this science. An ell of broad-cloth, that has, in the production, required the purchase of productive agency at the price of AQfr., will have cost that sum in the manufacture; but if three-fourths only of that productive agency can be made to suffice for its * Vide Wealth of Nations ^ book i. c. 5. CHAP. HI. ON DISTRIBUTION. 251 production; if, supposing one kind of productive agency only to be requisite, 15 instead of 20 days' labour of a single work- man be enabled to complete the product, the same ell of broad- cloth will cost but 30 jr. to the producer, at the same rate of wages. In this case, the current price of human productive agency will have remained the same, although the cost of pro- duction will have varied in the ratio of the difference between 30 fr. and 40 /r. But, as this difference in the relation be- tween the cost of production and the current price of the pro- duct holds out a prospect of larger profit than ordinary in this particular channel, it naturally attracts a larger proportion of productive agency, the exertion of which, oy enlarging the supply, reduces again the current price to a level with the bare cost of production.* This kind of variation in the price of a product I shall call real variation of price, because it is a positive variation, in- volving no equivalent variation in the object of exchange, and both may, and actually does occur, without any cotempora- neous variation of the price, either of productive agency, of the products wherewith it is recompensed, or of those, for which the specific object of this real variation is procurable. It is otherwise with regard to the variation of price of pro- ducts already in existence one to another, without reference to their respective cost of production. When the wine of the last vintage, that a month before sold at 200 fr. the ton, will fetch no more than \50fr., money and all other objects of de- sire to the wine-vender have actually advanced in price to him; for the productive agency exerted in raising the wme, receives a recompense of but \50 Jr., instead oi 200 fr. in money, and of commodities in a like proportion, which is an abatement of 4; whereas, in the instance above cited, an equal amount of productive agency will receive an equal recompense in all other products; for a degree of agency, which has both cost and received SO fr., will be eaually well paid with one that has both cost and received 40 /r. In the former case, then, of a real variation, the wealth of the community will have received an accession; in the latter, of relative variation, it will have remained stationary; and for this plain reason; because, in the one case all the purchasers of cloth will be so much the richer, without the seller being any poorer; while, in the other, the gain of the one class will be exactly equipoised by the corresponding loss of the other. In the former case, a larger amount of products will be pro- cured with an equal charge of production, and without any alteration in the revenues of either buyers or sellers: there * The cost of production is what Smith calls the natural price of products, as contrasted with their current or market price, as he terms it. But it results from what has been said above, that every act of barter or exchange, among the rest even that implied in the act of production, is conducted with reference to current price. 252 ON DISTRIBUTION. book ii. will be more actual wealth, more means of enjoyment, without any increased expenditure of productive means; the aggregate utility will be augmented; the quantum of produce procurable for the same price will be enlarged; all which are but varied expressions of the same meaning. But whence is derived this accession of enjoyment, this larger supply of wealth, that nobody pays for? From the in- creased command acquired by human intelligence over the productive powers and agents presented gratuitously by na- ture. A power has been rendered available for human pur- Koses, that had before been not known, or not directed to any uman object; as in the instance of wind, water, and steam- engines: or one before known and available is directed with superior skill and effect; as in the case of every improvement in mechanism, whereby human or animal power is assisted or expanded. The merit of the merchant, who contrives, by good management, to make the same capital suffice for an extended business, is precisely analogous to that of the engineer, who simplifies machinery, or renders it more productive. The discovery of a new mineral, animal, or vegetable, pos- sessed of the properties of utility in a novel form, or in a great- er degree of abundance or of perfection, is an acquisition of the same kind. The productive means of mankind were am- plified, and a larger product rendered procurable by an equal degree of human exertion, when indigo was substituted for woad, sugar for honey, and cochineal for the Tyrian dye. In all these instances of improvement, and those of a similar na- ture that may be hereafter effected, it is observable, that, since the means of production placed at the disposal of man- kind become in reality more powerful, the product raised al- ways increases in quantity, in proportion as it diminishes in value. We shall presently see the consequences of this cir- cumstance.* A fall of price may be general and affect all commodities at once; or it may be partial and affect certain commodities only; as I shall endeavour to explain by example. Suppose that, when stockings were made by knitting only, thread-stockings, of a given quality, amounted to the price of ^ fr. the pair. Hence, we should infer, that the rent of the land whereon the flax was grown, the profits upon the labour * Within the last hundred years, the improvements of industry, effected by the advance of human knowledge, more especially in the department of natural science, have vastly abridged the business of production; butthe slow progress in moral and political science, and particularly in the branch of social organization, has hitherto prevented mankind from reaping the full benefit of those improvements. Yet it would be wrong to suppose they have reaped none at all. The pressure of taxation has indeed been dou- bled, tripled, or even quadrupled; yet population has increased in most countries of Europe; which is a sign, that a portion at least of the increase of produce has fallen to the lot of the subject; and the population, besides being augmented, is likewise better lodged, clothed, and conditioned, and 1 believe better fed too, than it was a century a^o. CHAP. III. ON DISTRIBUTION. 253 and capital of the cultivators, those of the flax-dresser and spin- ner, with those likewise of the stocking-knitter, amounted altogether to the sum of % fr. for each pair of stockings. Sup- pose that, in consequence of the invention of tlie stocking- inachine, ^ fr. will buy two pair of stockings instead of one. As the competition has a tendency to bring the price to a level with the cost of production, we may infer from this reduced price, that the outlay in land, capital, and labour, necessary to produce two pair of stockings, is still no more than Q fr.; thus, with equal means of production, the product raised is doubled in quantity. And what is a convincing proof that this fall is positive, is the fact, that every person, of what profession soever, may thenceforward obtain a pair of stockings with half the quantity of his own particular product. A capitalist, the holder of five per cent, stock, was before obliged to devote the annual interest of 120 /r. to the purchase of a pair of stock- ings; he now gives the interest of 60 Jr. only. A tradesman selling his sugar at 2 Jr. per lb. must before have sold 3lb. of sugar to buy a pair of stockings, now he need but sell lilb, : he therefore sacrifices in the purchase of a pair of stockings only half the means of production he formerly devoted to the acquisition of the same object. We have hitherto supposed this product alone to have fallen in price. Let us suppose two products to fall, stockings and sugar: that, by an improvement of commerce, lib. of sugar cost one Jr. instead of 2. In this case, all purchasers of sugar, including the stocking-maker, whose product has likewise fallen, will sacrifice, in the purchase of lib. of sugar, but half the productive means, which they before allotted for that purpose. The truth of this position may be easily ascertained. When sugar was at 2 Jr. per lb. and stockings at 6 Jr. the pair, the stocking-maker was obliged to sell one pair of stockings, be- fore he could buy 3lbs. of sugar; and, as the charges of pro- ducing this pair of stockings were 6 Jr., he in reality bought 3lbs. of sugar at the price of 6 Jr. value in his own productive means; in like manner as the grocer bought a pair of stockings for 3lbs. of sugar, that is to say, in his case also, for 6 Jr. va- lue of his peculiar productive means. But when both these commodities have fallen to half their price, one pair only, or productive means equivalent to 3 Jr., would buy 3lbs. of su- gar; and 3lbs. of sugar, procurable at a charge of production amounting to 3 Jr., will suffice to purchase a pair of stockings. Wherefore, if two kinds of products, which we have set one against the other, and supposed to pass in exchange the one for the other, can both have fallen in price at the same time, are we not authorized to infer, that this fall is a positive fall, and has no reference or relation to the prices of commodities one to another? that commodities in general may fall at one and the same time, some more, some less, and yet that the di- minution of price may be no loss to any body? 254 ON DISTRIBUTION. book ii. It is for this reason, that, in modern times, although wages stand in nearly the same relation to corn as they did four or five hundred years ago, yet the lower classes now enjoy many luxuries, that were then denied them; many articles of dress and household furniture, for instance, have suffered a real di- minution of value; and that the same individuals are more scan- tily supplied with others, as with butcher's meat and game,* because they have sustained a real increase of value. Every saving in the cost of production implies the procure- ment, either of an equal product by the exertion of a smaller amount of productive agency, or of a larger product by the exertion of equal agency, which are both the same thing; and it is sure to be followed by an enlargeinent of the product. It may be thought, perhaps, that this increase of production may possibly take place without any corresponding increase of de- mand; and, therefore, that the price current of the product may fall below the cost of its production, even on its reduced scale. But this is a groundless apprehension; for the fall of price tends so strongly to expand the sphere of consumption, that, in all the instances I have been able to meet with, the in- crease of demand has invariably outrun the increasing powers of an improved production, operating upon the same produc- tive means; so that ever}'^ enlargement of the power of pro- ductive agency has created a demand for more of that agency, in the preparation of the product cheapened by the improve- ment. Of this a striking example has been afforded by the invention of the art of printing. By this expeditious method of multi- plying the copies of a literary work, each copy costs but a twentieth part of what was before paid for manuscript; an equal intensity of total demand would, therefore, take off only twen- ty times the number of copies; but probably it is within the mark to say, that a hundred times as many are now consumed. So that, where there was formerly one copy only of the value * I find in the Hecherches of Diipre de Saint Maur, that in 1342, an ox was sold for from 10 to H livres tournois. Tiiis sum tlien contained 7 oz. of fine silver, which was worth about 28 oz. of the present day; and 28 oz. of our present money are coined into 171 /r. 30 c, which is lower than the price of an ordinary ox. A lean ox boug-ht in Poitou for 300 /r., and after- wards fatted in Lower Normandy, will sell at Paris for from 450 to 500 fr. Butcher's meat has, therefore, more than doubled in price since the 14th century; and probably most other articles of food likewise; and, if the la- bouring- classes had not at the same time been g-reatly benefited by the pro- gress of industry, and put in possession of additional sourcess of revenue, they would be worse fed than in the time of Philip of Valois. This may be easily explained. The growing revenues of the industrious classes have enabled them to multiply, and consequently to swell the de- mand for all objects of food. But their supply can not keep pace with the increasing demand, because, although the same surface of soil may be ren- dered more productive, it can not be so to an indefinite degree and the supply of food by the channel of external commerce, is more expensive than by that of internal agriculture, on account of the bulky nature of most of the articles of aliment. CHAP. in. ON DISTRIBUTION. 255 of 60yr. of present money, there are now a hundred copies, the aggregate value of which is 300 /r., though that of each single copy be reduced to 1-20. Thus the reduction of price, consequent upon a real variation, does not occasion even a no- minal diminution of wealth.* On the other hand, and by the rule of contraries, as a real advance of price must always proceed from a deficiency in the product raised by equal productive means, it is attended by a diminution in the general stock of wealth; for the rise of price upon each portion does not counterpoise the reduction that takes place in the total quantity of the commodity; to say no- thing of the greater relative dearness of the object of consump- tion to the consumer, and of his consequent impoverishment in comparison. Suppose a murrain, or a bad system of management, to cause a scarcity of any kind of live stock, of sheep for instance, the price will rise, but not in proportion to the reduction of the supply; because, in proportion as they grow dearer, the de- mand will decrease. If there were but one fifth of the present number of sheep, it is very probable their price would advance to no more than double; so, that in place of five sheep, which might together be worth \00fr. at 20 fr. each, there would remain but one valued at 40 fr. The diminution of wealth in the article of sheep, notwithstanding the increased price, must therefore be computed at 60 per cent, which is consi- derably more than a moiety, t Thus, it may be affirmed, thatevery real reduction of price, instead of reducing the nominal value of produce raised, in point of fact, augments it; and that a real increase of price re- duces, instead of adding to the general wealth; to say nothing of the quantum of human enjoyment, which in the former case is multiplied, and in the latter abridged. Besides, it would be a capital error to imagine, that a real fall of price, or in other words, a reduction in the price paid to productive exertion, occasions as much loss to the producer as gain to the consum- er. A real depreciation of commodities is a benefit to the con- sumer, without curtailing the profits of the producer. The stocking-maker, who, for ) A celebrated painter, advocate, or physician, will have spent, of his own or relation's money, 30,000 yr., or 40,000 /r. at most, in acquiring the ability from which his gains are derived; the interest of this sum calculated as an annuity is but 4000yr. ; so that, if he make 30,000 fr. by his art, there remains an annual sum of 26,000 y>\ which is wholly the salary of his skill and industry. If every thing affording revenue is to be set down as property, fices are exti-emely rich and well paid, though upon principles of state policy.(a) (a) In estimating the recompense of a national priesthood the total of its revenues, both in the higher and lower ranks, must be taken into the ac- count. The gambling propensity of mankind, and that proneness to ex- pect the lucky chances, which has been above adverted to, makes human industry always overflow those channels, in which there are some few great prizes, and an immensity of blanks; as in the church and the law, which have moreover the attraction of personal consideration, at least in the constitution of English society. T. (b) From vi^hich, however, is to be deducted the average loss on the ge- neral balance of less successful competitors in the same line. It does not ap- pear, that, in England at least, any allowance is to be made for personal consideration, which is seldom attached in a high ratio even to the greatest excellence in the department of pure art. These is no instance of a sculptor or a painter arriving at the honours of the peerage, which have been placed within the reach of successful commercial enterprise. T. CHAP. VII. ON DISTRIBUTION. 2S3 his fortune at ten years' purchase may be reckoned 260,000/^., even supposing him not to have inherited a sol. SECTION II. Of the Profits of the Man of Science. The philosopher, the man who makes it his study to direct the laws of nature to the greatest possible benefit of mankind, receives a very small proportion of the products of that indus- try, which derives such prodigious advantage from the know- ledge, whereof he is at the same time the depositary and the promoter. The cause of his disproportionate payment seems to be, that, to speak technically, he throws into circulation, in a moment, an immense stock of his product, which is one that suffers very little by wear; so that it is long before opera- tive industry is obliged to resort to him for a fresh supply. The scientific acquirements, without which abundance of manufacturing processes could never have been executed, are probably the result of long study, intense reflection and a course of experiments equally ingenious and delicate, that are the joint occupation of the highest degree of chemical, medi- cal and mathematical skill. But the knowledge, acquired with so much difficulty, is probably transmissible in a few pages; and, through the channel of public lectures, or of the press, is circulated in much greater abundance, than is required for con- sumption; or rather, it spreads of itself, and, being imperisha- ble, there is never any necessity to recur to those, from whom it originally emanated. Thus, according to the natural laws, whereby the price of things is determined, this superior class of knowledge will be very ill paid: that is to sa)^, it will receive a very inadequate portion of the value of the product, to which it has contributed. It is from a sense of this injustice, that every nation, sufficiently enlightened to conceive the immense benefit of scientific pur- suits, has endeavoured, by special favours and flattering dis- tinctions, to indemnify the man of science, for the very trifling profit derivable from his professional occupations, and from the exertion of his natural or acquired faculties. Sometimes a manufacturer discovers a process, calculated either to introduce a new product, to increase the beauty of an old one, or to produce with greater economy; and, by ob- servance of strict secrecy, may make for many years, for his whole life perhaps, or even bequeath to his children, profits exceeding the ordinary ratio of his calling. In this particular case the manufacturer combines two different operations of industry; that of the man of science, whose profit he engrosses 284 ON DISTRIBUTION. book it, himself, and that of the adventurer too. But few such disco- veries can long remain secret; which is a fortunate circum- stance for the public, because this secrecy keeps the price of the particular product it applies to above, and the number of consumers enabled to enjoy it below, the natural level.* It is obvious, that 1 am speaking only of the revenue a man of science derives from his calling. There is nothing to pre- vent his being at the same time a landed proprietor, capitalist, or adventurer, and possessed of other revenue in these differ- ent capacities. SECTION III. Of the Projits of the Master- agent, or Adventurer, in Industry. We shall, in this section, consider only that portion of the profits of the master-agent, or adventurer, which may be con- sidered as the recompense of that peculiar character. If a master- manufacturer have a share of the capital embarked in his concern, he must be ranked pro tanto in the class of capi- talists, and the benefits thence derived be set down as part of the profits of the capital so embarked, t It very seldom happens, that the party engaged in the man- agement of any undertaking, is not at the same time in the receipt of interest upon some capital of his own. The manager of a concern rarely borrows from strangers the whole of the capital employed. If he have but purchased some of the im- plements with his own capital, or made advances from his own funds, he will then be entitled to one portion of his revenue in quality of manager, and another in that of capitalist. Man- kind are so little inclined to sacrifice any particle of their self- interest, that even those, who have never analyzed these re- spective rights, know well enough how to enforce them to their full extent in practice. * Such of my readers as may imag-ine, that the sum of the production of a country is greater, when the scale of price is unnaturally high, are re- quested to refer to what has been said on the subject, supra. Chap. 3. of this Book. ■j- Smith is greatly embarrassed by his neglect of the distinction between the profits of superintendency, and those of capital. He confounds them under the general head of profits of stock-, and all his sagacity and acute- iiess have scarcely been sufficient to expound the causes, which influence their fluctuations. Wealth of Nations, book i. c. 8. And no wonder he found himself thus perplexed? their value is regulated upon entirely differ- ent principles. The profits of labour depend upon the degree of skill, ac- tivity, judgment, &c. exerted; those of capital, on the abundance or scarcity of capital, the security of the investment, &.c. CHAP. VII. ON DISTRIBUTION. 285 Our present concern is, to distinguish the portion of revenue, which the adventurer receives as adventurer. We shall see by-and-hy, what he, or somebody else, derives in the charac- ter of capitalist. It may be remembered, that the occupation of adventurer is comprised in the second class of operations specified as ne- cessary for the setting in motion oi every class of industry whatever; that is to say, the application of acquired knowledge to the creation of a product for human consumption.* It will likewise be recollected, that such application is equally neces- sary in agricultural, manufacturing, and commercial industry; that the labour of the farmer or cultivator on his own account, of the master-manufacturer and of the merchant, all come un- der this description; they are the adventurers in each depart- ment of industry respectively. The nature of the profits of these three classes of men, is what we are now about to con- sider. The price of their labour is regulated, like that of all other objects, by the ratio of the supply, or quantity of that labour thrown into circulation, to the demand or desire for it. There are two principal causes operating to limit the supply, which, consequently, maintain at a high rate the price of this superior kind of labour. It is commonly requisite for the adventurer himself to pro- vide the necessary funds. Not that he must be already rich; for he may work upon borrowed capital; but he must at least be solvent, and have the reputation of intelligence, prudence, probity, and regularity; and must be able, by the nature of his connexions, to procure the loan of capital he may happen him- self not to possess. These requisites shut out a great many competitors. In the second place, this kind of labour requires a combina- tion of moral qualities, that are not often found together. Judgment, perseverance, and a knowledge of the world, as well as of business. He is called upon to estimate, with tolera- ble accuracy, the importance of the specific product, the pro- bable amount of the demand, and the means of its production: at one time he must employ a great number of hands; at ano- ther, buy or order the raw material, collect labourers, find con- sumers and give at all times a rigid attention to order and economy; in a word, he must possess the art of superintend- ence and administration. He must have a ready knack of cal- culation, to compare the charges of production with the proba- ble value of the product when completed and brought to mar- ket. In the course of such complex operations, there are abundance of obstacles to be surmounted, of anxieties to be repressed, of misfortunes to be repaired, and of expedients to be devised. Those who are not possessed of a combination of these necessary qualities, are unsuccessful in their undertak- * Vide supra, Book I. chiip. 6, 2S6 ON DISTRIBUTION. book ii. ings; their concerns soon fall to the ground, and their labour is quickly withdrawn from the stock in circulation; leaving such only, as is successfully, that is to say, skilfully directed. Thus, the requisite capacity and talent limits the number of competitors for the business of adventurers. Nor is this all: there is always a degree of risk attending such undertakings; however well they may be conducted, there is a chance of failure; the adventurer may, without any fault of his own, sink his fortune, and in some measure his character; which is another check to the number of competitors, that also tends to make their agency so much the dearer. All branches of industry do not require an equal degree of capacity and knowledge. A farmer, who adventures in til- lage, is not expected to have such extensive knowledge as a merchant, who adventures in trade with distant countries. The farmer may do well enough with a knowledge of the or- dinary routine of two or three kinds of cultivation. But the science necessary for conducting a commerce with long re- turns is of a much higher order. It is necessary to be well versed, not only in the nature and quality of the merchandise in which the adventure is made, but likewise to have some notion of the extent of demand, and of the markets whither it is consigned for sale. For this purpose, the trader must be constantly informed of the price-current of every commodity in different parts of the world. To form a correct estimate of these prices, he must be acquainted with the different national currencies, and their relative value, or, as it is termed, the rate of exchange. He must know the means of transport, its risk and expense, the custom and laws of the people he corres- ponds with; in addition to all which, he must possess sufficient knowledge of mankind to preserve him from the dangers of misplaced confidence in his agents, correspondents, and con- nexions. If the science requisite to make a good farm is more common than that which can make a good merchant, it is not surprising, that the labour of the former is but poorly paid, in comparison with that of the latter. It is not meant by this to be understood, that commercial in- dustry, in every branch, requires a combination of rarer quali- fications than agricultural. The retail dealers for the most part pursue the routine of their business quite as mechanically as the generality of farmers; and, in some kinds of cultiva- tion, very uncommon care and sagacity are requisite. It is for the reader to make the application: the business of the teacher is, firmly to establish general principles; whence it will be easy to draw a multitude of inferences, varied and modified by circumstances, which are themselves the conse- quences of other principles laid down in other parts of the subject. Thus, in astronomy, when we are told, that all the planets describe equal areas in the same space of time, there is an implied reservation of such derangements, as arise from the proximity of other planets, whose attractive powers de- CHAP. VII. ON DISTRIBUTION. 287 pend on another law of natural philosophy; and this must be attended to in the examination of the phenomena of each in particular. It is for him, who would apply general laws to particular and isolated cases, to make allowance for the in- fluence of each of those laws or principles, whose existence is already recognised. In reviewing presently the profits of mere manual labour, we shall see the peculiar advantage, which his character of master gives to the adventurer over the labourer; but it may be useful to observe by the the way the other advantages with- in reach of an intelligent superior. He is the link of commu- nication, as well between the various classes of producers, one with another, as between the producer and the consumer. He directs the business of production, and is the centre of many bearings and relations; he profits by the knowledge and by the ignorance of other people, and by every accidental advantage of production. Thus, it is this class of producers, which accumulates the largest fortunes, whenever productive exertion is crowned by unusual success. SECTION IV. Of the Profits of the Operative Labourer. * Simple, or rough labour may be executed by any man pos- sessed of life and health; wherefore, bare existence is all that is requisite to ensure a supply of that class of industry. Con- sequently, its wages seldom rise in any country much above what is absolutely necessary to subsistence; and the quantum of supply always remains on a level with the demand; nay, often goes beyond it; for the difficulty lies not in acquiring existence, but in supporting it. Whenever the mere circum- stance of existence is sufficient for the execution of any kind of work, and that work aflfords the means of supporting exist- ence, the vacuum is speedily filled up. There is, however, one thing to be observed. Man does not come into the world with the size and strength sufficient * By the term labourer, T mean, the person who works on account of a master-agent, or adventurer, in industry; for such as are masters of their own labour, like the cobler in his stall, or the itinerant knife-grinder, unite the two characters of adventurer and labourer; their profits being in part governed by the circumstances detailed in the preceding section, and part- ly by those developed in this. It is necessary also to premise, that the la- bour spoken of in the present section is that, which rec[uires little or no study or training; the acquisition of any talent or personal skill entitles the possessor to afurther profit, regulated upon the principles explained swpra, sect. 1. of this Chapter. 288 ON DISTRIBUTION. book ii. to perform labour even of the simplest kind. He acquires this capability not till the age of fifteen or twenty, more or less, and may be regarded as an item of capital, formed of the grow- ing annual accumulation of the sums spent in rearing him.* By whom, then, is this accumulation effected? In general by the parents of the labourer, by persons of his own calling, or of one akin to it. In this class of life, therefore, the wages are somewhat more than is necessary for bare personal exist- ence; they must be sufficient to maintain the children of the labourer also. If the wages of the lowest class of labour were insufficient to maintain a family, and bring up children, its supply would never be kept up to the complement; the demand would ex- ceed the supply in circulation; and its wages would increase, until that class were again enabled to bring up children enough to remedy the deficiency. This would happen, if marriage were discouraged amongst the labouring class. A man without wife or children may af- ford his labour at a much cheaper rate, than one who is a hus- band and a father. If celibacy were to gain ground amongst the labouring class, that class would not only contribute no- thing to recruit its own members, but would prevent others from supplying the deficiency. A temporary fall in the price of manual labour, arising from the cheaper rate, at which sin- gle men can afford to work, would soon be followed by a dis- proportionate rise; because the number of workmen would fall off. Thus, even were it not more to the interest of mas- ters to employ married men, on account of their steadi- ness, they should do so, though at a greater charge, to avoid the higher price of labour, that must eventually recoil on them. Every particular line or profession does not, indeed, recruit its own numbers with children nursed among its own mem- bers. The new generation is transferred from one class of life to another, and particularly from rural occupations to occupa- tions of a similar cast in the towns; for this reason, that children are cheaper trained in the country: all I mean to say is, that the rudest and lowest class of labour necessarily derives from its product a portion sufficient, not merely for its present main- tenance, but likewise for the recruiting of its numerical strength, t * A full grown man is an accumulated capital; the sum spent in rearing him is indeed consumed, but consumed in a reproductive way, calculated to yield the product, man. •j- The evidence examined before a committee of the House of Commons of England, in 1815, leads to the conclusion, that the high price of food, at that period, had the effect of depressing, rather than elevating the scale of wages. I have myself remarked the similar effect of the scarcities in France, of the years 1811 and 1817. The difficulty of procuring subsist- ence either forced more labourers into the market, or exacted more exer- CHAP. VII. ON DISTRIBUTION. 289 When a country is on the decline, and contains less of the means of production, and less of knowledge, activity, and capi- tal, the demand for rough and simple labour diminishes by de- grees; wages fall gradually below the rate necessary for recruit- ing the labouring class; its numbers consequently decrease, and the offspring of the other classes, whose employment di- minishes in the same proportion, is degraded to the step im- mediately below. On the contrary, when prosperity is ad- vancing, the inferior classes not only fill up their own comple- ment with ease, but furnish a surplus and addition to the classes immediately above them; and some, by great good for- tune or brilliancy of talent, arrive at a still loftier eminence, and reach even the highest stations in society. The labour of persons not entirely dependent for subsistence on the fruits of labour can be afforded cheaper, than that of such as are labourers by occupation. Being fed from other sources, their wages are not settled by the price of subsistence. The female spinners in country villages probably do not earn the half of their necessary expenses, small as they are; one is perhaps the mother, another the daughter, sister, aunt, or mo- ther-in-law of a labourer, who would probably support her, if she earned nothing for herself. Were she dependent for subsistence on her own earnings only, she must evidently double her prices, or die of want; in other words, her industry must be paid doubly, or would cease to exist. The same may be said of most kinds of work performed by females. They are in general but poorly paid, because a large proportion of them are supported by other resources than those of their own industry, and can, therefore, supply the work they are capable of at a cheaper rate, than even the bare satisfaction of their wants. The work of the monastic order is similarly circumstanced. It is fortunate for the actual la- bourers in those countries where monarchism abounds, that it manufactures little else but trumpery; for, if its industry were applied to works of current utility, the necessitous labourers in the same department, having families to support, would be unable to work at so low a rate, and must absolutely perish by want and starvation. The wages of manufacturing, are often higher than those of agricultural labour; but they are liable to the most calamitous oscillation. War or legislative prohibi- tion will sometimes suddenly extinguish the demand for a particular product, and reduce the industry employed upon it to a state of utter destitution. The mere caprice of fashion is often fatal to whole classes. The substitution of shoe rib- bands for buckles was a severe blow to the population of Shef- field and Birmingham. * tion from those already engag'ed; thus occasioning a temporary glut of la- bour. But the necessary sufferings of the labouring class at the time must inevitably have thinned its ranks. * Malthus, Essay on Pupul. ed. 5. b. iii. c. 13. 44 290 ON DISTRIBUTION. look ii. The smallest variations in the price of rude and simple la- bour have ever been justlj^ considered as serious calamities. In classes of somewhat superior wealth, and talents, which are, in fact, a species of personal wealth, a diminution in the rate of profits entails only a reduction of expense, or, at most, but trenches, in some measure, upon the capital those classes generally have at their disposal. But to those, whose whole income is a bare subsistence, a fall of wages is an absolute death-warrant, if not to the labourer himself, to part of his family at least. Wherefore, all governments, pretending to the smallest pa- ternal solicitude for their subjects' welfare, have evinced a readiness to aid the indigent class, wherever any unexpected event has accidentally reduced the wages of common labour below the level of the labourer's subsistence. Yet the bene- volent intentions of the government have too often failed in their efficacy, for want of judgment in the choice of a remedy. To render it effective, it is necessary first to explore the cause of depression in the price of labour. If that depression be of a permanent nature, pecuniary and temporary aid is of no pos- sible avail, and merely defers the pressure of the mischief. Of this nature are the discovery of new processes, the intro- duction of new articles of import, or the emigration of a con- siderable number of consumers, {a) In such emergencies, a remedy must be sought in the discovery of some new and per- manent occupation for the hands thrown out of employ, in the encouragement of new channels of industry, in the setting on foot of distant enterprises, the planting of colonies, &c. If the depression be not of a permanent nature, if it be the mere result of good or bad crops, the temporary assistance should be limited to the unfortunate sufferers by the oscilla- tion. Governments or individuals, who attempt indiscriminate beneficence, will have the frequent mortification of finding their bounty unavailing. This may be more convincingly demonstrated by example than by argument. Suppose in a vine district the quantity of casks to be so abundant, as to make it impossible to use them all. A war, or a statute levelled against the production of wine, may, per- haps, have caused many proprietors of vineyards to adopt a (a) The second and last of these ch'cumstances are neither of them ne- cessarily, universally, or permanenily, followed by the depression of the rate of wages. When a new object of import does not supersede one of either home or foreign production, it must tend to raise the rate of wages, as it can only be procvu-ed by enlarged home production. Tlie emigration of consumers, continuing to draw subsistence from the country they desert, leaves in activity an equal mass of human labour, though possibly vvith some variation of employment. Besides, it may be temporary only, as that of the English to the continent, and of the Irish both to England and to the con- tinent; who possibly might be brought back by an improvement of domes- tic finance or of domestic secui-ity and comfort. T. CHAP. VII. ON DISTRIBUTION. 291 different cultivation of their lands; this is a permanent cause of surplus cooperage in the market. In ignorance of this cause, a general effort is made to assist the labouring coopers, either by purchasing their casks without wanting them, or by making up, in the shape of alms, the loss they have sustain- ed in the diminution of their profits. Useless purchases, or eleemosynary aid, however, can not last for ever; and, the moment they cease, the poor coopers will find themselves precisely in the same distressful situation, from which it was attempted to extricate them. All the sacrifice and expense will have been incurred with no advantage, other than that of a little delay in the date of their hopeless sufierings and priva- tions. Suppose, on the contrary, the cause of the superabundance of casks to be but temporary; to be nothing more, than the failure of the annual crop. If, instead of affording temporary relief to the working coopers, they be encouraged to remove to other districts, or to enter upon some other branch of in- dustry, it will follow, that the next year, when wine may be abundant, there will be a scarcity of casks to receive it; the price will become exorbitant, and be settled at the suggestion of avarice and speculation; which, being unable themselves to manufacture casks, after the means of producing them have been thus destroyed, part of the wine will probably be spoil- ed for want of casks to hold it. It will require a second shock and derangement of the rate of wages, before the manu- facture of the article can be brought again to a level with the demand. Whence it is evident, that the remedy must be adapted to the particular cause of the mischief; consequently, the cause must be ascertained, before the remedy is devised. Necessary subsistence, then, may be taken to be the stand- ard of the wages of common rough labour; but this standard is itself extremely fluctuating; for habit has great influence upon the extent of human wants. It is by no means certain, that the labourers of some cantons of France could exist under a total privation of wine. In London, beer is considered in- dispensable; that beverage is there so much an article of ne- cessity, that beggars ask for money to buy a pot of beer,(«) as commonly as in France for the purchase of a morsel of bread; and this latter object of solicitation, which appears to us so very natural, may seem impertinent to foreigners just arrived from a country, where the poor subsist on potatoes, manioc, or other still coarser diet. What is necessary subsistence, depends, therefore, partly on the habits of the nation, to which the labourer may happen to belong. In proportion as the value he consumes is small, (a) The present depression of the labouring' classes in England haslower- ed the tone of mendicity, if indeed it ever was raised to so high a key. T. 292 ON DISTRIBUTION. book iv his ordinary wages may be low, and the product of his labour cheap. If his condition be improved, and his wages raised, either his product becomes dearer to the consumer, or the share of his fellow producers is diminished. The disadvantages of their position are an effectual barrier against any great extension of the consumption of the labour- ing classes. Humanity, indeed, would rejoice to see them and their families dressed in clothing suitable to the climate and season; housed in roomy, warm, airy, and healthy habi- tations, and fed with wholesome and plentiful diet, with per- haps occasional delicacy and variety; but there are very few countries, where wants, apparently so moderate, are not con- sidered far beyond the limits of strict necessity, and therefore not to be gratified by the customary wages of the mere labour- ing class. The limit of strict necessity varies, not only according to the more or less comfortable condition of the labourer and his family, but likewise according to the several items of expense reputed unavoidable in the country he inhabits. Among these is the one we have just adverted to; namely, the rearing of children; there are others less urgent and imperative in their nature, though equally enforced by feeling and natural senti- ments; such as the care of the aged, to which unhappily the labouring class are far too inattentive. Nature could entrust the perpetuation of the human species to no impulse less strong, than the vehemence of appetite and desire, and the anxiety of paternal love; but has abandoned the aged, whom she no long- er wants, to the slow workings of filial gratitude, or, what is even less to be depended upon, to the providence of their younger years. Did the habitual practice of society impera- tively subject every family to the obligation of laying by some provision for age, as it commonly does for infancy, our ideas of necessity would be somewhat enlarged, and the minimum of wages somewhat raised. It must appear shocking to the eye of philanthropy, that such is not always the case. It is lamentable to think of the little providence of the labouring classes against the season of casual misfortune, infirmity, and sickness, as well as against the certain helplessness of old age. Such considerations af- ford most powerful reasons for forwarding and encouraging provident associations of the labouring class, for the daily de- posit of a trifling saving, as a fund in reserve for that period, when age, or unexpected calamity, shall cut off the resource of their industry.* But such institutions can not be expected to succeed, unless the labourer be taught to consider these * Saving banks have succeeded in several districts of England, Holland, and Germany; particularly wliere the government has been wise enough to withhold its interference. The Insurance Company of Paris has set one on foot upon the most liberal principles and with the most substantial guaran- tee. It is to be hoped, that the labouring classes in general will see the wisdom of placing their little savings in such an establishment, in prefer- CHAP. VII. ON DISTRIBUTION. 293 means of precaution as a matter of duty and necessity, and hold to the obligation to carry his savings to such places of deposite, as equally indispensable with the payment of his rent or taxes: this new duty would doubtless tend in a slight de- gree to raise the scale of wages so as to allow of such frugali- ty, but for that very reason it is desirable. How can such establishments thrive in countries where habit and the inter- ested views of the government conspire to make the labourer spend in the public-house not only what he might lay by, but frequently the very subsistence of his family, in which all his comforts and pleasures should be centered. The vain and cost- ly amusements of the rich are not always justifiable in the eye of reason; but how much more disastrous is the senseless dis- sipation of the poor! The mirth of the indigent is invariably seasoned with tears; and the orgies of the populace are days of mourning to the philosopher. Besides the reasons advanced in this and the preceding sec- tions, to explain why the wages of the adventurer, even if he ence to the hazardous investments they have often been decoyed into. There is besides a further national advantage in such a practice; viz. that of augmenting- the general mass of productive capital, and consequently ex- tending the demand for human agency. (1) (1) [In the principal cities of the United States, Saving Banks have also recently been established, and have been attended with so much benefit, that we expect soon to hear of their spreading through every part of the Union. To the Friendly or Beneficial Societies there are strong objections, to which the Saving Banks are not liable. The Friendly Societies have, undoubtedly, done some good; but attended with a certain portion of evil. The following extract from a report of the Committee of the Highland Society, places these latter societies in a very proper light. " During the last centur}-, a niunber of Friendly Societies have been established by the labourers in different parts of Great Britain, to enable them to make provision against want. The ])rinciple of these societies usually is, that the members pay a certain stated sum periodically, from which an allowance is made to them upon sickness or old ag"e, and to their families upon their death. These societies have done much good; but they are attended with some disadvantages. In particular, the frequent meetings of the members occasion the loss of much time, and frequently of a good deal of money spent in entertainments: The stated payments must be regularly made; otherwise, after a certain time, the luember (ne- cessarily from its being in fact an insurance) loses the benefit of all that he has formerly paid. Nothing more than the stated paj'ments can be made, however easily the member might be able at the moment to add a little to his store. Frequently the value of the chances on whicli the societies are formed, is ill calculated; in which case either the contributors do not re- ceive an equivalent for their payments, or too large an allowance is given at first, which brings on the bankruptcy of tlie institution. Frequently the sums are embezzled by artful men, who, by imposing on the inexperience of the members, get themselves elected into offices of trust. The benefit is distant and contingent; each member not having benefit from his con- tributions in every case, but only in the case of his falling into the situa- tions of distress provided for by the society. And the whole concern is so complicated, that many have hesitation in embarking in it their hard earn- ed savings."] Ameuican Editor. 294 ON DISTRIBUTION. book ii. derive no profit as a capitalist, are generally higher than those of the mere labourer, there are others, not so solid or well founded indeed, but such as nevertheless must not be over- looked. The wages of the labourer are a matter of adjustment and compact between the conflicting interests of master and work- man; the latter endeavouring to get as much, the former to give as little, as he possibly can; but, in a contest of this kind, there is on the side of the master an advantage, over and above what is given him by the nature of his occupation. The master and the workman are no doubt equally necessary to each other; for one gains nothing but with the other's assist- ance; the wants of the master are, however, of the two, less urgent and less immediate. There are few masters, but what could exist several months or even years, without employing a single labourer; and few labourers that can remain out of work for many weeks, without being reduced to the extremity of distress. And this circumstance must have its weight in striking the bargain for wages between them. Sismondi, in a late work* published since the appearance of my third edition, has suggested some legislative provisions, for the avowed purpose of bettering the condition of the la- bouring classes. He sets out with the position, that the low rate of their wages accrues to the benefit of the adventurers and masters who employ them; and thence infers, that, in the moment of calamity, their claim for relief is upon the mas- ters, and not upon society at large. Wherefore, he proposes to make it obligatory upon the proprietors and farmers of land at all times to feed the agricultural, and upon the manufactur- ers to provide subsistence for the manufacturing labourer. On the other hand, to prevent the probable excess of popula- tion, consequent upon the certain prospect of subsistence to themselves and their families, he would give to their respec- tive masters the right of preventing or permitting marriage amongst their people. This scheme, however entitled to favourable consideration by the motive of humanity in which it originated, seems to me altogether impracticable. It would be a gross violation of the right of property, to saddle one class of society with the compulsory maintenance of another; and it would be a viola- tion still more gross, to give to one set of men a personal con- trol over another; for the freedom of personal action is the most sacred of all the objects of property. The arbitrary prohi- bition of marriage to one class is a premium to the procreation of all the rest. Besides, there is no truth in the position, that the low rate of Vv'ages redounds exclusively to the profit of the master. Their reduction, followed up by the constant action of competition, is sure to bring about a fall of the price of pro- ducts; so that it is the class of consumers, in other words, the * Nwxveaux Prin. d'Econ. Pol. liv. vii. c. 9. CHAP. VII. ON DISTRIBUTION. 295' whole community, that derives the profit. And if it be so ^reat, as to throw the subsistence of the labourers upon the pub- lic at large, the public is in a great measure indemnified by the reduced prices of the objects of its consumption. There are some evils incident to the imperfection of the hu- man species, and to the constitution of nature; and of this de- scription is the excess of population above the means of sub- sistence. On the whole, this evil is quite as severely felt in a horde of savages, as in a civilized community. It would be unjust to suppose it a creature of social institutions, and a mere fallacy to hold out the prospect of a complete remedy; and, however it may merit the thanks of mankind to study the means of palliation, we must be cautious not to give a ready ear to expedients that can have no good efi'ect, and must prove worse than the disease, itself. A government ought doubtless to pro- tect the interests of the labouring classes, as far as it can do so without deranging the course of human afi"airs, or cramping the freedom of individual dealings; for those classes are less ad- vantageously placed than the masters, in the common course of things; but a wise ruler will studiously avoid all interference between individuals, lest it superadd the evils of administra- tion to those of natural position. Thus, he will equally protect the master and the labourer from the efiects of combination. The masters have the advantage of smaller numbers and easier communication; whereas, the labourers can scarcely combine, without assuming the air of revolt and disaSection, which the police is ever on the watch to repress. Nay, the partisans of the exporting system have gone so far as to consider the com- binations of the journeymen as injurious to national prosperity, because they tend to raise the price of the commodities destin- ed for export, and thereby to injure their preference in the foreign market, which they look upon as so desirable. But what must be the character of that policy, which aims at na- tional prosperity through the impoverishment of a large pro- portion of the home producers, with a view to supply foreign- ers at a cheaper rate, and give them all the benefit of the na- tional privation and self-denial? One sometimes meets with masters, who, in their anxiety to justify their avaricious practices by argument, assert roundly, that the labourer would perform less work, if better paid, and that he must be stimulated by the impulse of want. Smith, a writer of no small experience and singular penetration, is of a very different opinion. Let us take his own words. " The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encourage- ment it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plen- ty, animates him to exert that strength to the utmost. Where 296 ON DISTRIBUTION. book ii. wages are high, accordingly, we shall always find the work- men more active, diligent, and expeditious, than where they are low; in England, for example, than Scotland; in the neigh- bourhood of great towns, than in remote country places. Some workmen, indeed, when they can earn in four days what will maintain them through the week, will be idle the other three. This, however, is by no means the case with the greater Eart. Workmen, on the contrary, when they are liberally paid y the piece, are very apt to overwork themselves, and to ruin their health and constitution in a few years."* SECTION V. Of the Independence accruing to the Moderns from the Jid- vancement of Industry. The maxims of political economy are immutable; ere yet observed or discovered, they were operating in the way above described; the same cause regularly producing the same effect: the wealth of Tyre and of Amsterdam originated in a common source. It is society that has been subject to change, in the progressive advancement of industry. The ancients were not nearly so far behind the moderns in agriculture, as in the mechanical arts. Wherefore, since ag- ricultural products are alone essential to the multiplication of mankind, the unoccupied surplus of human labour was larger than in modern days. Those, who happened to have little or no land, unable to subsist upon the product of their own indus- try, unprovided with capital, and too proud to engage in those subordinate employments, which were commonly filled by slaves, had no resource but to borrow, without a prospect of the ability to repay, and were continually demanding that equal division of property, which was utterly impracticable. With a view to stifle their discontents, the leading men of the state were obliged to engage them in warlike enterprises, and, in the intervals of peace, to subsist them on the spoils of the ene- my, or on their own private means. This was the grand source of the civil disorder and discord, which continually distracted the states of antiquity; of the frequency of their wars, of the corruption of their suffrages, and of the connexion of patron and client, which backed the ambition of a Marius and a Sylla, a Pompey and aCsesar, an Antony and an Octavius, and which finally reduced the whole Roman people to the condition of ser- vile attendants upon the court of a Caligula, a Heliogabalus or some monsterof equal enormity, whose grand condition of em- pire was the subsistenceof the objects of his atrocious tyranny. * Wealth of Nations, book i. c. 8. CHAP. VII. ON DISTRIBUTION. 297 The industrious cities of Tyre, Corinth, and Carthage, were somewhat differently circumstanced; but they could not per- manently resist the hostility of poorer and more warlike na- tions, impelled by the prospect of plunder. Industry and civilization were the continual prey of barbarism and penury; and Rome herself, at length, yielded to the attack of Gothic and Vandalic conquerors. Thus replunged into a state of barbarism, the condition of Europe, during the middle ages, was but a revival of the ear- liest scenes of Grecian and Italian history, in an aggravated form. Each baron, or great landholder, was surrounded by a circle of vassals or clients on his domain, ready to follow him in civil broils or foreign warfare, I should trench upon the province of the historian, were I to attempt the delineation of the various causes, that have aid- ed the progress of industry since that period; but I may be al- lowed merely to note, by the way, the great change that has been effected, and the consequences of that change. Indus- try has become a means of subsistence to the bulk of the popu- lation, independent of the caprice of the large proprietors, and without being to them a constant source of alarm: it is nursed and supported by the capital accumulated by its own exertions. The relation of client and vassal has ceased to exist; and the poorest individual is his own master, and dependent upon his personal faculties alone. Nations can support themselves upon their internal resources; and governments derive from their subjects those supplies, which they were wont to dispense as a matter of favour. The increasing prosperity of manufacture and commerce have raised them in the scale of estimation. The object of war is changed, from the spoliation and destruction of the sources of wealth, to their quiet and exclusive possession. For the last two centuries, where war has not been made to gratify the childish vanity of a nation or a monarch, the bone of conten- tion has always been, either colonial sovereignty, or commer- cial monopoly. Instead of a contest of hungry barbarians against their wealthy and industrious neighbours, it has been one between civilized nations on either side; wherein the vic- tor has shown the greatest anxiety to preserve the resources of the conquered territory. The invasion of Greece by the Turks, in the fifteenth century, appears to have been the final effort of pure barbarism arrayed against civilization. («) The pre- sent preponderance of industry and civilized habils amongst the general mass of mankind seems to exclude all probability of a recurrence of such calamitous events. Indeed, the im- (a) That is to say in Europe; for in Asia the contest is still continued; and the late brilliant successes of the British arms in that cjnarter liave been achieved by the spirit of order and civilizaiion over tliaL of anarchy and spoliation. T. 45 298 ON DISTRIBUTION. book ii. provement of military science takes away all fear of the result of such a conflict. There is yet one step more to be made; and that can only be rendered practicable by the wider diffusion of the princi- ples of political economy. They will some day have taught mankind, that the sacrifice of their lives, in a contest for the acquisition or retention of colonial dominion or commercial monopoly, is a vain pursuit of a costly and delusive good; that external products, even those of the colonial dependencies of a nation, are only procurable with the products of domestic growth; that internal production is, therefore, the proper ob- ject of solicitude, and is best to be promoted by political tran- quillity, moderate and equal laws, and facility of intercourse. The fate of nations will thenceforth hang no longer upon the precarious tenure of political pre-eminence, but upon the rela- tive degree of information and intelligence. Public function- aries will grow more and more dependent upon the produc- tive classes, to whom they must look for supplies; the people, retaining the right of taxation in their own hands, will always be well governed; and the struggles of power against the cur- rent of improvement will end in its own subversion; for it will vainly strive against the dispensations of nature. CHAPTER YIII. OF THE REVENUE OF CAPITAL. The service, rendered by capital, in productive operations, establishes a demand for capital to be so employed, and ena- bles the proprietors of it to charge more or less for that ser- vice. Whether the capitalist thus employ his capital himself, or lend it to another for that purpose, it yields a profit, that is called i\\e profit of capital, distinct from that of the industry employing it. In the former case, the profit obtained consti- tutes the revenue of his capital, which is added to that of his personal talent and industry, and often confounded with it. — In the latter, the revenue of capital is precisely the interest paid for its use, the proprietor abandoning to the borrower the f)rofit derivable from his personal employment of the capital ent. As the investigation of the interest of capital lent will help to throw light on the subject of the profit derivable from its personal employment, it may be as well, in the first instance, to acquire a just idea of the nature and variation of interest. CHAP. VIII. ON DISTRIBUTION. 399 SECTION I. Of Loan at Interest. The interest of capital lent, improperly called the interest of money, was formerly denominated usury, that is to say, rent for its use and enjoyment; which, indeed, was the correct term; for interest is nothing more than the price, or rent, paid for the enjoyment of an object of value. But the word has acquired an odious meaning, and now presents to the mind the idea of illegal, exorbitant interest only, a milder but less ex- pressive term having been substituted by common usage. Before the functions and utility of capital were known, it is probable, that the demand of rent for it by lenders was con- sidered an abuse and oppression, — an expedient to favour the rich and prejudice the poor; nay, further, that frugality, the sole means of amassing capital, was regarded as parsimony, and deemed a public mischief by the populace, in whose eyes, the sums not spent by great proprietors were looked upon as lost to themselves. They could not comprehend, that money, laid by to be turned to account in some beneficial employ- ment, must be equally spent; for, if it were buried, it coulcl never be turned to account at all; that it is in fact, spent in a manner a thousand times more profitable to the poor;* and that a labouring man is never sure of earning a subsistence, except where there is a capital in reserve for him to work upon. This prejudice against rich individuals, who do not spend their whole income, still exists pretty generally; for- merly it was universal; lenders themselves were not alto- gether free from it, but were so much ashamed of the part they were acting, as to employ the most disreputable agents in the collection of profits perfectly just, and highly acivan- tageous to society. It is, therefore, not surprising that the ecclesiastical, and at several periods, the civil code likewise, should have interdicted loans at interest; and that, during the whole of the middle ages, throughout the larger states of Europe, this traffic should have been reputed infamous, and abandoned to the Jews. — The little manufacturing or commercial industry of those days was kept alive by the scanty capital of the dealers and me- chanics themselves; and agricultural industry, which was pur- sued with somewhat better success, was supported by the ad- vances of the lords and great proprietors, who employed their serfs or retainers on their own account. Loans were contract- ed for, not with a view of profitably employing the money, * Vidt infrd. Book III. on the subject of repj'o4i!ctiye consumption. 300 ON DISTRIBUTION. book ii. but merely to satisfy some urgent want, so that the exaction of interest was profiting by a neighbour's distress; and it may easily be conceived, that a religion, founded on the principle of fraternal love, as the Christian religion is, must disapprove a calculating spirit, that even now is a stranger to generous bosoms, and repugnant to the common maxims of morality. — Montesquieu* attributes the decline of commerce to this pro- scription of loans at interest; which was undoubtedly one cause, although indeed, it was one amongst many. The progressive advance of industry has taught us to view the loan of capital in a different light. In ordinary cases, it is no longer a resource in the hour of emergency, but an agent, an instrument, which may be turned to the great benefit, as well of society, as of the individual. Henceforward, it will be reckoned no more avaricious or immoral to take interest, than to receive rent for land, or wages for labour; it is an equitable compensation adjusted by mutual convenience; and the con- tract, fixing the terms between borrower and lender, is of pre- cisely the same nature, as any other contract whatsoever. In ordinary cases of exchange, however, the transaction is ended as soon as the exchange is completed; whereas, in the case of a loan, there remains to be calculated the risk the lender incurs of never recovering the whole, or at least a part, of his capital. This risk is practically estimated, and indem- nified by some addition of interest, in the nature of a premium of insurance. Whenever there happens to be a question about the interest of advances, a careful distinction should be made between these, its two component parts; otherwise, there is always danger of error; and individuals, or even the agents of public authority, will be apt to involve themselves in useless and disastrous operations. Thus, the practice of usury has been uniformly revived, whenever it has been attempted to limit the rate of interest, or abolish it altogether. The severer the penalties, and the more rigid their exaction, the higher the interest of money was sure to rise; and this was what might naturally have been expected; for the greater the risk, the greater premium of insurance did it require to tempt the lender. At Rome, while the republican form of government lasted, the interest of mo- ney was enormous, as it was natural to suppose, even if it were not a matter of history. The debtors, who are always the plebeians, were continually threatening their patrician creditors. The laws of Mahomet have prohibited loan at in- terest; and what is the consequence in the Mussulman do- minions? Money is lent at interest, but the lender must be indemnified for the use of his capital, and, moreover, for the risk incurred in the contravention of the law. It was the same in Christian countries, so long as loan at interest was il- * Esprit cles Lois, liv. xsi. c. 20. CHAP. VIII. ON DISTRIBUTION. 301 legal; and where the necessity of borrowing enforced the tole- ration of the practice amongst the Jews, such were the hu- miliation, oppression, and extortion, to which, on one pretext or another, that nation was exposed on this score, that nothing short of a very heavy rate of interest could indemnify for such repeated loss and mortification. Letters patent of theT'rench king John, bearing date in the year 1360, are now extant, which authorizes the Jews to lend on pledges at the rate of 4 deniers per week for every livre of twenty sous, which is more than 86 per cent, per ann. ; but, in the year following, the same monarch, though recorded as one of the most scru- pulous performers of his royal word that our annals can boast of, caused the quantity of pure metal contained in the coin to be reduced; so that the lenders no longer received back a value equal to what they had lent. This explanation will alone suffice to justify the very heavy interest demanded, without at all taking into calculation, that, at a period, when loans were negotiated, not to forward indus- trious enterprises, but to support war, to feed extravagance, and to further the most hazardous projects; at a period, when laws were powerless, and lenders unable legally to enforce their claims against their debtors, it required a very ample pre- mium to cover the risk of non-payment. In fact, the premium of insurance absorbed the far greater part of what passed under the name of interest, or usury; and the actual bond fide inte- rest, the rent for the use of capital lent, was reduced to a very trifle; for, though a capital was scarce, there is reason to sup- pose, that productive occupation was still more so. Of the 86 per cent, interest paid in the reign of king John, perhaps not more than 3 or 4 per cent, was the equivalent for the produc- tive service of the capital advanced; for all productive labour is better paid now, than it was in those days; and even now a-days the rent of capital can scarcely be reckoned higher than 5 per cent.; the excess is so much premium of insurance for the lender's indemnity. Thus, the ratio of the premium of insurance, which fre- quently forms the greater portion of what is called interest, depends on the degree of security presented to the lender; which security consists chiefly in three circumstances: — 1. The safety of the mode of employment; 2. The personal abili- ty and character of the borrower; 3. The good government of the country he happens to reside in. We have just seen, how much the hazardous purposes, to which loans were ap- plied in the middle ages, enhanced the premium of insurance necessarily paid to the lender. It is the same with all peril- ous investments of capital, with a difference in degree only. The Athenians of old, made a distinction between marine in- terest, or interest of capital afloat, and land interest, or inte- rest on shore; the former was rated at 30 per cent., more or less, per voyage, whether to the Euxine, or to any port in the 302 ON DISTRIBUTION. book ii. Mediterranean.* As two such voyages were accomplished with ease in the year, the annual marine interest may be rated at about 60, while other interest was commonly not more than 12 per cent. Supposing that, of the 12 per cent., one half was assigned to cover the risk of the lender; we shall find, that the mere annual rent or hire of money at Athens, was 6 per cent, only, which I should still think above the mark; yet, suppo- sing it to have been so high, the marine interest allowed 54 per cent, for insurance of the lender's risk. So enormous a premium must be attributed in part to the barbarous habits then prevalent among the nations with whom they traded; for different nations were then much greater strangers to each other, than they are at present, and commercial laws and cus- toms much less respected; and in part to the imperfections of the art of navigation. There was more danger in a voyage from the Piraeus to Trapezus, though but three hundred leagues distant, than there is now in one from L'Orient to Chi- na, which is a distance of seven thousand. Thus, the improve- ment of geography and navigation have contributed to lower the rate of interest, and ultimately to reduce the cost price of products. Loans are sometimes contracted, not for a produc- tive investment, but for mere barren consumption. Transac- tions of this kind should always awaken the suspicion of the lender, inasmuch as they engender no means of re-payment of either principal or interest. If charged upon a growing reve- nue, they are, at all events, an anticipation of that revenue; and if charged upon any of the sources of revenue, they afford the means of dissipating the particular source itself. If there be the security neither of revenue nor of its source, they barely place the property of one person at the wanton disposition of another. Among the circumstances incident to the nature of the em- ployment, which influence the rate of interest, the duration of the loan must not be forgotten; ceteris paribus, interest is lower when the lender can withdraw his funds at pleasure, or at least in a very short period; and that both on account of the positive advantage of having capital readily at command, and because there is less dread of a risk, which may probably be avoided by timely retreat. The facility of immediate ne- gotiation presented by the transferrable bills and notes of mo- dern governments, is one principal cause of the low rate of in- terest, at which many of these governments are enabled to borrow, {a) This interest, in my opinion, hardly covers the * Voyage d' Anacharsis, torn. iv. p. 371. (a) This is strongly illustrated by the unfunded and the funded debt of Great Britain. The former in the shape of exchequer and treasury bills, bears a rate of interest considerably lower than the latter m the shape of stock; because the bills are convertible readily at par; whereas, the usual rise and fall of the capital stock is much gi'cater, than the interest upon it for short periods. T. CHAP. VIII. ON DISTRIBUTION. 303 risk of the lender; but he always reckons on the certainty of selling his securities before the moment of catastrophe, should any serious alarm be entertained. The public securities that are not negotiable, bear a much higher interest; such, for in- stance, as the old personal annuities in France, which the go- vernment generally sold at the rate of 10 per cent., a high average for young lives. Wherefore, the Genevese acted with excellent judgment, in settling their annuities on thirty lives of well known public characters. By this means, they made their annuities negotiable, and so contrived to get the rate of interest of securities not negotiable, upon securities that were negotiable. About the vast influence of personal character and ability in the borrower, in determining the amount of the premium of insurance to the lender, there can be no doubt whatever: they are the basis of what is called personal credit; and it is hardly necessary to say, that a person in good credit borrows at a cheaper rate, than another who has none. Next to approved integrity and probity, what most contri- butes to the credit of an individual or of a government is, past punctuality in performance of engagements; this is, in fact, the very corner-stone of credit, and one that seldom proves inse- cure. But why, it may be asked, may not a man who has never yet made default in his payments, fail the very next mo- ment? There is very little probability that he will, especially if his punctuality be of long standing. For, to have been ever punctual in his payments, he must either have always been possessed of value in hand sufficient to meet demands upon him; that is to say, he must have been a man of property over and above his debts, which is the best possible ground of trust; or else he must have managed matters so well, and have spe- culated with so much judgment and safety, as always to have had his returns arrive before the calls became due; thus evinc- ing a degree of ability and prudence, which afford an excellent guarantee for his future punctuality. The converse of this is the reason, why a merchant, that has once failed or hesitated in the performance of his engagements, thenceforward loses his credit entirely. Finally, the good government of the country, where the debtor resides, reduces the risk of the creditor, and, conse- quently, the premium of insurance he is obliged to demand to cover that risk. Hence it is, that the rate of interest rises, whenever the laws and their administration do not ensure the performance of engagements. It is yet more aggravated, when they excite to the violation of them; as when they authorize non-payment, or do not acknowledge the validity of bond fide contracts. The resort to personal restraint against insolvent debtors has been generally considered as injurious to the borrower; but is, on the contrary, much in his favour. Loans are made more willingly, and on better terms, where the rights of the 304 ON DISTRIBUTION. book ir. lender are best secured by law. (a) Besides, the encourage- ment to accumulate capital is thereby enlarged; wherever in- dividuals mistrust the mode of investing their savings, there is a strong inducement to every one to consume the whole of his income, and this consideration will, perhaps, help to ex- plain a curious moral phenomenon; namely, that irrisistible avidity for excessive enjoyment, which is a common symptom in times of political turbulence and confusion.* However, while on the subject of the necessity of personal severity towards debtors, I can not recommend the practice of imprisonment; to confine a debtor is to command him to discharge his debts, and at the same time deprive him of the means of so doing. There seems more reason in the Hindu institution, giving the creditor the option of seizing the person of his insolvent debtor, and confining him at the creditor's own home to compulsory labour, for the creditor's benefit. t — But, whatever be the means, whereby the public authority en- forces the payment of debts, they must always be inefiective, if law be partially or capriciously administered. The moment a debtor is, or hopes to be, out of his creditor's reach, there is a risk to be run by the creditor, which is of value, and must be indemnified. After having thus detached from the rate of bare interest all that is paid as premium of insurance to the lender against the risk of total or partial loss of his capital, it remains to consider that part, which is purely and simply interest; that is to say, rent paid for the utility and the use of capital. Now this portion of the gross sum called interest is larger, in proportion as the supply of capital available for loans is less; and as the demand of capital for that specific object is greater; * See the description of the plag'ue at Florence, as given after Boccacio by Sismondi, in his admirable liistoire des R^puhUques d'ltalie. A similar effect was observed at several of the most dreadful epochs of the French revolution. •}• Raynal, Hlsioire PhilosopJiique. torn. i. (a) The personal restraint of the debtor has no where been carried to such extreme leng-th as in England. Not only was a debtor at one time liable to imprisonment joenc/en/e lite, and before the debt was legally estab- lished, and that for the smallest sum; but the term of his imprisonment in execution after judgment was absolutely unlimited. The hardship, in both these particulars, was partially remedied before the erection of our insol- vent code; and that code has still further alleviated the condition of the debtor. But the whole system is vitiated, and in a great measure, neutral- ized, by total neglect of all measures for the prevention of insolvency, in limine. The grand expedient is, publicity of property; which, in the first place, gives tlie creditor ihe means of estimating beforehand, and with more accuracy, the grounds and fair extent of his debtor's credit; and in the next, enables him, in case of default, to resort to those means, instead of endeavouring to discover or extort them by personal restraint. Thus it is, that one eiTor of policy is sure to engender another. T. CHAP. VIII. ON DISTRIBUTION. 305 and again, that demand is the greater in proportion to the more numerous and more hicrative employments of capital. Consequently, a rise in the rate of interest does not infallibly or universally denote, that capital is grown scarcer; for, pos- sibly, it may be a sign, that its uses are multiplied. Smith has remarked this consequence upon the close of the very suc- cessful war on the part of England, which terminated with the peace of 1763.* The rate of interest then advanced instead of declining; the important acquisitions of England had opened a new field for her commercial enterprise and speculation; ca- pital was not diminished in quantity, but the demand for it was increased; and the rise of interest, which ensued, though, in most cases a sign of impoverishment, was, in this, a conse- quence of the acquisition of new sources of wealth. France, in 1812, experienced the opposite effect of a cause directly the reverse. A long and destructive war, which had annihilated almost all external communication; exorbitant tax- ation; the ruinous system of licences; the commercial enter- prises of the government itself; frequent and arbitrary altera- tions in the duties on import; confiscation, destruction, vexa- tion; in fine, a SA'^stem of administration uniformly avaricious and hostile to private interest, had rendered all enterprises of industry difficult, hazardous, and ruinous in the extreme. The aggregate capital of the nation was probably on the de- cline; but the beneficial employment of it became still more rare as well as dangerous; so much so, that interest never fell so low in France as at that period; and, what is in general the sign of extreme prosperity, was then the effect of extreme distress. These exceptions serve but to confirm the general and eter- nal law, that the more abundant is the disposable capital, in proportion to the multiplicity of its employments, the lower will the interest of borrowed capital fall. With regard to the supply of disposable capital, that must depend on the quantum of previous savings. On this head, I must refer to what I have before said upon the subject of the formation of capital.! * Wealth of Nations, book i. c. 9. ■\ iSuprci, Book I. chap. 11. It has been remarked, that the rate of in- terest is usually somewhat lower in towns, tlian in country places. Wealth of Nations, book i. c. 9. The reason is plain. Capital is for the most part in the hands of the wealthy residents of the towns, or at least of persons who resort to them for their business, and carry with them the commodity they deal in, i. e. capital, which they do not like to employ at much distance from their own inspection. Towns, and particularly great cities, are the grand markets for capital, perhaps even more than for labour itself; accord- ingly, labour is there comparatively dearer than capital. In the country, where there is little unemployed capital, the contrary is observable. Thus, usury is more prevalent in country places; it would be less so, if the busi- ness of lending were more safe and in better repute, (a) (a) These remarks are just in the main; but the advantage of town over 46 306 ON DISTRIBUTION. book ii. If it be desired, that capital in search of employment, and industry in search of capital, should both be satisfied in the fullest manner, entire liberty of dealing must be allowed in all matters touching; loan at interest. Disposable capital, be- ing thus left to itself, will seldom remain long unemployed; and there is every reason to believe, that as much industry will be called into activity, as the actual state of society will admit. But it is essential to pay a strict attention to the meaning of the term, supply of disposable capital; for this alone can have any influence upon the rate of interest; it is only so much capital, as the owners have both the power and the will to dis- pose of, that can be said to be in circulation. A capital, al- ready vested and engaged in production or otherwise, is no longer in the market, and therefore no longer forms a part of the total circulating capital; its owner is no longer a competi- tor of other owners in thp business of lending, unless the em- ployment be one, from which capital may be easily disengag- ed and transferred to other objects. Thus, capital lent to a trader, and liable to be withdrawn from his hands at short notice, and, a fortiori, capital employed in the discount of bills of exchange, which is one way of lending among com- mercial men, is capital readily disposable and transferable to any other channel of employment, which the owner may judge convenient. Capital employed by the owner on his own account, in a trade that may be soon wound up, in that of a grocer for in- stance, stands nearly in the same predicament. The articles he deals in find at all times a ready market; and the capital thus employed, may be realized, repaid if lent, re-lent and re- employed in other trades, or applied to any other use. It is always either in actual circulation, or at least on the point of being so. Of all values, the one most immediately disposable is that of money. But capital embarked in the construction of a mill, or other fabric, or even in a moveable of small di- mensions, is fixed capital, which, being no longer available for any other purpose, is withdrawn from the mass of circu- lating capital, and can no longer yield any other benefit, than that of the product wherein it has been vested. Nor should it be lost sight of, that, even though the mill or other fabric be sold, its value, as capital, is not by that means restored to cir- culation; it has merely passed from one proprietor to another. On the other hand, the disposable value, wherewith the buyer has made the purchase, is not thrown out of circulation, hav- ing merely passed from his into the seller's hands. The sale neither increases nor diminishes the mass of floating capital in countr)^, in this particular, may be reduced to a very trifle, by the ease of internal communication. In England the difference is scarcely per- ceptible. T. CHAP. viir. ON DISTRIBUTION. 307 the market. Attention to this circumstance is essential to the forming a correct estimate of the causes, that determine the rate, as well of interest on capital, as likewise of profit accru- ing from capital employed, which we are about to consider presently. It has been sometimes supposed, that capital is multiplied by the operation of credit. This error, though frequently re- curring in works professing to treat of political economy, can only arise from a total ignorance of the nature and functions of capital. Capital consists of positive value vested in material substance, and not of immaterial products, which are utterly incapable of being accumulated And a material product evi- dently can not be in more places than one, or be employed by more persons than one, at the same identical moment. The works, machinery, utensils, provisions, and stock in hand, composing the capital of a manufacturer, may possibly be wholly borrowed; in which case, he will be acting upon a hir- ed capital, and not on one of his own: yet, beyond all ques- tion, that capital can be made use of by no one else, so long as it remains within his control and management: the lender has parted with the power of otherwise disposing of it for the time. A hundred others might have equal security and cre- dit to offer; but their applications could not multiply the volume of disposable capital, and could have no other effect than to prevent other capital from remaining idle and out of employ.* It is not to be expected, that I should here enter upon a com- putation of the motives of affection, consanguinity, generosity, or gratitude which may occasionally give rise to the loan of capital, or influence the amount of interest demanded for it. Every reader must take upon himself to appreciate the influ- ence of moral causes upon the laws of political economy, which alone we profess to expound. To limit capitalists to the lending at a certain fixed rate on- ly, is to set an arbitrary value on their commodity, to impose * Vide suprd. Book I. chap. 10, 11, on the mode of employing, and on the transformation and accumulation of capital. What is here said does not militate against the positions laid down in Book I. chap. 22. on the repre- sentatives of money. A bill of exchange, with good names upon it, is only an expedient for borrowing of a third person actual and positive value, in the interim between the negotiation and the maturity of the bill. Bills and notes, payable on demand, or at sight, whether issued by the go- vernment, or by private banking-establishments are a mere substitution of a cheap paper-agent of circulation, in the place of a costly and metallic agent. The monetary functions of the metal being executed by the paper, the former is set free for other objects; and, inasmuch as it is exchangea- ble for other commodities or implements of industry, a positive accession is made by the substitution to the natural capital; but no further. The degree of the accession is hmited strictly to the amount of value required for the business of circulation, and dispensed with by this expedient; which amount is a mere trifle, in comparison with the total value of the national capital. 308 ON DISTRIBUTION. book ii. a maximum of price upon it, and to exclude, from the mass of floating or circulating capital, all that portion, whose proprie- tors can not, or will not, accept of the limited rate of interest. Laws of this description are so mischievous, that it is well they are so little regarded as they almost always are, the wants of borrowers combining with those of lenders, for the purpose of evading them; which is easily managed, by stipulating for bene- fits to the lender, not, indeed, bearing the name of interest, al- though really the same thing in the end. The only consequence of such enactments is, to raise the rate of interest, by adding to the risks, to which the lender is exposed, and against which he must be indemnified. It is somewhat amusing to find that those governments, which have fixed the rate of interest, have almost invariably themselves set the example of breaking their own laws, by borrowing at higher than legal interest in their own case. That interest should be fixed by law, is highly proper and necessary; but it should be fixed only in cases, where there is no previous agreement about it; as in the case of a legal re- covery of a sum with interest. And, in such case, I think the interest fixed by law should be estimated at the lowest rate, that is usually paid by individuals; because the lowest rate is that paid by the safest investments. Now, it is quite consist- ent with justice, that the withholder of capital should restore it even with interest; but that is in the supposition, that it has remained all the while in his possession; which it can not be supposed to have done, without his having invested it in the way the least hazardous, and consequently without his hav- ing drawn from it at least the lowest interest it would have afforded. But this rate should not be denominated the legal interest, because the rate of interest ought no more to be restricted, or determined by law, than the rate of exchange, or the price of wine, linen, or any other commodity. And this is the proper place to expose a very prevalent error. Capital, at the moment of lending, commonly assumes the form of money; whence it has been inferred, that abundance of money is the same thing as abundance of capital; and, con- sequently, that abundance of money is what lowers the rate of mterest. Hence the erroneous expressions used by men of business, when they tell us, that money is scarce, or that mo- ney is plentiful; which, it must be confessed, are equally just and appropriate, as the very incorrect term, interest of money. The fact is, that abundance or scarcity of money, or of its substitute, whatever it may be, no more affects the rate of in- terest, than abundance or scarcity of cinnamon, of wheat, or of silk. The article lent is not any commodity in particular, or even money, which is itself but a commodity, like all others; but it is a value accumulated and destined to beneficial investment. CHAP. VIII. ON DISTRIBUTION. 309 A man, who is about to lend, converts into money the aggre- gate value he means to devote to that particular purpose; and the borrower no sooner has it at command, than he ex- changes it for something else, the money that has effected this operation, proceeds forthwith to effect another similar or dis- similar one, God knows what; the payment of a tax perhaps, or subsidy of an army. The value lent has assumed but for a moment the form of money, in the same manner, as we have traced revenue received and spent, to pass through the same temporary form, the identical pieces of money serving per- haps a hundred times in the course of a year, to transfer equi- valent portions of income. So, likewise, the same sum of mo- ney, that has served to transfer a value from the hands of one lender into those of a borrower, may, after infinite intervening transfers, perform the like office between a second borrower and lender, without stripping the former borrower of any part of the value he has received. In reality, then, it is value which has been borrowed, and not any particular sort of metal or of merchandise. All kinds of merchandise may be lent and borrowed, as well as money; nor does the rate of interest at all depend upon the quality of the object lent or borrowed. Nothing is more common in trade, than to lend and borrow other objects than money. When a manufacturer buys the raw material of his business at a certain credit, he, in fact, bor- rows the wool, or cotton, as the case may be, making use of the value of those materials in his concern; and their quality has no influence on the interest, with which he credits the seller.* The glut or scarcity of the commodity lent only af- fects its relative price to other commodities, and has no influ« ence whatever on the rate of interest upon its advance or loan. Thus, when silver money lost three-fourths of its former rela- tive value, although four times as much of it was necessary to * Many loans on interest are made without bearing that name, and with- out implying a transfer of money. When a retail dealer supplies his shop by bnying of tlie manufacturer or wholesale dealer, he bon-ows at interest, and repays, either at a certain term, or before it, retaining the discount, which is but the return of the interest charged him in addition to the price of the goods. When a provincial dealer makes a remittance to a banker at Paris, ancT afterwards draws upon this bankei", he lends to him, during the time that elapses between the arrival of tlie remittance and the pay- ment of the draft. The interest of this advance is allowed in the interest account attached by the banker to the merchant's account-current. In the Cours d'Economie PoUtique compiled by Slorch, for the instruction of the young grand-dukes of Russia, and printed at Petersburgh, torn. vi. p. 103, we are informed, that the English merchants, or factors settled in Russia, sell to their customers at a credit of twelve months; which enables the Rusr sian purchaser of current articles, to realize long before the day of ]iayment, and turn the proceeds to account in the interim; thereby operating with English capital, never intended to be so employed. It is to be presumed, that the English indemnify themselves for this loss of interest, by the addi- tional price of their goods. But the average rate of profit upon capital in Russia is so high, that even this round-about way of borrowing is sufficient- ly profitable to the native dealers. 310 ON DISTRIBUTION. book ii. pass a loan of the same extent of capital, the ratio of interest remained unaltered. The quantity of specie or money, in the market, might increase ten-fold, without multiplying the quantity of disposable, or circulating capital.* Wherefore, it is a great abuse of words, to talk of the inte- rest of money; and probably this erroneous expression has led to the false inference, that the abundance or scarcity of money regulates the rate of interest.! Law, Montesquieu, nay even the judicious Locke, in a work expressly treating of the means of lowering the interest of money, have all fallen into this mistake; and it is no wonder that others should have been misled by their authority. The theory of interest was wrap- ped in utter obscurity, until Hume and SmithJ dispelled the vapour. Nor will it ever be clearly comprehended except by such as shall have acquired a correct notion of what has, throughout this work, been denominated capital, and shall pro- ceed in the conviction, that the object lent or borrowed, is not a particular commodity or object of merchandise, buta portion of value, — of the aggregate value of the capital available for that object; and that the per centage paid for the use of this portion of capital, at all times and places, depends on the re- lative supply and demand of capital to be lent, and is wholly independent of the specific form or quality of the commodity, wherein the loan is made, whether it be money, or any other article whatever. * This is no contradiction to the former position, that the precious me- tals form part of the capital of society. They form an item of capital, but not of disposable, ov lendabk capital; for they are already employed, and not in search of employment; — employed in the business of circulating value from one hand to another. If their supply exceed the demand for this ob- ject, they are sent to other parts, where their price continues higher; if their general abundance lower their price every where, the sum of their value is not increased, but a larger quantity of them is given in exchange for the same value in other commodities. f If interest were always low in proportion to the greater supply of mo- ney, it would be lower in Portugal, Brazil, and the West Indies, than in Germany, Switzerland, &c. which is by no means the case. t Essays of D. Hume, part ii. ess. 4. Wealth of Nations, Book ii. c. 4. It is well for the student in political economy, that Locke and Montesquieu have not written more upon it; for the talent and ingenuity of a writer serve only to perplex a subject he is not thoroughly acquainted with. To say the truth, a man of lively wit can not satisfy his own mind without a degree of speciousness and plausibility, which is of all things the most dangerous to the generality of readers, who are not sufficiently grounded in principle to discover an error at first sight. In those sciences, which consist in mere compilation and classification, as in botany or natural history, one can scarcely read too much; but, in those dependent upon the deduction of ge- neral laws from particular facts, the better course is to read little, and se- lect that little with judgment. CHAP. VIII. ON DISTRIBUTION. 311 SECTION II. Of the Profits of Capital. We have now sufficiently considered the nature and motive of the interest paid by the borrower to the lender of capital, and, though it appears pretty plainly, that this interest is com- pounded of the rent of the capital, and of the premium of in- surance against the risk of its partial or total loss, we have also seen enough, to comprehend the extreme difficulty of severing and distinguishing these two ingredients. Let us then proceed, in the next place, to investigate the causes of the profit derivable from the employment of capital, whether by a borrower or by the proprietor nimself: to which end it will be necessary, in the outset, to sever it from the profit of the industry, that turns it to account; and here again we shall meet with the greatest difficulty, in drawing the line of distinction; though it is easy to perceive, that these two classes of profit, generally speaking, are combined in the re- compense or portion of the adventurer. Smith, and most of the English writers on this science, have omitted to notice this distinction; they comprise under the general head of the profit of capital, or stock, as they term it, many items, which evidently belong to the head of the profit of industry. * Perhaps an approximation may be made to the accurate ap- preciation of that part of the aggregate profit, which appertains to the capital, and that, which appertains to the industry em- ploying it, respectively, by comparing the mean ratio of total * This omission is justified by Smith, on the following grounds. " Let us suppose," says he, "that in some particular place, where the common annual profits of manufacturing stock are 10 per cent., there are two different manufactures, in one of which the coai-se materials annually v/rought up cost only 700/., while the finer materials in the other cost 7000/. If the la- bour in each cost 300/. per annum, the capital employed in the one will amount only to 1000/. ; whereas, that employed in the other will amount to 7300/. At the rate of 10 percent., therefore, the undertaker of the one will expect a yearly profit of 100/. only, and that of the other 730/.;" and he goes onto infer, "that the profit is in proportion to the capital, and not to the labour and skill of inspection and direction." But the instance put is altogether inconclusive: and it is equally easy to suppose the case of two manufactures, carried on in the same place, and in the same line, each with an equal capital of 1000/. ; the one under the conduct of an active, frugal and intelligent manager, the other under that of an idle, ignorant, and ex- travagant one; the former yielding a profit of 150/. per annum, the latter one of 50/. only. The difference in this case will arise, not from any difference in the respective capitals employed, but from the difference in the skill and industry employing them; which latter qualities will be more productive iii> the one instance than in the other. 313 ON DISTRIBUTION. bookii. profit with the mean ratio of the difference of profit in the same line of business, which seems a fair index of the difference of the skill and labour engaged. We will suppose two houses, in the fur trade for example, to work each upon a capital of 100,000 /r., and to make, on the average, an annual profit, the one of 24,000 y>., the other of 6,000^r. only; a difference of 18,000 yr,, fairly referable to the different degree of skill and labour, the mean of which is 9000yr./ this may be considered as the gains of industry, which, deducted from 15,000 yV.; the mean profit of the trade, will leave 6000 /r. for the profit of the capital embarked in it. This example I could suggest as a means, rather of distin- guishing those items of profit thus mixed up together, than of estimating their respective ratio with any tolerable certainty. But, without any index to the precise line of demarcation be- tween the profits of capital and those of the industry employ- ing it, we may take it for granted, that the former will always be proportionate to the risk of partial or total loss, and to the duration of the employment. In practice, adventurers, having capital at their command, always weigh before hand the ad- vantages and disadvantages of the different modes of invest- ment, as specified above,* and naturally prefer, ceteris pari- bus, those presenting the smallest risk and the quickest return; so that there is less competition of capital for hazardous and long-winded adventurers; indeed, none whatever is embarked in them, unless they hold out a rate of profit so much above the average rate, as to tempt the capitalist to run the risk. Theory, therefore, leads to the presumption, which is confirm- ed by the test of experience, that the profit of capital is high, in proportion to the hazard of the adventure, and to the length of its duration. When a particular employment of capital, the trade with China for instance, does not afford a profit proportionate, not only to the time of the detention, but likewise to the danger of loss, and the inconvenience of a long, perhaps a two years' duration of one single operation before the returns come to hand, a proportion of the capital is gradually withdrawn from that channel; the competition slackens, and the profits advance, until they rise high enough to attract fresh capital, t This will serve also to explain, why the profits, derivable from a new mode of employment, are larger than those of common and ordinary employments, where the production and consumption have been well understood for years. In the * Book II. chap, 7. sect. 3. j- To say nothing- of the other motives, that attract industry towards any particular profession or repel it thence, which have been noticed in the preceding- chapter. These motives sometimes operate all in the same di- rection, and then the profits of both industry and capital rise or fall to- gether; when they act in opposite dii'ections, tlie difference on the profit of capital balances that on the profit of industry; or vice versa. GHAP. nil. ON DISTRIBUTION. 313 former case, competition is deterred by the uncertainty of suc- cess; in the latter, allured by the security of the employment. In short, in this matter, as in all others, where the interests of mankind clash one with another, the ratio is determined by the relative demand and supply for each mode of employment of capital respectively. It IS a maxim with Smith and those of his school, that hu- man labour was the first price, — the original purchase-money, paid for all things. They have omitted to add, that, for every object of purchase, there is, moreover, paid, the agency and co-operation of the capital employed in its production. Is not capital itself, they will say, composed of accumulated products, — of accumulated labour? Granted: but the value of capital, like that of land, is distinguishable from the value of its pro- ductive agency; the value of a field is quite different from that of its annual rent. When a capital of 1000 fr. is lent, or ra- ther let on hire, for a year, in consideration of 50 fr. more or less, its agency is transferred for that space of time, and for that consideration; besides the 50 fr. the lender receives back the whole principal sum of 1000 fr., which is applicable to the same objects as before. Thus, although the capital be itself a pre-existent product, the annual profit upon it is an en- tirely new one, and has no reference to the industry, wherein the capital originated. Wherefore, when a product is ultimately completed by the aid of capital, one portion of its value must go to recompense the agency of the capital, as well as another to reward that of the industry, that have concurred in its production. And the portion so applied is wholly distinct from the value of the capi- tal itself, which is returned to the full amount, and emerges in a perfect state from its productive employment. Nor does this profit upon capital represent any part of the industry en- gaged in its original formation. From all which it is impossible to avoid drawing this con- clusion, that the profit of capital, like that of land and the other natural sources, is the equivalent given for a productive service, which, though distinct from that of human industry, is nevertheless its efficient ally in the production of wealth. SECTION III. Of the Employments of Capital ynost beneficial to Society. To the capitalist himself, the most advantageous employ-^ ment of capital is that, which with equal risk yields the largest profit; but what is to him most beneficial, may perhaps not be so to the community at large; for capital has this peculiar fa- 47 S14 ON DISTRIBUTION. book ii. culty, that, besides being productive of a revenue peculiar to itself, it is, moreover, a means, whereby land and industry may generate a revenue likewise. This is an exception to the general principle, that what is the most productive to the in- dividual, is so to the community at large. A capital lent to a foreign country may very probably produce to the proprietors and the nation the highest possible rate of interest; but can af- ford no assistance towards extending the revenue of the na- tional territory, or for the national industry, as it would do, if employed within the pale of the nation. The portion of capital embarked in domestic agriculture is employed best for the interests of a nation; it enhances the productive power of the land and of the labour of a country. It augments at once the profits of industry and those of real property. Capital, employed under intelligent direction, may make barren rocks to bear increase. The Gevennes, the Py- renees, and the Pays de Vaud, present on every side the view of mountains, once a scene of unvaried sterility, now covered with verdure and enriched by cultivation. Parts of these rocks have been blasted with gunpowder, and the shivered fragments employed in the construction of terraces one above another, supporting a thin stratum of earth carried thither by human labour. In this manner is the barren surface of the rock transformed into shelving platforms, richly furnished with verdure, and teeming with produce and population. The capital originally expended in these laborious improvements might, perhaps, have produced larger profits to the capitalist, if employed in external commerce; but probably the total re- venue of the district would have been inferior in amount. For a similar reason, capital can not be more beneficially employed, than in strengthening and aiding the productive powers of nature. Well contrived and useful machinery pro- duces more than the interest of its prime cost; and, besides af- fording additional profit to the proprietor, benefits the con- sumer and the community at large, to the full extent of the saving effected by its means; for every thing saved is so much gain. The productive employments, that rank next in point of national benefit, are those of manufacture and internal com- merce: for the profits of the industry they set in motion are earned at home; whereas, capital embarked in foreign trade benefits the industry and natural resources of all nations in- discriminately. The employment of capital, that tends least to the national advantage, is the carrying trade between one foreign country and another. When a nation is possessed of an immense accumulation of capital, it will do well to embark it in all these different chan- nels of industry; for they are all lucrative, and in nearly equal degree to the capitalist, though in very different degrees to the nation at large. What prejudice can arise to the lands of Hoi- CHAP. VIII. ON DISTRIBUTION. 315 land, which are already in a high state of cultivation and management, and want neither clearing nor enclosing, or what injury be sustained by nations possessed of little territory, like the old states of Venice, Genoa, and Hamburgh, from the large investments of national capital in the carrying trade? It flowed into that particular channel of employment, merely because there was no other open to it. But that class of trade, and generally all external commerce, is ill adapted to a nation deficient in capital, and having not enough to keep its agricul- ture and manufacture in activity; and it would be absurd for its government to give premature encouragement to those ex- ternal branches of industry; for such a measure would but check the employment of capital in the manner best calculated to increase the national revenue. China, though it is the largest empire in the world, and must possess the greatest ag- gregate revenue, since it maintains the most numerous and dense population, abandons to foreigners almost all its exter- nal commerce. Undoubtedly, in her present condition, she would be a gainer by extending her external relations of com- merce; but she aifords a very striking example of the pros- perity attainable witliout them. It is very fortunate, that the natural course of things impels capital rather into those channels, which are the most benefi- cial to the community, than into those, which afford the largest ratio of profit. The investments generally preferred are those that are nearest home; whereof the first and foremost is the improvement of the soil, which is justly considered the most safe and permanent; the next, manufacture and internal com- merce; and the last of all, external commerce, the trade of transport, and the commerce with distant nations. The owner of a capital, especially of a moderate one, will embark it ra- ther under his own superintendence, than in distant and re- mote concerns. He is apt to think his risk too hazardous, when he loses sight of his property for any considerable length of time, when he consigns it to strangers, or can expect only tardy returns, or is exposed to the chances of litigation with fraudulent debtors, who may take advantage of their unsettled habits of life, or of the laws of foreign countries, with which he is himself unacquainted. Nothing, but the bait of exclu- sive privilege and monopoly-profit, or the violent derange- ment of internal industry, can induce an European nation, not possessed of a large surplus capital, to engage in the colo- nial or East India trade. (1) (1) [The reasoning of this whole section, appears to me, to be unsound and inconclusive. Tliere is no distinction, in point of productiveness, be- tween any of the various employments of capital. There can, in short, be no line drawn between the difFei'ent productive channels, into which capi- tal may be directed. Whatever occupations tend to supply the wants and increase the comforts and accommodations of life, are, in the strictsst sense of the woi'd, equally productive, and nearly, in the same proportion aug- 316 ON DISTRIBUTION. book ii. CHAPTER IX. OP THE REVENUE OF I^AND. SECTION I. Of the Profit of Landed Property. "* Land has the faculty of transforming and adapting to the use of mankind an infinity of substances, which, without its intervention, would be to them of no service; it yields nutri- ment and vegetative juices to the grain, the fruits, and vege- tables, whereon we subsist; as well as to the forests, whereof we construct our houses, ships, and furniture, and whence we derive fuel to keep us warm. Its agency in the production of • In the preceding chapter, I have given the interest, precedence of the fjrofit, of capital, because the former helps to render the latter more intel- igible. I have here adopted a contrary arrangement, because the consi- deration of ihe profit of land elucidates the subject of rent. ment the national wealth. The capital employed in the carrying trade between one foreign country and another is as advantageous to the indivi- dual and nation to which it belongs, as the capital employed at home. For, as has been already remarked in relation to the profits of industry (vide note page 6) in the absence of all restraints, the profits of all the different emplovments of capital, will be on an equality or nearly approaching it, in as much as any material difference will cause its diversion to a more pro- ductive channel, and thus restore the equilibrium. In a word, capital flows into the carrying trade only because it yields a greater profit than it other- wise would do, did it not take that direction. Moreover, there is no exception to tlie general principle, that what is most productive to the individual is so to the community at large. Not- withstanding our author's assertion to the contrary, in the foregoing section, a capital lent to, or employed in, a foreign country, if it produce to the pro- prietors and nation the highest rate of interest, must necessarily extend the national revenue as much, and afford the same assistance to the national in- dustry, as if it were employed within the pale of the nation. If, for example, the capital lent abroad, give employment to foreign industry and natural agents, it is because the same productive powers at home, when things, I must again repeat, are left to take their natural course, are already more profitably occupied. Were not this the case, this capital would not seek employment abroad, but remain at home. The revenue produced by capi- tal employed abroad, if the proprietor does not himself at the same time emigrate there, must be the means of calling into activity, and giving a gi-eater development to the productive faculties of the national industry and land, as this revenue must be consumed, either productively or unpro- ductively at home,] Amebicajt Editoh. CHAP. IX. ON DISTRIBUTION. 317 all these commodities may be called, the productive service of land. And thence it is, that the profit of the proprietor origi- nates. He derives a further benefit from the useful substances to be extracted from its entrails; the stone, metal, coal, peat, &c. &c. Land, as we have above remarked, is not the onl)'- natural agent possessing productive properties; but it is the only one, or almost the only one, which man has been able to appropri- ate, and turn to his own peculiar and exclusive benefit. The water of rivers and of the ocean has the power of giving mo- tion to machinery, affords a means of navigation, and supply offish; it is, therefore, undoubtedly possessed of productive power. The wind turns our mill; even the heat of the sun co- operates with human industry; but happily no man has j^et been able to say, the wind and the sun's rays are mine, and I will be paid for their productive services. I would not be un- derstood to insinuate, that land should be no more the object of property, than the rays of the sun, or blast of the wind. There is an essential difference between these sources of pro- duction; the power of the latter is inexhaustible; the benefit derived from them by one man does not hinder another from deriving equal advantage. The sea and the wind can at the same time convey my neighbour's vessel and my own. With land it is otherwise. Capital and industry will be expended upon it in vain, if all are equally privileged to make use of it; and no one will be fool enough to make the outlay, unless as- sured of reaping the benefit. Nay, paradoxical as it may seem at first sight, it is, nevertheless, perfectly true, that the man, who is himself no share-holder of land, is equally interested in its appropriation with the shareholder himself. The savage tribes of New Zealand, and of the north-western coast of Ame- rica, where the land is unappropriated, have the greatest diffi- culty in procuring a precarious subsistence upon fish and game, and are often reduced to devour worms, caterpillars, and the most nauseous vermin:* not unfrequently even to wage war on one another, from absolute want, and to devour their prisoners as food; whereas, in Europe, where the appropriation is com- plete, the meanest individual, with bodily health, and inclina- tion to work, is sure of shelter, clothing and subsistence, at the least. In preceding chapters, we have noticed the profit resulting from industry and capital, embarked in agriculture or other branches of industry. In the present, we are to inquire, wherein consists the peculiar profit of land itself, independent of that accruing from the industry and capital, devoted to its cultivation; and to consider the profit of land in the abstract, * Malthus, in his Essay cm Population, book. i. c. 405., has given a de- tail of some of the revolting extremes, to which savage tribes have been re- duced, by the want of a regular supply of food. 318 ON DISTRIBUTION. book ii. and whence it originates, without any inquiry as to who may be the cultivator, whether the proprietor himself, or a tenant under him. It is the declared opinion of many writers,* that the value of products is never more than the recompense of the human agency engaged in their production; consequently, that there is no residue, or surplus, that can be set apart as the peculiar profit of land, and constitute the rent paid for its use to the pro- prietor. The tenor of their argument is this: the proprietor of land lying waste or fallow, having also a capital to dispose of, may, at his pleasure, expend it, either in cultivation, or in some other way. If he reckons that the cultivation of his land will yield him as large a return as any other investment, he will give it the preference; and, indeed, it is found by ex- perience, that this mode of investment is preferred, even though somewhat less advantageous than others, as being at all events more safe. Well: and what do they infer from this? * JDesiutt de Tracy. Commentaire sur I'Esprit de Lois, c. 13. Ricardo, {a) Frin. of Pol. Econ. and Tax. c. 2. (tt) This chapter of Ricardo is perhaps the least satisfactory and intelli- gible of his whole work. It goes upon the principle detailed by Malthus, in his Essay on Rent; viz. that the ratio of rent is determined hy the dif- ference in the product of land of different qualities, the worst land in culti. vation yielding no rent at all. But there is a great deal of land yielding rent without any cultivation; and, in a country, where the whole of the land is appropriated, none is ever cultivated without paying some rent or other. The downs of Wiltshire yield a rent, without any labour, or capital, being expended upon them: so likewise the forests of Norway, this rent is the natural product of the soil; it is paid for the perception of that natural pro- duct, between which, and the desire for it, an artificial difficulty is interpos- ed by human appropriation. The whole rent is, therefore, referable not to the quality of the land only, but to the quality jointly with the appropria- tion; and so it is in all cases. Wherever a difficulty is thus interposed, rent will be paid upon all land brought into cultivation; for why should the pro- prietor part with the temporary possession for nothing, any more than the capitahst with his capital? And the ratio of rent is determined, not altoge- ther by the quality of the soil, but by the intensity — 1. of the desire, or demand for its productive agency; 2. of the artificial difficulty interposed by nature and human appropriation. The quality of the soil may vary the intensity of the demand for it beyond all question; for the quality is the pro- ductive agency: but the supply of agricultural industry and capital in the market will also vary the proportion of its product, which industry and capi- tal will expect for themselves. Why is rent highest, when a population is condensed on a limited territorial surface? because then the utility of its pro- ductive quahties is more strongly felt and desired, in consequence of the intense difficulty of their attainment. And why is rent still further raised by the prohibition of the import of products of external agriculture? Be- cause the natural difficulty of obtaining the benefit of the productive agen- cy of foreign land is aggravated, by the artificial difficulty interposed by legislative enactments. The degree of productive agency, of course affects the amount of the product; but rent originates in the union of that agency, or utility, with difficulty of attainment, natural and artificial, and is regulat- ed in its ratio by their combined intensity. T. CHAP. IX. ON DISTRIBUTION. 319 Why, that cultivation yields no return whatever, beyond the interest of the capital engaged in it;* and if so, what is there left for the profit of the productive powers of the soil? Evi- dently nothing whatever. I have endeavoured to put the ar- gument in the clearest and most intelligible light; and I have to observe upon it, that it proceeds upon a partial and imper- fect view of the matter, and upon a total neglect of the influ- ence of demand in the fixation of value. I will now adventure a complete view of the subject. The productive power of the soil has no value, unless where its products are objects of demand. Travellers, who have ex- plored the interior of America, and other desert parts of the globe, make repeated mention of tracts of the richest land, ca- pable of every kind of culture, yet wholly destitute of any use- ful or valuable products. But, no sooner is a colony establish- ed in the vicinity, or, by some means or other, a market found, where the products of the soil will, in the way of exchange, pay the usual rate of interest upon the requisite advances, than cultivation begins immediately. Up to this point, there is no difference between us. But, if any circumstances operate to aggravate the demand beyond this point, the value of agricul- tural products will exceed, and sometimes very greatly exceed, the ordinary rate of interest upon capital; and this excess it is, which constitutes the profit of land, and enables the actual cul- tivator, when not himself the proprietor, to pay a rent to the proprietor, after having first retained the full interest upon his own advances, and the full recompense of his own industry. Land is an agent gratuitously furnished to mankind at large, by whom it is afterwards exclusively appropriated; but its ap- propriation does not begin to be profitable to the individual, in whose favour it is made, until its products are an object of de- mand, and until their supply ceases to be co-extensive with the desire for them, as it is with respect to some other natural objects, air, water, &c. From those products of the soil only, thus raised in value by the demand, can there accrue that profit to the proprietor, which has been called the profit of land; and which is paid in all civilized countries, and especially where manufacture and commerce multiply the objects of exchange. It may sometimes happen, that, in a particular district of such a country, the rent of land may be very trifling; as in our own district of Sologne, where it is no more than 1 fr. the arpent; but this is owing to the want of roads, and particularly of water-carriage, which makes the charge of bringing its agricultural produce to mar- ket, added to the charge of cultivation, absorb nearly the whole value it will there sell for. In some countries, highly civilized and productive in the * According to these writers, even the interest of capital is not given as the recompense of its concurrence in the business of production. I have already exposed the fallacy of this opinion, supra, Chap. 8, sect. 2. 320 ON DISTRIBUTION. book ii. extreme, land pays no more than 3 or 4 per cent, upon its price or purchase-money. Yet, this is no proof of the poverty of the soil; it proves only, that it sells dear. A landed estate may yield \20 fr. the arpent, and require very little expense of cultivation; as if it be laid down in pasture, for instance; in such case, it must owe most of its value to its natural proper- ties; yet, if it have cost the proprietor 4000 fr. the arpent, it will yield a return of 3 per cent. only. And herein consists the difference between the profit and the rent of land: profit is high or low, according to the quantum of the product; rent, according to the quantum of the purchase-money or price. — An acre of land, yielding a profit of ifr. only, will bring as high a rent as an acre yielding a profit of SO/r., if 50 times as much has been paid for the one as for the other. Whenever land is bought with capital, or capital with land, occasion is given for a comparison of the returns of the one species of property with the returns of the other. It is possi- ble, that an estate, bought with a capital of i.00,000 fr., may produce but 3 or 4000 /r. per annum, whilst the same amount of capital would yield 5 or 6000 /r. The lower rate of inte- rest, which the proprietor is content to take on a purchase of land, may be attributed, in the first place, to the superior sta- bility of the investment. Capital can seldom be made pro- ductive, without undergoing several changes both of form and of place, the risk of which is always more or less alarming to persons unaccustomed to the operations of industry; whereas, on the contrary, landed property.produces without any change of either quality or position. The satisfaction and pleasure attached to territorial possession, the consideration, weight, and dignity it communicates, and the titles and privileges with which it is in some countries accompanied, contribute greatly to increase this natural preference. It is true, that land is more exposed than other property to the burden of public taxation, and to the arbitrary exactions of power, precisely because it can neither be removed nor concealed. A floating capital may take any shape whatever, and be removed at will. It can escape tyranny and civil com- motions more readily, than even the person of its proprietor. It is a safer object of property; for it is often impossible to at- tach it, or to make it specifically responsible for the debts of the proprietor. Moreover, it is much less exposed to litiga- tion, than landed property. Yet, it is clear, that all these ad- vantages are more than counterpoised by the superior risk of investment; and, that landed property is still preferred to floating capital; since land is dearer, in proportion to its an- nual returns. Whatever may be the exchangeable price of land and capi- tal one to the other, it is proper to observe, that their inter- change makes no variation in the supply of productive agen- cy of land and capital respectively in circulation, and disposa- ble for the purposes of production; consequently, that exchange- CHAP. IX. ON DISTRIBUTION. 321 able price can nowise affect the real and positive profit of land and of capital. When Richard sells his estate to Thomas, the productive service of the land is at the disposal of Thomas instead of Richard; and that of the capital, given in ex- change for it, is at the disposal of Richard instead of Thomas. The only thing, which really varies the amount of produc- tive agency of land in circulation, is the actual amelioration of the soil, by clearing and bringing new land into cultivation, or enlarging the productive powers of old land, and thus in- creasing its product. Savings and accumulations of capital are, in the shape of agricultural improvements, transformed into landed property, and made to participate in all the pecu- liar advantages and disadvantages attached to it. The same may be said of houses, and generally of all capital invested in a fixed and permanent object; it thenceforth loses the charac- ter of capital, and assumes that of landed property. Whence we may draw this invariable maxim ; that the pro- ductive agency of land is possessed of value, which value, like value in general, increases in the direct ratio of the de- mand, and the inverse ratio of the supply; and that, since land differs as much in quality, as in site and position, there is a peculiar demand and supply for each peculiar quality. A demand for so much wine, more or less, whatever it arise from, creates a specific demand for as much productive agen- cy of the soil, as may be requisite for its growth;* and the extent of surface, adapted to the culture of the grape, deter- mines the supply of that productive service. If the soil, ca- pable of growing good wine, be very limited in extent, and the demand for such wine very brisk, the profit of the soil itself will be extravagantly high. It is worthy of remark, that all land, that yields any profit at all, however trifling in amount, even so little as 1 fr. the arpent, or even less, may be kept in a state of cultivation: and there have been many instances of its cultivation under such circumstances. Herein it differs from capital and industry. A labourer, if he finds himself settled in a place, where his labour does not yield him what he has reason to expect, can migrate to another. So, likewise, capital quickly flows from a channel, that affords a less, to one that affords a greater re- turn. But land has not the same facilities: it is of necessity immoveable; consequently, out of its gross product, after the deduction in the first instance of all advances of capital, with interest, as well as of the profits of industry, without which there could be no product whatever, there still remains to be deducted the expense of carrying the product to the market, or place of exchange. When these several deductions absorb the whole product of the land, the land itself yields no profit at all, and the proprietor can never succeed in getting a rent *As well as a demand for the capital and industry requisite for the cul- tivation. 48 322 ON DISTRIBUTION. book n. from it. Even if he cultivate himself, he can only gain a profit on his capital and industry, but will receive none what- ever from the bare ownership of the land. In Scotland, there are tracts of unproductive land thus cultivated by the propri- etors, which it would not answer for any one else to under- take. So, likewise, in the back settlements of the United States, there are tracts of great extent and fertility, whose re- venue alone would not maintain the proprietors; yet they are, nevertheless, cultivated with success; but it is by the proprie- tors themselves, who consume the product at the place of growth, and are obliged to superadd to the profit of the land, which is little or nothing, the further profit of capital and per- sonal industry, which afford a handsome competency. It is obvious, that land, though in a state of cultivation, yields no profit, when no farmer will pay rent for it, which is a convincing proof, that it gives no surplus, after allowing for the profit of the capital and industry requisite for its cul- tivation. In the instance just mentioned, the effect is occasioned by the distance of the market; the expense of transport swallows up the profit, which might otherwise be made of the land. Other instances might be adduced, in which badness of sea- sons, war, or taxation, have produced the same effect, and par- tially or totally absorbed the profit of land, and thus thrown it out of cultivation.* SECTION II. Of Rent. When a farmer takes a lease of land, he pays to the pro- prietor the profit accruing from its productive agency, and reserves to himself, besides the wages of his own industry, the profit upon the capital he embarks in the concern; which capital consists in implements of husbandry, carts, cattle, &c. He is an adventurer in the business of agricultural industry; and, amongst the means he has to work with, there is one that does not belong to him, and for which he pays rent, i. e. the land. The preceding section was occupied in explaining the source • This catalogue of adverse circumstances, all bearing- more strongly upon the profit of land, than upon that of other sources of revenue, ex- plains the frequent and unavoidable remission of rent to the farmer, and proves the accuracy of M. de Sevigne's judgment, when she writes from the country: — "I wish my son could come here and convince himself of the fallacy of fancying oneself possessed of wealth, when one is only pos- sessed of land. " Lettre 224. CHAP. IX, ON DISTRIBUTION. 323 of the profit of land. Its rent is generally fixed at the highest rate of that profit, and for the following:; reason. Agricultural adventure requires, on the average, a smaller capital {a), in proportion, than other classes of industry, reckoning the land itself as no part of the capital of the ad- venturer. Wherefore, there is a greater number of persons able, from their pecuniary circumstances, to embark in agri- cultural, than in any other speculations; consequently, a greater competition of bidders for land upon lease. On the other hand, the quantity of land fit for cultivation is limited in all countries; whereas, the quantity of capital and the num- ber of cultivators have no assignable limitation. Landed pro- prietors, therefore, at least in those countries which have been long peopled and cultivated, are enabled to enforce a kind of monopoly against the farmers. The demand for their commodity, land, may go on continually increasing; but the quantity of it can never be extended. This circumstance is equally applicable to the nation at large, and to each particular province or district. The num- ber of acres to be rented in each province is incapable of ex- tension; whilst the number of persons in a condition to rent them has no fixed and absolute limit. Whenever this is the case, the bargain between the land- holder and the tenant must always be greatly in favour of the former; and, whenever there is any portion of the soil, which yields to the latter more than the interest of his capital and the wages of his industry, a higher bidder will soon offer him- self. The liberality of a few proprietors, the distance at which they happen to reside, the ignorance of others, and even of the farmers themselves, and the imprudence of a few more, may sometimes operate to depress the ratio of rent below the maximum of profit; but these are accidental circumstances, which act for a season only, and can never prevent the regu- lar and constant action of natural causes, which must in the end prevail. Besides this advantage accruing to the land-holder, derived from the very nature of things, he has likewise in general the advantage of possessing, or being able to accumulate greater wealth, and sometimes credit, patronage, and influence, into the bargain: but the first advantage is alone sufficient to insure him the sole benefit of anj' circumstances, that may happen to enhance the profit of land. The opening of a canal or road, the increase of population, wealth, and affluence in the pro- vince, always operate to raise his rent. He also benefits by every improvement in the cultivation: for a man can afford to (a) This is not universally true. In Eng-lancl, wliere af^-riculture has at- tained a iiig-h desj'ree of perfections arable farms require much larg-er capi- tals than formerly; and a farmer is commonly a mucli riclier man, than the majority of the tradesmen in his neighbourhood. T« 324 ON DISTRIBUTION. book ii. pay dearer for the hire of an instrument, when he knows how to turn it to better account. When the proprietor himself expends a capital in the im- provement of his land, in draining, irrigation, fences, buildings, houses, or other erections, the rent then includes, in addition to the profit of the land, the interest likewise of the capital so expended.* The farmer may sometimes undertake these expenses of amelioration himself; but he can only calculate on receiving interest on the outlay during the continuance of his lease: at the expiration of which, the oenefit must devolve to the land- holder, being wholly incapable of removal: thenceforward the landlord derives the whole profit, without having made any of the advances: for he receives a proportionate increase of rent in consequence. The farmer should, therefore, engage only in those improvements, whose effects will last no longer than his lease; unless the lease be long enough, to allow the f)rofit arising from his improvements to repay the whole out- ay, together wuth the interest. It is in this way, that long leases operate to increase the product of the land; and it is evident the effect will be the greatest, when the land is farm- ed by the proprietor himself; for he is far less likely, than the farmer, to lose the benefit of such advances; every judicious improvement yields him a permanent profit, and the original outlay is amply repaid, when the land is finally disposed of. The farmer's certainty of reaping the advantage till the end of his lease is equally conducive to the improvement of land- ed property with the length of leases. On the contrary, such laws and customs, as authorize the cancelling of leases in spe- cified cases, as in case of sale by the proprietor, are high- ly prejudicial to agriculture; since the farmer will hardly venture to undertake any considerable improvement, if kept in continual fear of seeing an intrusive successor appropriate the recompense of his ingenuit)'", labour, and capital. In fact, every improvement he should make would but increase the risk of that injustice; for land is far more saleable in good con- dition than otherwise. Leases are no where more sacredly regarded than in En- gland; and the privilege, enjoyed by lessees to the amount of 40s. (about 50 Jr.) and upwards, of voting at Parliamentary («) elections, has, in some measure, restored the equipoise of pow- • The capital, vested in improvements upon land, is sometimes of great- er value than the land itself. This is the case with dwelling-houses. (a) It is singular, that our author should have persevered in this mistake; especially as the work of his countryman, Cottu, gave him the opportunity of correcting it in the fourth edition. The right of voting is confined ex- clusively to the proprietor, and is not extended even to all classes of pro- perty: freehold alone confers the right, and not copyhold or leasehold of any kind. T. CHAP. X. ON DISTRIBUTION. 325 er and influence between landlords and tenants, which seldom exist in practice. In no other country do we see tenants so confident of undisturbed possession, as to build upon ground held on lease. Such tenants improve the land, as if it were their own; and their landlords are punctually paid; which is less frequently the case elsewhere. The land is sometimes cultivated by persons possessed of no capital whatever, the proprietor furnisliing himself the re- quisite capital, as well as the land. They are called in France metayers, and commonly pay to the landlord half the gross product. This arrangement is to be met with only in the in- fancy of agriculture, and is of all others the least conducive to improvement; for the party, who bears the expense of ame- lioration, whether landlord or tenant, makes the other a gra- tuitous present of half the interest on his advances. This kind of tendency was more common in the feudal times, than it is at present. The lords were above tilling the land themselves, and their vassals had not the means. The largest incomes were then derived from land, because the lords were large proprie- tors; but they bore no proportion to the extent of the land. Nor was this owing to the defect of agricultural skill, so much as to the scarcity of capital devoted to improvements. The lord felt little anxiety to improve his property, and expended, in a way more liberal than productive, an income that he might easily have tripled. He levied war, gave feasts and tournaments, and maintained a numerous retinue. If we look at the then degraded condition of commerce and manufacture, superadded to the insecurity of the agricultural interest, we need go no further for the explanation of the reason, why the bulk of the community was in the extreme of indigence; and why, independently of every political cause, the nation itself was weak and impotent. Five departments would not be able to repel attacks, which overwhelmed all France at that peri- od: but, happily for her, the other states of Europe were no- wise in a better condition. CHAPTER X. OF THE EFFECT OF REVENUE DERIVED BY ONE NATION FROM ANOTHER. One nation can not take from another the revenues of its industry. A German tailor, establishing himself in France, there makes a profit, in which Gemany has no participation. But, if this tailor contrive to amass a little capital, and after 326 ON DISTRIBUTION. book ii. the lapse of several years carry it back with him to his native country, he injures France to the same extent as a French capitalist, who should emigrate with the same amount of for- tune. * In a political view, the injury to the wealth of the nation is equal in both cases; but, in a moral light, it is other- wise: for I reckon that a native Frenchman, in quitting his country, robs it of an aflectionate attachment, and a spirit of exclusive nationality which it can never look for in a stran- ger born. A nation, receiving a stray child into its bosom again, ac- quires a real treasure; inasmuch, as in him it receives an ad- dition to its population, an accession to the profits of national industry, and an acquisition of capital. It at the same time recovers a lost citizen, and the means for him to subsist upon. If the exile bring back his industry only, at any rate the pro- fits of industry are added to the national stock. It is true, that a source of consumption is likewise superadded; but sup- posing it to counterbalance the advantage, there is no diminu- tion of revenue, while the moral and political strength of the country is actually augmented. («) With regard to capital lent by one nation to anotherj the effect upon their respective wealth is precisely analogous to that, resulting upon every loan from one individual to ano- ther. If France borrow capital from Holland, and devote it to a productive purpose, she will gain the profit of industry and land accruing from the employment of that capital; and she will do so even although she pay interest; in like manner as a merchant or manufacturer borrows for the purposes of his concern, and gains a residue of profit, even after paying the interest of the loan. But, if one state borrow from another, not for productive purposes, but for those of mere expenditure, the capital bor- rowed will then yield no return, and the national revenue be saddled with the interest to the foreign creditor. Such was the condition of France, when she borrowed from the Genoese, the Dutch, and the Genevese, for the support of her wars, or * If, however, this capital be the fruit of Lis personal frugality, he robs France of no part of her wealth existing previous to his arrival. Had he continued resident there, the aggregate of the capital of France would have been increased to the full extent of his accumulation; but, in taking the viiiole away with him he takes no more than his own earnings, and no value but what is of his own creation; in so doing, he commits no individual, and, therefore, no national, wrong-. (fi) In tlie common course of things, such an addition is a national bene- fit, because it is an accession to the secondary source of production, i. e. industry. But defective human institutions may convert a benefit into a curse; as where a poor-law system gives gratuitous subsistence to a part of the population, capable of labour, but not~-incited by want. In such case, every additional human being may be a burthen instead of a prize; for he may be one more on the list of idle pensioners. T. CHAP. X. ON DISTRIBUTION. 327 to feed the prodigality of a court. Yet it was better to bor- row from strangers than from natives, even for the purpose of dissipation; because the amount so borrowed, was not with- drawn from the national productive capital of France. In either case, the French people would have to pay the interest;* but had they likewise lent the capital, they would have had to pay the interest, and at the same time have lost the benefit, which their industry and land might have derived from its employ- ment and agency. With regard to such landed property, as may belong to fo- reigners residing abroad, the revenue arising from it is an item of foreign, and forms no part of the national revenue. But it is to be remembered, that the foreigner can not have purchased it without a remittance of capital equal in value to the land; which capital is an equally valuable acquisition, par- ticularly if the nation be possessed of improveable land in abundance, but of little capital to set industry in motion. In making his purchase of land, the foreigner exchanges a reve- nue of capital, which he leaves the nation to profit by, for a revenue of land: which he thenceforth receives; thus bartering interest of money for rent of land. If the national industry be active and skilfully directed, more benefit may be derived from the interest, than was before obtained from the rent; the purchaser, however, acquires a fixed and permanent property, in lieu of one more perishable, transferable, and destructible. Mismanagement may soon annihilate the capital the nation has acquired; but the land remains a permanent possession of the purchaser, and he may sell it and get back the value when he pleases. There is therefore nothing to be apprehended from the purchase of land by foreigners, provided there be wis- dom enough, to employ in reproduction the value received in exchange. The particular form, in which one nation may draw revenue from another, is of no importance whatever. It may be re- mitted in specie, in bullion, or in any other kind of merchan- dise: indeed it is of the greatest consequence to leave indi- viduals to take it in the shape, that best suits their conveni- ence; for what suits them will infallibly be the best for both nations; in like manner as in the conduct of international trade, the commodity, which individuals exporter import in prefer- ence, is that which best suits the mutual national interests. Tiie agents of the English East India Company draw from that country, either an annual revenue, or an accumulated for- tune, which they return to England to enjoy and live upon: they take good care not to withdraw these remittances in the shape of gold or silver, because the precious metals are of more relative value in Asia than in Europe; they remit in the shape of India goods and products, on which a fresh profit is made *It will be shown in Book III., that the interest is equally lost, whether spent internally or externally. 338 ON DISTRIBUTION. book ii. on arrival in Europe: every million they remit, swells perhaps to as much as 1,200,000, by the time it has reached the place of destination. Thus, Europe gains to theamount of 1,200,000, while India loses only a million. If these despoilers ofln- dia*(a) insisted on trasmitting this whole sum in specie, they must rob Hindustan, perhaps, of 1,500,000, or upwards for every 1,200,000, that England would receive. The sum may, perhaps, be amassed originally in specie; but it is always re- mitted in the shape of that commodity, which, for the time being, answers best as an object of transport. As long as expor- tation of any kind is allowed, and exportation has always been regarded by statesmen with a favourable eye, it is easy to receive in our country, the revenue and capital derived from another. And the remittance can not be prevented by the government, without the interdiction of all external commerce, which after all would leave the resource of smuggling and con- traband. In the eyes of political economy, nothing is more absurd, than to see governments prohibit the export of the na- tional specie, as a means of checking the emigration of wealth.t * Eaynal tells us, that, inasmuch as the East India Company derives a revenue from Bengal, to be consumed in Europe, it must infalliby drain it of specie in the end, since the Company is the only merchant, and imports no specie itself. But Raynal is mistaken in this. In the first place, pri- vate merchants do carry the precious metals to India, because they are of more value there than in Europe; and that very reason also deters the ser- vants of the company, who may have made fortunes in Asia, from remitting them in specie. And if it were to be suggested, that a fortune, remitted to Europe, is less substantial and more speedily dissipated, when it arrives in the shape of goods, than when in that of specie, this again would be an error. The form, that property happens to assume, does not affect its substantiality; when once transferred to Europe, it may be converted into specie, or land, or what not. It is the amount of values, and not the temporary form they appear under, which, in this colonial connexion, as in that of international trade, is the essential circumstance. f The complete interception of all export of objects of value would not help them towards the point of intent; because free communication occa- sions a much greater influx than efflux of wealth. Value, or wealth, is by nature fugitive and independent. Incapable of all restraint, it is sure to van- ish from the fetters that are contrived to confine it, and to expand and flou- rish under the influence of liberty. (a) This is a harsh word, yet probably justified by the history of the ori- ginal acquisition. But the scene has now changed; the servants of the sovereign company no longer look to spohation as a pubhc or private re- source, but are content with the liberal remuneration of laborious duties, civil, military, and financial. A shght examination of the connexion between Britain and her Asiatic dependencies will show, how small a|balance is re- mitted to the former in any shape; and it should be remembered that part, even of this, is but the interest of loans raised in England, for the purposes of Indian administration, though not always of a wise or paternal charac- ter. T. CHAP. XI. ON DISTRIBUTION. 329 CFIAPTER XI. OF THE MODE IN WHICH THE QUANTITY OF THE PRODUCT AF- FECTS POPULATION. SECTION Of Population, as connected with Political Economy. {I) Having, in Book I, investigated the production of the ar- ticles necessary to the satisfaction of human wants, and in the present Book, traced their distribution among the different members of the community, let us now further extend our observations to the influence those products exercise upon the number of individuals, of which the community is composed; that is to say, upon population. In her treatment of all organic bodies, nature seems to de- spise the individual, and afford protection only to the species. Natural history presents very curious examples of her extra- ordinary care to perpetuate the species; but the most power- ful means she adopts for that purpose is, the multiplication of germs in such vast profusion, that, notwithstanding the im- mense variety of accidents occurring to prevent their early de- velopment or destroy them in progress to maturity, there are always left more than sufficient to perpetuate the species. Did not accident, destruction, or failure of the means of develop- ment check the multiplication of organic existence, there is no animal or plant that might not cover the face of the globe in a very few years. This faculty of infinite increase is common to man, with all other organic bodies; and although his superior intelligence continually enlarges his own means of existence, he must soon- er or later arrive at the ultimum. Animal existence depends on the gratification of one sole and immediate want, that of food and sustenance; but man is enabled, by the faculty of communication with his species, to barter one product for another, and to regard the value, rather than the nature, of a product. The producer and owner of a piece of furniture of XQOfr. value may consider himself as pos- sessing as much human food, as may be procurable for that (1) [fn the original the title of this section is made the title of the chapter, and the title of the chapter the title of the section.] Ambhican Editor. 49 330 ON DISTRIBUTION. book ii. price. And, with respect to the relative price of products, it is in all cases determined by the intensity of the desire, the deg;ree of utility in each product for the time being. We may safely take it for granted, that mankind in general will not barter an object of more, for one of less urgent necessity. In a season of agricultural scarcity, a larger quantity of furniture will be given for a smaller quantity of human aliment; but it is invariably true, that whenever barter takes place, the object given on one side is worth that given on the other, and that the one is procurable for the other.* Trade and barter, as we have seen above, adapt the products to the general nature of the demand. The objects, whether of food, of raiment, or of habitation, for which , the strongest desire is felt, are of course the most in request; and the wants of each family or individual, are more or less fully satisfied, in proportion to the ability to purchase these objects; which ability depends upon the productive means and exertion of each respectively; in plain terms, upon the revenue of each resnectively. Thus, in the end, if we sift this matter to the bottom, we shall find, that families, and nations, which are but aggregations of families, subsist wholly on their own products; and that the amount of product in each case necessarily limits the numbers of those who can subsist upon it. Such animals as are incapable of providing for future exi- gencies, after they are engendered, if they do not fall a prey to man, or some of their" fellow brutes, perish the moment they experience an imperative want, which they have not the means of gratifying. But man has so many future wants to provide for, that he could not answer the end of his creation, without a certain degree of providence and forethought: and this provident turn can alone preserve the human species from part of the evils it would necessarily endure, if its numbers were to be perpetually reduced by the process of destructive violence, t • Although all products are necessary to the social existence of man, the necessity of food being of all others most urgent and unceasing, and of most frequent recurrence, objects of aliment are justly placed first in the cata- logue of the means of human existence. They are not all, however, the produce of the national territorial surface; but are procurable by commerce as well as by internal agriculture; and many countries contain a greater number of inhabitants, than could subsist upon the produce of their land. Na)', the importation of another commodity may be equivalent to an im- portation of an article of food. The export of wines and brandies to the north of Europe is almost equivalent to an export of bread; for wine and brandy, in great measure, supply the place of beer and spirits distilled from grain, and thus allow the grain," which would otherwise be employed in the preparation of beer or spirits, to be reserved for that of bread. ■{•The practice of infanticide in China proves, that the local prejudices of custom and of religioji there counteract the foresight which tends to check the increase of population: and one can not but deplore such pre- judices; for the human misery resulting from the destruction is great, in proportion as its object is more fully developed, and more capable of sen- CHAP, XI. ON DISTRIBUTION. 331 Yet, notwithstanding the forethought ascribed to man, and the restraints imposed on him by reason, legislation, and social habits, the increase of population is always evidently co-ex- tensive, and even something more than co-extensive, with the means of subsistence. It is a melancholy but an undoubted fact, that, even in the most thriving countries, part of the population annually dies of mere want. Not that all who perish from want absolutely die of hunger; though this calami- ty is of more frequent occurrence than is generally supposed.* I mean only that they have not at command all the necessa- ries of life, and die for want of some part of those articles of necessity. A sick or disabled person may, perhaps, require nothing more than a little rest, or medical advice, together with, perhaps, some simple remedy to set him up again; but the requisite rest, or advice, or remedy, are denied, or not af- forded. A child may require the attentions of the mother, but the mother perhaps may be taken away to labour, by the imperious calls of necessity; and the child perish, through ac- cident, neglect, or disease. It is a fact well-established by the researches of all who have turned their attention to statis- tics, that, out of an equal number of children of wealthy and sation. For this reason it would be still more barbarous and irrational policy to multiply wars, and other means of human destruction, in order to in- crease the enjoyments of the survivors; because the destructive scourge would affect human beings in a state more perfect, more susceplible of feeling and suffering, and arrived at a period of life, when tlie mature dis- play of his faculties renders man more valuable to himself and to others. * The Hospice de Bicetre, near Paris, contains, on the average, five or six thousand poor. In the scarcity of the year 1795, the governors could not afford them food, either so good or so abundant as usual; and I am assured by the house-steward of the establishment, that at that period almost all the inmates died. It would appear from the returns given in a tract entitled " Observations on the Condition of the Labouring Classes" by J. Barton, that the average of deaths, in seven distinct manufacturing districts of England, has been proportionate to the dearness, or, in other words, the scarcity of subsistence. I subjoin an extract from his statements: Years. 1801 - ■ 1804 - • 1807 - • 1810 - ■ From the same returns it appears, that the scarcity occasioned less mor- tality in the agricultural districts. The reason is manifest: the labourer is there more commonly paid in kind, and the high sale-price of the product enabled the farmer to give a high purchase-price for labour, (a) (a) The latter reason is not very satisfactory: for the total receipts of the corn-growers are probably not larger in years of scarcity, than in those of abundance. T, ■Average price of wheat per qr. s. d. Deaths -118 3 - , • - 60 1 - - . - 73 3 - - . -106 2 - - - ■ - 55,965 - - 44,794 ■ - 48,108 ■ - 54,864 332 ON DISTRIBUTION. book n. of indigent parents, at least twice as many of the latter die, in infancy as of the former. In short, scanty or unwholesome diet, the insufficient change of linen, the want of warm and dry clothing, or of fuel, ruin the health, undermine the con- stitution, and sooner or later bring multitudes of human be- ings to an untimely end; and all, that perish in consequence of a want beyond their means to supply, may be said to die of want. Thus, to man, particularly in a forward state of civilization, a variety of products, some of them in the class of what have been denominated immaterial products, are necessaries of ex- istence; these are multiplied in a degree proportionate to the desire for them, respectively, because its intensity causes a proportionate elevation of their price: and it may be laid down as a general maxim, that the population of a state is always proportionate to the sum of its production in every kind.* This is a truth acknowledged by most writers on political economy, however various and discordant their opinions on most other points, t It appears to me, however, that one very natural conse- quence, deducible from this maxim, has escaped their obser- • Not but that accidental causes may sometimes qualify these general rules. A country, where property is very unequally distributed, and where a few individuals consume produce enough for the maintenance of num- bers, will doubtless subsist a smaller population, than a country of equal production, where wealth is more equally diffused. The very opulent are notoriously averse to the burthen of a family; and the very indigent are unable to rear one. f Vide Stewart, On Political Economy, book i. c. 4. Quesnay, Encyclo- pedie, art. Grains. Mmitesquieu, Esprit des Loix.Yw. 18. c. 10. andliv. 23. c. 10 Buffon, ed. de Ber^iard, torn iv. p. 266. Forbonnais, Frincipes et Observations, p. 39. 45, Hume, Essays, part 2. Ess. 2. (Euvres de Foivre, p. 145, 146. Condillac, Le Commerce et le Gouvernement, part 1. c. 24, 25, Verri, Fejlexions sur I'Economie Folitique, c. 210. Mirabeau, Ami des Hommes, torn. i. p. 40. Raynal, Histoire de V Establissementy liv. 11. s. 23. Chastellux, Be la FeUcite Fublique, torn. ii. p. 205. Necker, Administra- tion, des Finances de France, c. 9. and Notes sur I'Eloge de Colbert. Con- dorcet. Notes sur Voltaire, ed. de Kepi. torn. xlv. p. 60. Smith, Wealth of Nations, book 1. c. 8. 11. Gamier, Abr^gd Elemenfaire, part. 1. c. 3. and Preface de sa Traduction de Smith. Canard, Frincipes d'Economie Poli- tique, p. 133. Godwin, (a) On Political Justice, book viii. c. 3. Claviere, Be la France et des Fiats tfnis. ed. 2. p. 60. 315. Brown-Duignan,- Essay on the Principles of National Economy, p. 97. Lond. 1776. Beccaria, Ele- menti di Economia Publica, par. prim. c. 2. 3. Gorani, P^cherches sur la Science du Gouvernement, torn. ii. c. 7. Sismondi, Nouv. Prin. d'Econ, Pol. liv. vii. c. 1. et seq. Vide also, more especially, Mahhus, Essay on Population, a work of considerable research; the sound and powerful argu- ments of which would put tliis matter beyond all dispute, if it indeed had been doubted. (a) This writer has lately adventured a refutation of the work of Mal- thas; but his arguments, though urged with sufficient ingenuity and con- fidence, have made but few converts to his opinions. T. CHAP. XI. ON DISTRIBUTION. 333 vation; which is, that nothing can permanently increase popu- lation, except the encouragement and advance of production; and that nothing can occasion its permanent diminution, but such circumstances as attack production in its sources. The Romans were for ever making regulations to repair the loss of population, occasioned by their state of perpetual ex- ternal warfare. («) Their censors preached up matrimony; their laws offered premiums and honours to plurality of chil- dren: but these measures were fruitless. There is no difficulty in getting children; the difficulty lies in maintaining them. They should have enlarged their internal production, instead of spreading devastation amongst their neighbours. All their boasted regulations did not prevent the effectual depopulation of Italy and Greece, even long before the inroads of the bar- barous northern hordes.* The edict of Louis XIV. in favour of marriage, awarding pensions to those parents, who should have ten, and larger ones to those, who should have twelve children, Avas attended with no better success. The premiums, that monarch held out in a thousand ways to indolence and uselessness, were much more adverse, than such poor encouragements could be conducive, to the increase of population. It is the fashion to assert, that the discovery of the New World has tended to depopulate Old Spain; whereas her de- population has resulted from the vicious institutions of her government, and the small amount of her internal product, in proportion to her territorial extent.t The most effectual en- couragement to population is, the activity of industry, and the consequent multiplication of the national products. It abounds in all industrious districts; and, when a virgin soil happens to co-operate with the exertions of a community, whence idle- ness is altogether discarded, its rapid increase is truly astonish- ing. In the United States of America, population has been doubling in the course of twenty years. For the same reasons, although temporary calamities may sweep off multitudes, yet, if they leave untainted the source's of reproduction, they are sure to prove more afflicting to hu- manity, than fatal to population. It soon trenches again upon the limit, assigned by the aggregate of annual production. Messance has given some very curious calculations, whereby it appears, that, after the ravages occasioned by the famous * Vide Livii Hist. lib. vi. Plutarchi Moralia, xxx. De defectu oraculo- rum. Strabonis, lib. vii. ■j- Ustariz has remarked, that the most populous provinces of Spain are those, from which there has been the greatest emigration to America. (a) The examples of Eng-land, France, and the old states of the Ameri- can union, prove, that, neither war nor emigration can cause any perma- nent reduction of a national population. T. 334 ON DISTRIBUTION. bookii, plague of Marseilles in 1720, marriages throughout Provence were more fruitful than before. The Abbe d'Expilly comes to the same conclusion. The same effect was observable in Prussia, after the plague of 1710. Although it had swept off a third of the population, the tables of Sussmilch* show the number of births, which, before the plague, amounted annually to about 26,000, to have advanced in the year following, 1711, to no less than 32,000. It might have been supposed, that the number of marriages, after so terrible a mortality, would have been at least considerably reduced; on the contrary, it actually doubled; a strong indication of the tendency of popu- lation to keep always on a level with the national resources. The loss of population is not the greatest calamity resulting from such temporary visitations; tlTe first and greatest is, the misery they occasion to the human race. Great multitudes can not be swept from the land of the living by pestilence, famine, or war, without the endurance of a vast deal of suffer- ing and agony, by numbers of sentient beings; besides the pain, distress, and misery of the survivors; the destitution of widows, orphans, brothers, sisters, and parents. It is a subject of additional regret, if, among the rest, there happen to fall one or two of those superior and enlightened men, whose single talents and virtues have more effect upon the happiness and wealth of nations, than the groveling industry of a million of ordinary mortals. Moreover, a great loss of human beings, arrived at maturi- ty, is certainly a loss of so much acquired wealth or capital; for every grown person is an accumulated capital, representing all the advances expended during a course of many years, in training and making him what he is. A bantling a day old by no means replaces a man of twenty; and the well-known expression of the Prince de Conde, on the victorious field of Senef, was equally absurd and unfeeling.t The destructive scourges of the human species, therefore, if not injurious to population, are at least an outrage on huma- nity; ori which account alone, their authors are highly crimi- ' nal.J * Quoted by Malthas, in his Essay on Popul. vol. ii. •|- " Une nuit de Paris reparera tout cela." It requires the care and ex- penditure of twenty successive years to replace the full-grown man, that a cannon ball has destroyed in a moment. The destruction of the human race by war is far more extensive than is commonly imagined. The ravage of a cultivated district, the plunder of dwelling-houses, the demolition of establishments of industry, the consumption of capital, &c. &c. deprive numbers of the means of livelihood, and cause many more to perish, than are left on the field of battle. ± Upon this principle, no capital improvement of the medicinal or chi- rurgical art, like that of vaccination for instance, can permanently influence national population; yet its influence upon the lot of humanity may be very considerable; for it may operate powerfully to preserve beings already far advanced in age, in strength, and in knowledge: whom to replace. CHAP. XI. ON DISTRIBUTION. 335 But, though such temporary calamities are more afflicting to humanity, than hurtful to the population of nations, far other is the effect of a vicious government, acting upon a bad system of political economy. This latter attacks the very principle of population, by driving up the sources of produc- tion; and, since the numbers of mankind, as before seen, al- ways approach nearly to the utmost limits the annual revenue of the nation will admit of, if the government reduce that revenue by the pressure of intolerable taxation, forcing the subject to sacrifice part of his capital, and consequently di- minishing the aggregate means of subsistence and reproduction possessed" by the community, such a government not only imposes a preventive check on further procreation, but may be fairly said to commit downright murder; for nothing so effectually thins the effective ranks of mankind, as privation of the means of subsistence. The evil effects of monastic establishments upon population have been severely and justly inveighed against; but the mode, in which they operate, has been misunderstood; it is the idleness, not the celibacy, of the monastic orders, that ought to be censured. They put their lands into cultivation, it is true, but where is the merit of that? Would the lands remain untilled, if the monastic system were abolished? So far from that evil resulting from the abolition, wherever these establishments have been converted into manufactories, of which the French revolution has offered many examples, equal agricultural produce has continued to be raised, and the produce of the manufacturing industry has been all clear gain; while the increased total product, thus created, has been fol- lowed by an increase of population also. From these premises, may likewise be drawn this further conclusion; that the inhabitants of a country are not more scantily supplied with the necessaries of life, because their number is on the increase; nor more plentifully, because it is on the decline. Their relative condition depends on the rela- tive quantity of products they have at their disposal ; and it is easy to conceive these products to be considerable, though the population be dense; and scanty, though the population be would cost fresh births and fresh advances; in other words, abundance of sacrifices, privations, and sufferings, both to the parents and the cliildren. 7hen population must be kept up by additional births, there is always .ore of the suffering' incident to the entrance and the exit of human ex- istence; for they are both of more frequent occurrence. Population may be kept up with half the number of births and deaths, if tlie average terra of life be advanced from forty to fifty years. There will, indeed, be a greater waste of the germs of existence; but the condition of mankind must be measured by the quantum of human suffering, whereof mere germs are not susceptible. The waste of them is so immense, in the ordi- nary course of nature, that the small addition can be of no consequence. Were the vegetable creation endowed with sensation, the best thing that could happen to it would be, that the seeds of all the vegetables, now- rooted up and destroyed, should be decomposed before the vegetable fa- culties were awakened. 336 ON DISTRIBUTION. chap. xi. thinly spread. Famine was of more frequent occurrence in Europe during the middle ages, than it has been of late years, although Europe is evidently more thickly peopled at present. The product of England, during the reign of Queen Elizabeth, was not nearly so abundant as it is now, although her popula- tion was then less by half; and the population of Spain, re- duced to but eight millions, enjoys not nearly so much afflu- ence, as when it amounted to twenty-four.* Some writerst have considered a dense population as an in- dex of national prosperity; and, doubtless, it is a certain sign of enlarged national production. But general prosperity im- plies the general diffusion and abundance of all the necessa- ries, and some of the superfluities of life amongst all classes of the population. Some parts of India and of China are op- pressed with population and with misery also; but their con- dition would be nowise improved by thinning its numbers, at least if it were brought about by a diminution of the aggregate product. Instead of reducing the numbers of the population, it were far more desirable to augment the gross product; which may always be effected by superior individual activity, indus- try, and frugality, and the better administration, that is to say, the less frequent interference, of public authority. But, it will naturally be asked, if the population of a coun- try regularly keeps pace with its means of subsistence, what will become of it in years of scarcity and famine? Hear what Stewartf says on this subject: " There is a very great deception as to the difference between crops; a good year for one soil is a bad one for another." " It is far from being true," he continues, " that the same number of jDeople consume always the same quantity of food. In years of plen- ty, every one is well fed; — food is not so frugally managed; a quantity of animals are fatted for use; — and people drink more largely, because all is cheap. A year of scarcity comes; the people are ill fed; and, when the lower classes come to divide with their children, the portions are brought to be very small;" instead of saving, they consume their previous hoard; and, after all, it is unhappily too true, that part of that class must suffer and perish. This calamity is most common in countries overflowing with population, like Hindustan, or China, where there is little external or maritime commerce, and where the poorer classes have always been strictly limited to the mere neces- * If population depends on the amount of product, the number of bh-ths is a very imperfect criterion, by which to measure it. When industry and produce are increasing, births are multiphed disproportionately to the ex- isting population, so as to swell the estimate: on the contrary, in the de- clining state of national wealth, the actual population exceeds the average ratio to the births. f Wallace, Condorcet, Godwin. i Sir James, of Coltness, book i. c. 17. CHAP. XI. ON DISTRIBUTION. 337 saries of life. There, the produce of ordinary years is barely sufficient to allow this miserable pittance; consequently, the slightest failure of the crop leaves multitudes wholly destitute of common necessaries, to rot and perish by wholesale. All accounts agree in representing, that families are, for this rea- son, very frequent and destructive in China and many parts of Hindu,stan. Commerce in general, and maritime commerce in particu- lar, facilitates the interchange of products, even with the most remote countries, and thus renders it practicable to import ar- ticles of subsistence, in return for several other kinds of pro- duce; but too great a dependence on this resource, leaves the nation at the mercy of every natural or political occurrence, which may happen to intercept or derange the intercourse with foreign countries. This intercourse must then be pre- served at all events, no matter whether by force or fraud; competition nmst be got rid of by every means, however un- justifiable; a separate province, or weali ally, perhaps, is ob- liged to purchase the national products, under restrictions equally galling, as the exaction of actual tribute; and a com- mercial monopoly enforced, even at the hazard of a war; all which evils make the state of the nation extremely precarious indeed. The produce of England, in articles of human subsistence, had undoubtedly increased largely towards the end of the 18th century; but its produce in articles of apparel and household furniture had probably increased still more rapidly. The consequence has been, that immensity of production, which enables her to multiply her population beyond what the pro- duce of her soil can support,* and to bear up under the pres- sure of public burthens, to which there is no parallel nor even approximation. But England has suffered severely, when- ever foreign markets have been shut against her produce; and she has sometimes been obliged to resort to violent means to preserve her external intercourse. She would act wisely, perhaps, in discontinuing those encouragements, that impel fresh capital into the channels of manufacture and external commerce, and directing it rather towards that of agricultural industry. It is probable, that, in that case, several districts, which have not yet received the utmost cultivation of which they are susceptible, particularly many parts of Scotland and Ireland, would raise agricultural produce enough to purchase most part, if not the whole, of the surplus product of her manu- * In a pamplilet entitled, Considerations on British Jgriculiure, pub- lished in 1814, by W. Jacob, a member of the Royal Society, and a well informed writer upon agricultural topics, we are told, (p, 34.), that Eng- land ceased to be an exporter, and became an importer, of wheat, about the year 1800. 50 338 ON DISTRIBUTION. book n. factures and commerce beyond her present consumption.* Great Britain would thereby create for herself a domestic con- sumption, which is always the surest and the most advantage- ous. Her neighbours, no longer offended by the necessari- ly jealous and exclusive nature of her policy, would probably lay aside their hostile feelings, and become willing customers. But, after all, if her manufactured, should still be dispropor- tioned to her agricultural produce, what is there to prevent her from adopting a system of judicious colonization, and thus creating for herself fresh markets for the produce of her domestic industry in every part of the globe, whence she might derive, in return, a supply of food for her superfluous population?! In this particular, the position of France appears to be pre- cisely opposite to that of Great Britain, It would seem, that her agricultural product is equal to the maintenance of a much larger manufacturing and commercial population. The face of the country presents the picture of high and general culti- vation; but the villages and country towns, are, for the most part, surprisingly small, poor, ill-built, and ill-paved, the few shops scantily supplied, and the public houses, neither neat nor comfortable. It is plain, the agricultural product must either be less than the appearance would indicate, or it must be consumed in a thriftless and unprofitable manner; proba- bly both these causes are in operation. In the first place, the production is far less than it might be; and this is chiefly owing to three causes: — 1. the want of capital, particularly in enclosures, live stock, and ameliora- tionsrj 2. the indolence of the cultivators, and the too general neglect of weeding, trimming the hedges, clearing the trees of moss, destroying insects, &c. &c. 3. the neglect of a proper • The writer last cited enters into long details to show, that the soil of the British Isles could be made to produce at least a tliird more than their present product, ibid. p. 115. et seq. •j- By judicious colonization I mean, colonization formed on the princi- ples of complete expatriation, of self-government without control of the mother country, and of freedom of external relations; but with the enjoy- ment of protection only by the mother country, while it should continue necessary. Whj^ should not political bodies imitate in this particular the relation of parent and child? When arrived at the age of maturity, the personal independence of the child is both just and natural; the relation it engenders is, moreover, the most lasting and most beneficial to both par- ties. Great part of Africa might be peopled with European Colonies form- ed on these principles. The world has yet room enough, and the cultivat- ed land on the face of the globe is far inferior in extent to the fertile land remaining untilled. The Earl of Selkirk has thrown much light on this matter in his tract on Emigration and the State of the Highlands. t The want of capital prevents the employment of machinery for expe- diting the operations, like the thrashing machine in common use in Eng- land. This makes a larger supply of human agency requisite in agricul- ture; and the more mouths there are to be fed, the smaller will be the sur- plus produce, which alone is disposable. CHAP. XI. ON DISTRIBUTION. 339 alternation of crops, and of the most approved methods of cul- tivation, (a) In the second place, the consumption is unthrifty and un- profitable; for a great part of it is mere waste, and yields no human gratification whatever. To speak of one article alone, that is, of tiring, which is an object of great value in districts, where coal and wood are scarce; the waste of it is enormous in the huts of the peasantry, lighted as they often are by the door-way only, and admitting the rain down the chimney while the fire is burning. Unwholesome beverage or food, and the indulgence of the ale-house, are like injurious modes of consumption. In fine, towns and villages would be more thickly spread, and would besides present an appearance of greater affluence, were the generality of the inhabitants more active and in- dustrious, and actuated by the laudable emulation, tinctured perhaps with some little vanity, rather of possessing every ob- ject of real utility, and exhibiting in their domestic arrange- ments the utmost order and neatness, than of living in indo- lence upon the rent of a trifling patrimony, or the scanty salary of some useless public employ. The small proprietor with an income of 1 or 2000/r. per annum, just sufficient to vegetate upon, might double or triple it perhaps by adding the revenue derivable from personal industry; and even those, engaged in useful occupations, do not push them to the full extent of their activity and intelligence. Moreover, the spirit of inquiry and improvement has probably been disheartened by the example of frequent ill success; although the failure has commonly been occasioned by the want of judgment, perse- verance and frugality. National population is uniformly proportionate to the quan- tum of national production; but it may vary locally within the limits of each state, according to the favourable, or unfavoura- ble operation of local circumstances. A particular district will be rich, because its soil is fertile, its inhabitants industrious, and possessed of capital accumulated by their frugality; in like manner as a family will surpass its neighbours in wealth, be- cause of its superior intelligence and activity. The bounda- ries and political constitutions of states affect population only, inasmuch as they affect the national production. The influ- ence of religion and national habits upon population is pre- cisely analogous. All travellers agree that protestant are both richer and more populous than catholic countries; and the reason is, because the habits of the former are more con- ducive to production. (o) These causes of impoverishment are chiefly referable to the minute division of landed property; the baneful efTects of which, upon agricultural improvement and productive pov/er, have been well observed upon in the Edinburgh Review, No xvii. art. 1. 1". 340 ON DISTRIBUTION. book ii. SECTION II. Of the influence of the Quality of a national product upon the local distribution of the Population. For the earth to be cultivated, it is necessary that popula- tion should bespread over its surface; for industry and com- merce to flourish, it is desirable to bring it together in those spots, where the arts may be exercised with the most advan- tage; that is to say, where there can be the greatest subdivi- sion of labour. The dyer naturally establishes himself near the clothier; the druggist near the dj^er; the agent, or owner, of a vessel employed in the transport of drugs will approxi- mate in locality to the druggist; and so of other producers in general. At the same time, all such as live without labour on the in- terest of capital, or the rent of landed property, are attracted to the towns, where they find brought to a focus every luxury to feed their appetites, as well as a choice of society, and a variety of pleasure and amusement. The charms of a town life attract foreign visiters, and all such as live by their labour, but are free to exercise it wherever they like. Thus, towns become the abode of literary men and artisans, and likewise the seat of government, of courts of justice, and most other public establishments; and their population is enlarged by the addition of all the persons attached to such establishments, and all who are accidentally brought thither by business. Not but what there is always a number of country residents, that are employed in manufacturing industry, exclusive of such as make it their abode in preference. Local conveni- ence, running water, the contiguity of a forest or a mine, will draw a good deal of machinery, and a number of labourers in manufacture, out of the precincts of towns. There are, like- wise, some kinds of work, which must be performed in the neighbourhood of the consumers; that of the tailor, the shoe- maker, or the farrier; but these are trifling compared with the manufacturing industry of all kinds executed in towns. Writers on political economy have calculated, that a thriv- ing country is capable of supporting in its towns, a population e^ual to that of the country. Some examples lead to an opi- nion, that it could support a still greater proportion, were its industry directed with greater skill, and its agriculture con- ducted with more intelligence and less waste, even supposing its soil to be of very moderate fertility.* Thus much at least * There is good reason to believe, tluit tlie total joopulation of Eng-laiid is more than the double of that employed in her internal agricultui-e. From CHAP. XI. ON DISTRIBUTION. 341 is certain, that, when the towns raise product for foreign con- sumption, they are then enabled to draw from abroad provi- sions in return, and may sustain a population much larger in proportion to that of the country. Of this we have instances m the numerous petty states, whose territory alone is barely sufficient to afford subsistence to one of the suburbs of their capital. Again, the cultivation of pasture land, requiring much less human labour than that of arable, it follows, that, in grazing- countries, a greater proportion of the inhabitants can apply themselves to the arts of industry; which are therefore more attended to in pasture than in corn countries. Witness Flan- ders, Holland, and Normandy that was. (b) From the period of the irruption of the barbarians into the Roman Empire, down to the 17th century, that is to say, to a date almost within living memory, the towns made but little figure in the larger states of Europe. That portion of the the returns laid before parliament 1811, it appears there were in Great Britain, inclusive of Wales and Scotland, 895,998 families employed in ag- riculture; and that the total number of families amounted to 2,544,215, which would g-ive but a third of the population to the purposes of agriculture. According to Arthur Young, the country population of France, within her old limits, was ..... 20,521,538 And that of the cities and towns, - - 5,709,270 Making a total of .... 26,230,808 Supposing him to be correct, France, witliin her old boundary, could maintain, on tliis principle, a population of 41 millions, supposing her mere- ly to double her agricultural population; and of 60 milUons, supposing her industry were equally active with that of Great Britain, (a) It is the general remark of travellers, that the traffic of the great roads of France is much less, than might be expected, in a country possessing so mau}^ natural advantages. This may be attributed chiefly to tl>e small number and size of her towns; for it is the communication from town to town that peoples the great road; that of the rural population being princi- pally from one part of the village or farm to another. (a) Our author has here fallen into a palpable error. The ratio of the agricultural, to the total population of Great Britain, has not been varied as above stated, solely, or even chiefly by the multiplication of the commer- cial and manufacturing classes; but by the transfer of the human labour spar- ed in agriculture to the two other branches of industry. Agriculture might occupy one third only of the population of France, and yet t)ie total popu- lation be decreased and not multiplied. T. (i) This position is too general. A pastoral nation, devoting the whole of its ten-itory to pasture, could spare a very small proportion of its popu- lation for commerce and manufacture; witness Tartary and the Pampas of South America. Where a dense manufacturing and commercial popvila- tion makes it advantageous to the land-holder to devote his land to pasture, and look to foreigners for the supply of corn, as in Holland, a small propor- tion of the population may, indeed, be required for domestic, but a large proportion will be required for the animation of foreign, agriculture. T. 343 ON DISTRIBUTION. book ir. population, which was thought to live upon the cultivators of the land, was not then, as now, composed principally of mer- chants and manufacturers, but consisted of a nobility, surround- ed by numerous retainers, of churchmen and other idlers, the tenants of the chateau^ the abbey, or the convent, with their several dependencies; very few of them living within the towns. The products of manufacture and commerce were very limited indeed; the manufacturers were the poor cottagers, and the merchants mere pedlers; a few rude implements of husbandry, and some very clumsy utensils and articles of furniture, an- swered all the purposes of cultivation and ordinary life. The fairs, held three or four times in the year, furnished commodi- ties of a superior quality, which we should now look upon with contempt; and what rare household articles, stuffs, or jewels, of price, were from time to time imported from the commer- cial cities of Italy, or from the Greeks of Constantinople, were regarded as objects of uncommon luxury and magnificence, far too costly for any but the richest princes and nobles. In this state of things, the towns of course made but a poor figure. Whatever magnificence they may possess in our time is of very modern date. In all the towns of France together, it would be impossible to point out a single handsome range of buildings, or fine street, of two hundred years' antiquity. There is nothing of anterior date, with the exception of a few fothic churches, but clumsy tenements huddled together in irty and crooked streets, utterly impassable to the swarm of carriages, cattle, and foot-passengers, that indicates the present population and opulence. No country can yield the utmost agricultural produce it is equal to, until every part of its surface be studded with towns and cities. Few manufactures could arrive at perfection, with- out the conveniences they afibrd; and, without manufactures, what is there to give in exchange for agricultural products? A district, whose agricultural products can find no market, feeds not half the number of inhabitants it is capable of sup- porting; and the condition, even of those it does support, is rude enough, and destitute both of comfort and refinement; they are in the lowest stage of civilization. But, if an indus- trious colony comes to establish itself in the district, and gra- dually forms a town, whose inhabitants increase till they equal the numbers of the original cultivators, the town will find sub- sistence on the agricultural product of the district, and the cultivators be enriched by the product of the industry of the town. Moreover, towns offer indirect channels for the export of the agricultural values of the district to a distant market. The raw products of agriculture are not easy of transport, because the expense soon swallows up the total price of the commodi- ty transported. Manufactured produce has greatly the ad- vantage in this respect; for industry will frequently attach very considerable value to a substance of little bulk and weight. CHAP. XI. ON DISTRIBUTION. 343 By the means of manufacture, the raw products of national agriculture are converted into manufactured goods of much more condensed value, which will defray the charge of a more distant transport, and bring a return of produce adapted to the wants of the exporting country. There are many of the provinces of France, that are mis- erable enough at present, yet want nothing but towns to bring them into high cultivation. Their situation would, indeed, be hopeless, were we to adopt the system of that class of econo- mists, which recommends the purchase of manufactures from foreign countries, with the raw produce of domestic agricul- ture. (1) . However, if towns owe their origin and increase to the con- centration of a variety of manufactures, great and small, manu- factures, again, are to be set in activity by nothing but pro- ductive capital; and productive capital is only to be accumu- lated by frugality of consumption. Wherefore, it is not enough to trace the plan of a town, and give it a name; before (1) [The slow progress ofagriculture in these provinces of France is not at- tributable to the want of towns in the midst of them; towns and cities are a consequence, not the cause of the general prosperity of a country. Nor would the adoption of a different policy from that which recommends the purchase of manufactures from foreign countries with the raw produce of domestic agriculture, improve the situation of these districts. A system of policy which should attempt by restraints or encouragements, to divert a portion of the capital and industry employed in agriculture or commerce from those channels towards the erection of a town, or the establishment of a manufactory, with a view to promote the better cultivation of the soil, would be subversive of this end. To what causes then must the misery, said by our author to prevail in those provinces be ascribed, or what has retarded their agricultural improve- ment? The prosperity ofagriculture, as well as that of every other branch of industry, depends upon the unrestrained operation of individual interest; not only furnishing motives to exertion, but knowledge to direct that exer- tion. All that is necessary to enable a state to reach the highest pitch of opulence, is not to disturb the action of this important principle. The ob- stacles, it will accordingly be found, which have opposed the progress of improvement in the countries alluded to, may be traced to the interference by the public authorities with the salutary operation of this powerful mo- tive of action, or, in other words, to their bad laws and political institutions. Sometimes imposing restraints on the cultivator, and exposing him to num- berless oppressions, either by prescribing the mode in which the soil shall be cultivated, or the products it shall yield. And, when not thus directly interfering with the business of production, prohibiting the exportation of the raw produce of the soil, and thereby depriving it of the best market. At other times harassing the husbandman with taxation, the shameful ine- qualities of which, whilst they relieve tlie higlier orders, permit the bur- den to fall, almost exclusively, on his shoulders, or depriving him of the freedom of trade from province to pi'ovince within his own country; but, above all, by perpetuating the inheritance of landed property in particular bodies or families, without the power of alienation. These are a few of the corrupt and barbarous laws whicii have retarded the agriculture, not of these particular provinces of France only, but of many of the fairest portions of Europe.] Amehicats Editoji. 344 ON DISTRIBUTION. book ii. it can have real existence, it must be gradually supplied with industrious hands, mechanical skill, implements of trade, raw materials, and the necessary subsistence of those engaged in industry, until the completion and sale of their products. Otherwise, instead of founding a city, a mere scaffolding is run up, which must soon fall to the ground, because it rests upon no solid foundation. This was the case with regard to Ecatherinoslaw, in the Crimea; and was, indeed, foreseen by the emperor Joseph II., who assisted at the ceremony of its foundation, and laid the second stone in due form: " The em- press of Russia and myself," said he to his suite, " have com- pleted a great work in a single day: she has laid the first stone of a city, and I have laid the finishing one." Nor will capital alone suffice to set in motion the mass of industry and the productive energy necessary to the formation and aggrandizement of a city, unless it present also the advan- tages of locality and of beneficent public institutions. The local position of Washington, it should seem, is adverse to its progress in size and opulence; for it has been outstripped by most of the other cities of the Union; (1) whereas, Palmyra, in ancient times, grew both wealthy and populous, though in the midst of a sandy desert, solely because it had become the entrepot of commerce between Europe and eastern Asia. The same advantage gave importance and splendour'to Alexandria, and, at a still more remote period, to Egyptian Thebes. The mere will of a despot could never have made it the city of a hundred gates, and of the magnitude and populousness record- ed by Herodotus. Its grandeur must have been owing to its vicinity to the Red Sea and the channel of the Nile, and to its central position between India and Europe, (a) If a city can not be raised, neither does it seem, that its further aggrandizement can be arrested by the mere fiat of the monarch. Paris continued to increase, in defiance of abun- (c) There is some stretch of Imagination In this. Probably the Egyptian Thebes was itself the centre of manufacture and commerce in its day, and not its entrepot; indeed, there is no reason to suppose a very active inter- course between India and Europe to have existed at so early a period; and, if it had, Thebes would hardly have been the entrepot. But central India furnishes itself instances of cities containing as large a population. Nineveh and Babylon seem to have been quite as populous; each was probably the central point of an enormous domestic industry. T. (1) [The local position of Washington, perhaps, is not as advantageous as that of some of the other cities of the Union, it certainly, however, has not been adverse to its progress in population and wealth. In the year 1800, when Washington became the seat of the General Government, its whole population amounted to 3,210; according to the census of 1820 it now contains 13,322 inhabitants, and 2,208 buildings, 925 of which were of brick. It can not, therefore, be said to have been outstripped by most of the other cities in the progress of improvement.] American Editor. CHAP. XI. ON DISTRIBUTION. 345 dance of regulations issued by the government of the day to limit its extension. The only effectual barrier is that opposed by natural causes, which it would be very difficult to define with precision, for it consists rather of an aggregate of little inconveniences, than of any grand or positive obstruction. In overgrown cities, the municipal administration is never well attended to; a vast deal of valuable time is lost in going from one quarter to another; the crossing and jostling is immense in the central parts; and the narrow streets and passages, hav- ing been calculated for a much smaller population, are unequal to the vast increase of horses, carriages, passengers, and traffic of all sorts. This evil is felt most seriously at Paris, and ac- cidents are growing more frequent every day; yet new streets are now building on the same defective plan, with a certain prospect of a like inconvenience in a very few years hence. 51 BOOK III. OF THE CONSUMPTION OF WEALTH. CHAPTER I. OF THE DIFFERENT KINDS OF CONSUMPTION. In the course of my work, I have frequently been obliged to anticipate the explanation of terms and notions which, in the natural order, should have been postponed to a later period of the investigation. Thus, I was obliged in the first book to explain the sense, in which I used the term, consumption, because production can not be efiected without consumption. My reader will have seen from the explanation there given, that, in like manner as by production is meant the creation, not of substance, but of utility, so by consumption is meant the destruction of utility, and not of substance, or matter. When once the utility of a thing is destroyed, there is an end of the source and basis of its value; — an extinction of that, which made it an object of desire and of demand. It thence- forward ceases to possess value, and is no longer an item of wealth. Thus, the terms, to consume, to destroy the utility, to annihilate the value of any thing, are as strictly synonymous as the opposite terms to produce, to communicate utility, to create value, and convey to the mind precisely the same idea. Consumption, then, being the destruction of value, is commensurate, not with the bulk, the weight, or the number of the products consumed, but with their value. Large con- sumption is the destruction of large value, whatever form that value may happen to have assumed. Every product is liable to be consumed; because the value, which can be added to, can likewise be subtracted from, any object. If it has been added by human exertion or industiy, it may be subtracted by human use, or a variety of accidents. 348 ON CONSUMPTION. book iii. But it can not be more than once consumed; value once de- stroyed can not be destroyed a second time. Consumption is sometimes rapid, sometimes gradual, A house, a ship, an im- plement of iron, are equally consumable as a loaf, a joint of meat, or a coat. Consumption again may be but partial. A horse, an article of furniture, or a house when re-sold by the possessor, has been but partially consumed; there is still a re- sidue of value, for which an equivalent is received in exchange on the re-sale. Sometimes consumption is involuntary, and either accidental, as when a house is burnt, or a vessel ship- wrecked, or contrary to the consumer's intention, as when a cargo is thrown overboard, or stores set on fire to prevent their falhng into enemies' hands. Value may be consumed, either long after its production, or at the very moment, and in the very act of production, as in the case of the pleasure afforded by a concert, or theatrical exhibition. Time and labour may be consumed; for labour, applicable to an useful purpose, is an object of value, and, when once consumed, can never be consumed again. Whatever can not possibly lose its value is not liable to con- sumption. A landed estate can not be consuined; but its an- nual productive agency may; for, when once that agency has been exerted, it can not be exerted again. The improvements of an estate may be consumed, although their value may pos- sibly exceed that of the estate itself; for these improvements are the effect of human exertion and industry; but the land it- self is inconsumable.* So likewise it is with any industrious faculty. One may consume a labourer's day's work, but not his faculty of work- ing; which, however, is liable to destruction by the death of the person possessing it. All products are consumed sooner or later; indeed they are produced solely for the purpose of consumption, and, when- ever the consumption of a product is delayed after it has reacn- ed the point of absolute maturity, it is value inert and neutral- ized for the time. For, as all value may be employed re-pro- ductively, and made to yield a profit to the possessor, the with- holding a product from consumption is a loss of the possible profit, in other words, of the interest its value would have yielded, if usefully employed.! * Some materials are capable of receiving and discharging the same kind of value many times over; as linen, which will undergo repeated washing. The cleanliness given it by the laundress, is a value wholly consumed on each occasion, along with a part of that of the linen itself. ■\ The values not consumed sooner or later in a useful way are of little mo- ment; such are provisions spoiled by keeping, products lost accidentally, and those whose use has become obsolete, or which have never been used at all, owing to the failure of the demand for them, wherein value origi- nates. Values buried, or concealed, are commonly withdrawn but for a time from consumption; when found, it is always the interest of the finder to to turn them to account, which he can not do without submitting them to CHAP. I. ON CONSUMPTION. 349 But, products being universally destined for consumption, and that too in the quickest way, how, it may be asked, can there be ever an accumulation of capital, that is to say, of va- lues produced? 1 answer — that value may be accumulated, without being necessarily vested all the while in the same identical product, provided only that it be perpetuated in some product or other. Now, values employed as capital are perpetuated by re-pro- duction; the various products of which capital consists, are consumed like all other products; but their value is no sooner destroyed by consumption, than it re-appears in another, or a similar substance. A manufactory can not be kept up, without a consumption of victuals and clothes for the workmen, as well as of the raw material of manufacture; but, while value in those forms is undergoing consumption, new value is commu- nicated to the object of manufacture. The items, that com- posed the capital so expended, are consumed and gone; but the capital — the accumulated value, still exists, and re-appears under a new form, applicable to a second course of consump- tion. Whereas, if consumed unproductively, it never re-ap- pears at all. The annual consumption of an individual is, the aggregate of all the values consumed by that individual within the year. The annual consumption of a nation is, the aggregate of values consumed within the year by all the individuals and commu- nities, whereof the nation consists. In the estimate of individual or national consumption, must be included every kind of consumption, whatever be its mo- tive or consequence, whether productive of new value or not; in like manner, as the estimate of the annual production of a nation comprises the total value of its products raised within the year. Thus, a soap manufactory is said to consume such or such a quantity or value of alkali in a year, although this value be re-produced from the manufactory in the shape of soap; on the other hand, it is said to produce annually such and such a quantity or value of soap, although the production may have cost the destructionof a great variety of values, which, if deduct- ed, would vastly reduce the apparent product. By annual consumption. In this case, the only loss isthatof tlie profit derivable from them during the period of their disappearance, and may be reckoned equiva- lent to the interest for that time. The same observation applies to the minute saving's, successively laid by until the moment of investment, the aggregate of which is, doubtless, con- siderable. The loss, resulting from this inertness of capital, may be partial- ly remedied by moderating tlie duties on transfer, by extending to the ut- most the facility of circulation, and by the establishment of banks of depo- site, in which capital may be safely vested, and whence it may readily be with- drawn. In times of political confusion, and under an arbitrav}' government, many will prefer to keep their capital inactive, concealed, and unproduc- tive, either of profit, or gratification, rather than run the risk of its display. This latter evil is never felt under a good government. 350 ON CONSUMPTION. book iil production or consumption, national or individual, is there- fore meant, the gross, and not the net amount.* Whence it naturally follows, that all the commodities, which a nation imports, must be reckoned as part of its annual pro- duct, and all its exports as part of its annual consumption. The trade of France consumes the total value of the silk it ex- ports to the United States; and produces, on the other hand, the total value of cotton received in return. And, in like manner, the manufacture of France consumes the value of al- kali employed by the soap-boiler, and produces the value of soap derived from the concern. The total annual consumption of a nation, or an individual, is a very different thing from the aggregate of capital. A capital may be wholly or partially consumed several times in a year. When a shoemaker buys leather, and cuts and works it up into shoes, there is so much capital consumed and re- produced. Every time he repeats the operation, there is so much more capital consumed. Suppose the leather purchas- ed to amount to 200 Jr. , and the operation to be repeated 12 times in the year, there will have been an annual consump- tion of 2400 Jr. upon a capital of 200 Jr. On the other hand, there may be portions of his capital, implements of trade, for instance, which it may take several years to consume. Of this part of his capital he may consume annually but i or Jg. perhaps. In each country, the wants of the consumer determine the quality of the product. The product most wanted is most in demand; and that which is most in demand yields the largest profit to industry, capital, and land, which are therefore em- plo3^ed in raising this particular product in preference; and, vice versa, when a product becomes less in demand, there is less profit to be got by its production; it is, therefore, no long- er produced. All the stock on hand falls in price; the low price encourages the consumption, which soon absorbs the stock in hand. The total national consumption may be divided into the heads of public consumption, and private consumption; the former is eficcted by the public, or in its service; the latter by individuals or families. Either class may be productive or unproductive. In every community, each member is a consumer; for no one can subsist, without the satisfaction of some necessary wants, however confined and limited; on the other hand, all, who do not live on mere charity, or gratuitous bounty, con- tribute somehow to production, by their industry, their capi- tal, or their land; wherefore, the consumers may be said to be themselves the producers; and the great bulk of consumption takes place amongst the middling and poorer classes, whose * For the distinction between the gross &ndthQ net product, vide supra. Book II. chap. 5. CHAP. II. ON CONSUMPTION. 351 numbers more than counterbalance the smallness of the share allotted to each.* Opulent, civilized, and industrious nations, are greater con- sumers than poor ones, because thej^ are infinitely greater pro- ducers. They aiinually, and in some cases, several times in the course of the year, re-consume their productive capital, which is thus continually renovated; and consume, unproduc- tively, the greater part of their revenues, whether derived from industry, from capital, or from land. It is not uncommon to find authors proposing, as the model for imitation, those nations, whose wants are few; whereas, it is far preferable to have numerous wants, along with the power to gratify them. This is the way at once to multi- ply the human species, and to give to each a more enlarged existence. Stewartt extols the Lacedaemonian policy, which consisted in practising the art of self-denial in the extreme, without aiming at progressive advancement in the art of production. But herein the Spartans were rivalled by the rudest tribes of savages, which are commonly neither numerous nor amply provided. Upon this principle, it would be the very acme of perfection to produce nothing and to have no wants; that is to say, to annihilate human existence. CHAPTER II. OP THE EFFECT OP CONSUMPTION IN GENERAL. The immediate effect of consumption of every kind is, the loss of value, consequently, of wealth, to the owner of the ar- ticle consumed. This is the invariable and inevitable conse- * It is probable, that, in all countries, anywise advanced in industry, the revenues of industry exceed those of capital and land united, and, conse- quently, that the consumption of those deriving income solel}' from indus- try, and wholly dependent for subsistence upon their personal faculties, exceeds that of both capitalists and landlords together. It is not uncom- mon to meet with a manufactory, that, with a capital, say of 600,000 _/»-. will pay daily in wages to its people, SOQfr., which, with the deduction of Sundays and holidays, makes 90,000 fr. per annum; if to this be added, 20,000 fr. more for the net profits of personal superintendence and manage- ment, it will give a total of 110,000 /r. per annum, for the revenue of in- dustry alone. The same capital, vested in land at but 20 years' purchase, would yield a revenue of 30,000 /r. only. The cultivation by metayers, the very lowest description of farmers, gives to them, and their subordinate labourers' industry, a revenue equal to that of the land jointly with the capital, which is advanced by the proprietor. ■j- Book II, chap. 14. 352 ON CONSUMPTION. book m. quence, and should never be lost sight of in reasoning on this matter. A product consumed is a value lost to all the world and to all eternity; but the further consequence, that may follow, will depend upon the circumstances and nature of the consumption. If the consumption be unproductive, there usually results the gratification of some want, but no reproduction of value whatever; if productive, there results the satisfaction of no want, but a creation of new value, equal, inferior, or superior in amount to that consumed, and profitable or unprofitable to the adventurer accordingly.* Thus, consumption may be regarded as an act of barter, wherein the owner of the value consumed gives up that value on the one hand, and receives in return, either the satisfaction of a personal want, or a fresh value, equivalent to the value consumed. It may be proper here to remark, that consumption, pro- ductive of nothing beyond a present gratification, requires no skill or talent in the consumer. It requires neither labour nor ingenuity to eat a good dinner, or dress in fine clothes. t On the contrary, productive consumption, besides yielding no immediate or present gratification, requires an exertion of combined labour and skill, or, of what has all along been de- nominated, industry. When the owner of a product ready for consumption has himself no industrious faculty, and wishes, but knows not how, to consume it productively, he lends it to some one more industrious than himself, who commences by destroying it, but in such a way, as to reproduce another, and thereby ena- ble himself to make a full restitution to the lender, after re- taining the profit of his own skill and labour. The value re- turned consists of difierent objects from that lent it is true: in- deed, the condition of a loan is in substance this; to replace the * This may be illustrated by the burning of fuel in a grate or furnace. The fuel burnt serves, either to give warmth, or to cook victuals, boil dyeing ingredients, and the like, and thereby to increase their value. There is no utility in the mere gratuitous act of burning, except inasmuch as it tends to satisfy some human want, that of wai'mth for instance; in which case, the consumption is unproductive; or inasmuch as it confers upon a substance submitted to its action, a value, that may replace the value of the fuel con- sumed; in which case the consumption is productive. If the fuel, burnt for the sake of warmth, produce either no warmth at all or very little; or that burnt to give value to a substance give it no value, or a less value, than the value consumed in fuel, the consumption will be ill-judged and improvident. ■j- There is unquestionably a sort of talent requisite in the expenditure of a large income with credit to the proprietor, so as to gratify personal taste, without awakening the self-love of others; to oblige, without the sense of humiliation; to labour for the public good, without alarming individual in- terests. But this kind of talent is referable rather to the head of practical, while its influence upon the rest of mankind falls within the province of theoretical, morality. CHAr. II. ON CONSUMPTION. 353 value lent, of whatever amount, say, of 10,000 /r., at a time specified, by other value, equivalent to the same amount of silver coin of the like weight and quality at the time of re- payment. An object, lent on condition of specific restitution, can not be available for reproduction; because, by the terms of the loan, it is not to be consumed. Sometimes a producer is the consumer of his own product; as when the farmer eats his own poultry or vegetables; or the clothier wears his own cloth. But, the objects of human consumption being far more varied and numerous, than the objects of each person's production respectively, most opera- tions of consumption are preceded by a process of barter. He first turns into money, or receives in that shape, the yalues composing his individual revenue; and then changes again that money for the articles he purposes to consume. Where- fore, in common parlance, to spend and to consume have be- come nearly synonymous. Yet by the mere act of buying, the value expended is not lost; for the article purchased has likewise a value, which may be parted with again for what it cost, if it has not been bought over-dear. The loss of value does not happen till the actual consumption, after which the value is destroyed; it then ceases to exist, and is not the object of a second consumption. For this reason, it is, that, in do- mestic life, the bad management of the wife soon runs through a moderate fortune; for she in general regulates the daily con- sumption of the family, which is the chief source of expense, and one that is always recurring. This will serve to expose the error of the notion, that where there is no loss of money, there can be no loss of wealth. It is the commonest thing in the world to hear it roundly as- serted, that the money spent is not lost, but remains in the country; and, therefore, that the country can not be impover- ished by its internal expenditure. It is true, the value of the money remains as before; but the object, or the hundred ob- jects, perhaps, that have been successively bought with the same money, have been consumed, and their value destroyed. Wherefore, it is superfluous, I had almost said ridiculous, to confine at home the national money, for the purpose of pre- serving national wealth. Money by no means prevents the consumption of value, and the consequent diminution of wealth; on the contrary, it facilitates the arrival of consuma- ble objects at their ultimate destination; which is a most bene- ficial act, when the end is well chosen, and the result satis- factory. Nor would it be correct even to maintain, that the export of specie is at all events a loss, although its presence in the country may be no hindrance to consumption or to the diminution of wealth. For, unless it be made without any view to a return, which is rarely the case, it is in fact the same thing as productive consumption; being merely a sacrifice of one va- lue, for the purpose of obtaining another. Where no return - 52 354 ON CONSUMPTION. book hi. whatever is in view, there indeed is so much loss of national capital; but the loss would be quite as great, were goods, and not money, so exported. CHAPTER III. or THE EFFECT OF PRODUCTIVE CONSUMPTION. The nature of productive consumption has been explained above in Book I. The value absorbed by it is what has been called. Capital. The trader, manufacturer, and cultivator, purchase the raw material* and productive agency, which they consume in the preparation of new products; and the im- mediate effect is precisely the same, as that of unproductive consumption; viz. to create a demand for the objects of their consumption, which operates upon their price, and upon their production; and to cause a destruction of value. But the ulti- mate effect is different; there is no satisfaction of a human want, and no resulting gratification, except that accruing to the ad- venturer from the possession of the fresh product the value of which replaces that of the products consumed, and commonly affords him a profit into the bargain. To this position, that productive consumption does not im- mediately satisfy any human want, a cursory observer may possibly object, that the wages of labour, though a produc- tive outlay, go to satisfy the wants of the labourer, in food, raiment, and amusement perhaps. But, in this operation, there is a double consumption: 1. of the capital consumed productively in the purchase of productive agency, wherefrom results no human gratification: 2. of the daily or weekly reve- nue of the labourer, i. e. of his productive agency, the recom- pense for which is consumed unproductively by himself and his family, in like manner as the rent of the manufactory, which forms the revenue of the landlord, is by him consumed unpro- ductively. And this does not imply the consumption of the same value twice over, first productively, and afterwards un- productively; for the values consumed are two distinct values, * The raw materials of maimfactiu'e and commerce are, the products bought with a view to the communication to them of further value. Cali- coes are raw material to the calico-printer, and printed calicoes to the dealer who buys them for re-sale or export. In commerce, every act of piu-chase is an act of consumption-, and every act of re-sale, an act of re- production. CHAP. III. ON CONSUMPTION. n55 resting upon bases altogether different. The first, the produc- tive agency of the labourer, is the effect of his inuscular power and skill, which is itself a positive product, bearing value like any other. The second is a portion of capital, given by the adventurer in exchange for that productive agency. After the act of exchange is once completed, the consumption of the value given on either side is contemporaneous, but with a different object in view; the one being intended to create a new product, the other to satisf)'' the wants of the productive agent and his family. Thus, the object, expended and con- sumed by the adventurer, is the equivalent he receives for his capital; and that, consumed unproductively by the labourer, is the equivalent for his revenue. The interchange of these two values by no means makes them one and the same. So likewise, the intellectual industry of superintendence is reproductively consumed in the concern; and the profits, ac- cruing to the adventurer as its recompense, are consumed un- productively by himself and his family. In short, this double consumption is precisely analogous to that of the raw material used in the concern. The clothier presents himself to the wool-dealer, with 1000 crowns in his hand: there are, at this moment, two values in existence; on the one side, that of the 1000 crowns, which is the result of previous production, and now forms a part of the capital of the clothier; on the other, the wool constituting a part of the annual product of a grazing farm. These products are inter- changed, and each is separately consumed; the capital convert- ed into wool, in a way to produce cloth; the product of the farm, converted into crown-pieces, in the satisfaction of the wants of the farmer, or his landlord. Since every thing consumed is so much lost, the gain of re- productive consumption is equal, whether proceeding from re- duced consumption, or from enlarged production. In China, they make a great saving in the consumption of seed-corn, by following the drilling, in lieu of the broad-cast, method. The effect of this saving is precisely the same, as if the land were, in China, proportionately more productive than in Eu- rope.* In manufacture, when the raw material used is of no value whatever, it is not to be reckoned as forming any part of the re- quisite consumption of the concern; thus, the stone used by the lime-burner, and the sand employed by the glass-blower, are no part of their respective consumption, wherever they have cost them nothing. A saving of productive agency, whether of industry, of land, or of capital, is equally real and effectual, as a saving of raw material; and it is practicable in two ways; either by making * One of the suite of Lord Macartney estimated the saving of grain in China, by this method alone, to be equal to the supply of the whole popu- lation of Great Britain. 356 ON CONSUMPTION. book hi. the same productive means yield more agency; or by obtain- ing the same result from a smaller quantity of productive means. Such savings generally operate in a very short time to the benefit of the community at large: they reauce the charges of production; and, in proportion as the economical process be- comes better understood, and more generally practised, the competition of producers brings the price of the product gra- dually to a level with the charges of production. But, for this very reason, all, who do not learn to economize like their neighbours, must necessarily lose, while others are gaining. Manufacturers have been ruined by hundreds, because they would go to work in a grand style with too costly and com- plex an apparatus, provided of course at an excessive expense of capital. Fortunately, in the great majority of cases, self-interest is most sensibly and immediately affected by a loss of this kind; and in the concerns of business, like pain in the human frame, gives timely warning of injuries, that require care and repara- tion. If the rash or ignorant adventurer in production were net the first to suffer the punishment of his own errors or mis- conduct, we should find it far more common than it is to dash into improvident speculation; which is quite as fatal to public prosperitv, as profusion and extravagance. A merchant, that spends 50,000 yr. in the acquisition of 30,000/r., stands, in respect to his private concerns and to the general wealth of the community, upon exactly the same footing, as a man of fashion, who spends 20,000yr. in horses, mistresses, gluttony, or osten- tation; except, perhaps, that the latter has more pleasure and personal gratification for his money.* What has been said on this subject in Book I. of this work, makes it needless to enlarge here upon the head of productive consumption. I shall, therefore, henceforward direct my read- er's attention to the subject of unproductive consumption, its motives, and consequences; premising, that in what I am about to say, the word, consumption, used alone, will import unpro- ductive consumption, as it does in common conversation. * There is almost insuperable difficulty in estimating with precision the consumption and production of value; and individuals have no other means of knowing, whether their fortune be increased or diminished, except by- keeping regular accounts of their receipt and expenditure; indeed, all pru- dent persons are careful to do so, and it is a duty imposed by law in the case of traders. An adventurer could otherwise scarcel}' know whether his concern were gainful or losing, and might be involving himself and his creditors in ruin. Besides keeping regular accounts, a prudent manager will make previous estimates of the value that will be absorbed in the con- cern, and of its probable proceeds: the use of which, like that of a plan or design in building', is to give an approximationj though it can afford no certainty. CHAP. IV. ON CONSUMPTION. 357 CHAPTER IV. OF THE EFFECT OF UNPRODUCTIVE CONSUMPTION IN GENERAL. Having just considered the nature and effect of consumption in general, as well as the general effect of productive consump- tion in particular, it remains only to consider in this, and the following chapters, such consumption as is effected with no other end or object in view, than the mere satisfaction of a want, or the enjoyment of some pleasurable sensation. Whoever has thoroughly comprehended the nature of con- sumption and production, as displayed in the pi^eceding pages, will have arrived at the conviction, that no consumption, of the class denominated unproductive, has any ulterior effect, beyond the satisfaction of a want by the destruction of exist- ing value. It is a mere exchange of a portion of existing wealth on the one side, for human gratification on the other, and nothing more. Beyond this, what can be expected? — reproduction? how can the same identical utility be afforded a second time? Wine can not be both drunk and distilled into brandy too. Neither can the object consumed serve to estab- lish a fresh demand, and thus indirectl}' to stimulate future productive exertion; for it has already been explained that the only effectual demand is created by the possession of where- withal to purchase, — ofsomethingtogive in exchange; and what can that be, except a product, which, before the act of ex- change and consumption, must have been an item, either of revenue or of capital? The existence and intensity of the de- mand must invariably depend upon the amount of revenue and of capital, the bare existence of revenue and of capital is all that is necessary for the stimulus of production, which nothing else can stimulate. The choice of one object of consumption necessarily precludes that of another; what is consumed in the shape of silks can not be consumed in the shape of linens or woollens; nor can what has once been devoted to pleasure or amusement be made productive also of more positive or sub- stantial utility. Wherefore, the sole object of inquiry, with regard to unpro- ductive consumption, is, the degree of gratification result- ing from the act of consumption itself; and this inquiry will, in the remainder of this chapter, be pursued in respect of un- productive consumption in general, after which we shall give in the following chapters, a separate consideration to that of individuals, and that of the public, or community at large. The sole point is, to weigh the loss, occasioned to the consumer by 358 ON CONSUMPTION. book hi. his consumption, against the satisfaction it affords him. The degree of correctness, with which the balance of loss and gain is struck, will determine whether the consumption be judicious or otherwise; which is a point that, next to the actual produc- tion of wealth, has the most powerful influence upon the well or ill-being of families and of nations. In this point of view, the most judicious kinds of consump- tion seem to be: — 1. Such as conduce to the satisfaction of positive wants; by which term I mean those, upon the satisfaction of which de- pends the existence, the healtli and the contentment of the ge- nerality of mankind; being the very reverse of such, as are generated by refined sensuality, pride, and caprice. Thus, the national consumption will, on the whole, be judicious, if it absorb articles rather of convenience than of display; the more linen and the less lace; the more plain and wholesome dishes, and the fewer dainties; the more warm clothing, and the less embroidery, the better. In a nation whose consumption is so directed, the public establishments will be remarkable rather for utility than splendour, its hospitals will be less magnificent than salutary and extensive; its roads well furnished with inns, rather than unnecessarily wide and spacious, and its towns well paved, though with few palaces to attract the gaze of strangers. The luxury of ostentation affords a much less substantial and solid gratification, than the luxury of comfort, if I may be al- lowed the expression. Besides, the latter is less costly, that is to say, involves the necessity of a smaller consumption; whereas the former is as insatiable; it spreads from one to ano- ther, from the mere proneness to imitation; and the extent to which it may reach, is absolutely unlimited. («) " Pride," says Franklin, " is a beggar quite as clamorous as want, but infinitely more insatiable." Taking society in the aggregate it will be found that, one with another, the gratification of real wants, is more important to the community, than the gratification of artificial ones. The wants of the rich man occasion the production and consump- tion, of an exquisite perfume perhaps, those of the poor man, the production and consumption of a good warm winter cloak: supposing the value to be equal, the diminution of the gene- ral wealth is the same in both cases; but the resulting gratifi- (a) Tt is stvang-e, that so acute a writer should not have perceived, that the mischief of pure individual vanity can never be very formidable, be- cause the pleasure it affords loses in intensity, in proportion to its diffu- sion. Indeed, as far as individual consumption is concerned, attacks upon luxury are mere idle declamations; for the productive energies of mankind will always be directed towards an object, with a force, and in a degree, proportionate to the intensity of the want for it. It is the extravagance of public luxury alone that can ever be formidable; this, as well as public con- sumption of every kind, it is always the intei-est of the community at large to contract, and that of public functionaries to expand, to the utmost. T. CHAP. IV. ON CONSUMPTION. 359 cation will, in the one case, be trifling, transient, and scarce- ly perceptible; in the other, solid, ample, and of long dura- tion.* 2. Such as are the most gradual, and absorb products of the best quality. A nation or an individual, will do wisely to di- rect consumption chiefly to those articles, that are the longest time in wearing out, and the most frequently in use. Good houses and furniture are, therefore, objects of judicious pre- ference; for there are few products that take longer time to consume than a house, or that are of more frequent utility; in fact, the best part of one's life is passed in it. Frequent changes of fashion are unwise; for fashion takes upon itself to throw things away long before they have lost their utility, and some- times before they have lost even the freshness of novelty, thus multiplying consumption exceedingly, and rejecting as good for nothing what is perhaps still useful, convenient, or even elegant. So that a rapid succession of fashions impoverishes a state, as well by the consumption it occasions, as by that which it arrests. There is an advantage in consuming articles of superior quality, although somewhat dearer, and for this reason: in eve- ry kind of manufacture, there are some charges that are al- ways the same, whether the product be of good, or bad quali- ty. Coarse linen will have cost, in weaving, packing, stor- ing, retailing, and carriage, before it comes to the ultimate consumer, quite as much trouble and labour, as linen of the finest quality; therefore, in purchasing an inferior quality, the only saving, is the cost of the raw material; the labour and trouble must always be paid in full, and at the same rate; yet the product of that labour and trouble are much quicker con- sumed, when the linen is of inferior, than when it is of supe- rior quality. This reasoning is applicable indifferently to every class of product; for in every one there are some kinds of productive agency, that are paid equally without reference to quality; and that agency is more profitably bestowed in the raising of pro- ducts of good than of bad quality; therefore, it is generally more advantageous for a nation to consume the forrner. But this can not be done, unless the nation can discern between good and bad, and have acquired taste for the former; where- in again appears the necessity of knowledget to the further- ance of national prosperity; and unless, besides, the bulk of the population, be so far removed above penury, as not to be ob- liged to buy whatever is the cheapest in the first iustance, al- though it be in the long run the dearest to the consumer. * The lending at interest what might have been spent in frivolity is of tiiis latter class; for interest can not be paid, unless the loan be productively- employed; in which case it will go in part to the maintenance of the labour- ing classes. f By knowledge I would always be understood to mean, acquaintance with the time state of things, or generally with truth in every branch. 360 ON CONSUMPTION. book hi. It is evident, that the interference of public authority in re- gulating the details of the manufacture, supposing it to succeed in making the manufacturer produce goods of the best quality, which is very problematical, must be quite ineffectual in pro- moting their consumption; for it can give the consumer, nei- ther the taste of what is of the better quality, nor the ability to purchase. The difficulty lies, not in finding a producer, but in finding a consumer. It will be no hard matter to supply good and elegant commodities, if there be consumers both will- ing and able to purchase them. But such a demand can ex- ist only in nations enjoying comparative affluence; it is afflu- ence, that both furnishes the means of buying articles of good quality, and gives a taste for them. Now the interference of authority is not the road to affluence, which results from acti- vity of production, seconded by the spirit of frugality; — from habits of industry pervading every channel of occupation, and of frugality tending to accumulation of capital. In a country, where these qualities are prevalent, and in no other can indi- viduals be at all nice or fastidious in what they consume. On the contrary, profusion and embarrassment are inseparable companions; there is no choice when necessity drives. The pleasures of the table, of play, of pyrotechnic exhibi- tions, and the like, are to be reckoned amongst those of short- est duration. I have seen villages, that, although in want of good water, yet do not hesitate to spend in a wake or festival, that lasts but one day, as much money as would suffice to con- struct a conduit for the supply of that necessary of life, and a fountain or public cistern on the village green; the inhabitants preferring to get once drunk in honour of the squire or saint, and to go day after day with the greatest inconvenience, and bring muddy water from half a league distance. The filth and discomfort prevalent in rustic habitations are attributable, part- ly to poverty, and partly to injudicious consumption. In most countries, if a part of what is squandered in frivo- lous and hazardous amusements, whether in town or country, were spent in the embellishment and convenience of the habi- tations, in suitable clothing, in neat and useful furniture, or in the instruction of the population, the whole community would soon assume an appearance of improvement, civilization, and affluence, infinitely more attractive to strangers, as well as more gratifying to the people themselves. 3. The collective consumption of numbers. There are some kinds of agency, that need not be multiplied in proportion to the increased consumption. One cook can dress dinner for ten as easily as for one; the same grate will roast a dozen joints as well as one; and this is the reason, why there is so much economy in the mess-table of a college, a monastery, a regi- ment, or a large manufactory, in the supply of great numbers from a common kettle or kitchen, and in the dispensaries of cheap soups, 4. And lastly, on grounds entirely different, those kinds of CHAP. IV. ON CONSUMPTION. 361 consumption are judicious, which are consistent with moral rectitude; and, on the contrary, those, which infringe its laws, generally end in public, as well as private calamity. But it would be too wide a digression from my subject to attempt the illustration of this position. It is observable, that great inequality of private fortune is hostile to those kinds of consumption, that must be regarded as most judicious. In proportion as that inequality is more marked, the artificial wants of the population are more nume- rous, the real ones more scantily supplied, and rapid con- sumption more common and destructive. The patrician spend- thrifts and imperial gluttons of ancient Rome thought they never could squander enough. Besides, immoral kinds of consumption are infinitely more general, where the extremes of wealth and poverty are found blended together. In such a state of society, there are a few, who can indulge in the refine- ment of luxury, but a vast number, who look on their enjoy- ments with envy, and are ever impatient to imitate them. To get into the privileged class is the grand object, be the means ever so questionable; and those, who are little scrupu- lous in the acquirement, are seldom more so in the employ- ment of wealth, (a) The government has, in all countries, avast influence, in de- termining the character of the national consumption; not only because it absolutely directs the consumption of the state itself, but because a great proportion of the consumption of individu- als is guided by its will and example. If the government in- dulge a taste for splendour and ostentation, splendour and os- tentation will be the order of the day, with the whole host of imitators; and even those of better judgment and discretion must, in some measure, yield to the torrent. For, how sel- dom are they independent of that consideration and good opin- ion, which, under such circumstances, are to be earned, not by personal qualities, but by a course of extravagance they can not approve? First and foremost in the list of injudicious kinds of con- sumption stand those which yield disgust and displeasure, in lieu of the gratification anticipated. Under this class may be ranged, excess and intemperance in private individuals; and, in (a) In a wholesome state of society, when public institutions are not needlessly multiplied, and all tend to the common purpose of public good, this very impatience and anxiety is conducive to the welfare, and not to the injury, of society. Indeed, great inequality of fortune seems to be a necessary accompaniment to social wealth and g-reat national productive power. It is the prospect of great prizes only, that can stimulate to the extreme of intellectual and corporeal industry; and there is no instance on record of a nation far advanced in industry, in wliich great inequality of fortune has not existed. One bishopric of Durham will tempt more cleri- cal adventurers, than five hundred moderate benefices; and the example of a single Arkwright or Peele will stimulate manufacturing science and ac- tivity, more than a whole Manchester of moderate cotton-spinning coii- cerns. T. 53 362 ON CONSUMPTION. book iii. the state, wars undertaken with the motive of pure vengeance, like that of Louis XIV., in revenge for the attacks of a Dutch newspaper, or with that of empty glory, which leads common- ly to disgrace and odium. Yet such wars are even less to be deplored for the waste of national wealth and resources, than for the irremediable loss of personal virtue and talent sacri- ficed in the struggle; a loss which involves families in distress enough, when exacted by the public good, and by the pressure of inexorable necessity; but must be doubly shocking and af- flicting, when it originates in the caprice, the wickedness, the folly, or the ungovernable passions of national rulers. CHAPTER V. OF INDIVIDUAL CONSUMPTION ITS MOTIVES AND ITS EF- FECTS. The consumption of individuals, as contrasted with that of the public or community at large, is such as is made with the object of satisfying the wants of families and individuals. These wants chiefly consist in those of food, raiment, lodging, and amusement. They are supplied with the necessary arti- cles of consumption in each department, out of the respective revenue of each family or individual, whether derived from personal industry, from capital, or from land. The wealth of a family advances, declines, or remains stationary, according as its consumption equals, returns, or falls short of its revenue. The aggregate of the consumption of all the individuals, add- ed to that of the government for public purposes, forms the grand total of national consumption. A family, or indeed a community, or nation, may certainly consume the whole of its revenue, without being thereby im- poverished; but it by no means follows, that it either must, or would act wisely, in so doing. Common prudence would coun- sel to provide against casualties. Who can say with certainty, that his income will not fall off", or that his fortune is exempt from the injustice, the fraud, or the violence of mankind? Lands may be confiscated; ships may be wrecked; litigation may involve him in its expenses and uncertainties. The rich- est merchant is liable to be ruined by one unlucky speculation, or by the failure of others. Were he to spend his whole in- come, his capital might, and in all probability would, be con- tinually on the decline. But, supposing it to remain stationary, should one be con- €iiAp. V. ON CONSUMPTION. 3G3 tent with keeping it so? A fortune, however large, will seem little enough, when it comes to be divided amongst a number of children. And, even if there be no occasion to divide it, what harm is there in enlarging it; so it be done by honoura- ble means? what else is it, but the desire of each individual to better his situation, that suggests the frugality that accumulates capital, and thereby assists the progress of industry, and leads to national opulence and civilization? Had not previous gene- rations been actuated by this stimulus, the present one would now be in the savage state: and it is impossible to say, how much farther it may yet be possible to carry civilization. It has never been proved to my satisfaction, that nine tenths of the population must inevitably remain in that degree of mise- ry and semi-barbarism, which they are found in at present in most countries of Europe. The observance of the rules of private economy keeps the consumption of a family within reasonable bounds: that is to say, the bounds prescribed in each instance by a judicious comparison of the value sacrificed in consumption, with the sa- tisfaction it affords. None but the individual himself, can fair- ly and correctly estimate the loss and the gain, resulting to himself or family from each particular act of consumption; for the balance will depend upon the fortune, the rank, and the wants of himself and family; and, in some degree, perhaps, upon personal taste and feelings. To restrain consumption within too narrow limits, would involve the privation of gratifi- cation, that fortune has placed within reach; and, on the other hand, a too profuse consumption might trench upon resources, that it might be but common prudence to husband.* Individual consumption has constant reference to the charac- ter and passions of the consumer. It is influenced alternately by the noblest and the vilest propensities of our nature; at one time it is stimulated by sensuality; at another by vanity, by generosity, by revenge, or even by covetousness. It is check- ed by prudence or foresight, by groundless apprehension, by distrust, or by selfishness. As these various qualities happen in turn to predominate, they direct mankind in the use they make of their wealth. In this, as in every other action of life, * On this ground sumptitar}' laws are superfluous and unjust. The in- dulg-ence proscribed is either within the means of the individual or not; in the former case, it is an act of oppression to proliibit a gratification involv- ing no injury to others, equally unjustifiable as prohibition in any otherpar- ticular; in the latter, it is at all events nugatory to do so; for there is no occasion for legal interference, where pecuniary circumstances alone are an effectual bar. Every irregularity of tliis kind vvorlis its own punishment. It has been said, that it is the duty of the government to check those habits, which have a tendency to lead people into expenses exceeding their means, but it will be found, that such habits can only be introduced by the exam- ple and encouragement of the public authorities themselves. In all other circumstances, neither custom nor fasliion will ever lead the different classes of society into any expenses, but what are suitable to their respective nieaiis. 364 ON CONSUMPTION. book m. the line of true wisdom is the most difficult to observe. Hu- man infirmity is perpetually deviating to the one side or the other, and seldom steers altogether clear of excess.* In respect to consumption, prodigality and avarice are the two faults to be avoided: both of them neutralize the benefits that wealth is calculated to confer on its possessor; prodigality by exhausting, avarice by not using, the. means of enjoyment. Prodigality is, indeed, the more amiable of the two, because it is allied to many amiable and social qualities. It is regarded with more indulgence, because it imparts its pleasures to others; yet it is of the two the more mischievous to society; for it squanders and makes away with the capital, that should be the support of industry; it destroys industry, the grand agent of production, by the destruction of the other agent, capital. If, by expense and consumption, are meant those kinds only which minister to our pleasures and luxuries, it is a great mistake to say that money is good for nothing but to be spen{, and that products are only raised to be consumed. Money may be employed in the work of reproduction; when so employed it must be productive of great benefit; and, every time that a fixed capital is squandered, a corresponding quan- tity of industry must be extinguished, in some quarter or other. The spendthrift, in running through his fortune, is at the same time exhausting, jpro tanto, the source of the profits upon in- dustry. The miser, who, in the dread of losing his money, hesitates to turn it to account, does, indeed, nothing to promote the progress of industry; but at least he can not be said to reduce the means of production. His hoard is scraped together by the abridgment of his personal gratifications, not at the ex- pense of the public, according to the vulgar notion; it has been withdrawn from no productive occupation, and will at any rate reappear at his death, and be available for the purpose of ex- tending the operations of industry, if it be not squandered by his heirs, or so efiectually concealed, as to evade all search or recovery. It is absurd in spendthrifts to boast of their prodigality, which is quite as unworthy the nobleness of our nature, as the sordid meanness of the opposite character. There is no merit in consuming all one can lay hands upon, and desisting only when one can get no more to consume; every animal can do as much; nay, there are some animals that set a better exam- ple of provident management. It is more becoming the cha- racter of a being gifted with reason and foresight, never to con- sume, in any instance, without some reasonable object in view. At least, this is the course that economy would prescribe. In short, economy is nothing more than the direction of hu- man consumption with judgment and discretion, — the know- • The weaker sex is, from the very circumstance of inferiority in strength of mind, exjiosed to greater excess both of avarice and prodigality. CHAP. V. ON CONSUMPTION. 365 ledge of our means, and of the best mode of employing them. There is no fixed rule of economy; it must be guided by a reference to the fortune, condition, and wants of the consumer. An expense, that may be authorized by the strictest economy in a person of moderate fortune, would, perhaps, be pitiful in a rich man, and absolute extravagance in a poor one. In a state of sickness, a man must allow himself indulgences, that he would not think of in health. An act of beneficence, that trenches on the personal enjoyments of the benefactor, is de- serving of the highest praise; but it would be highly blameable, if done at the expense of his children's subsistence. Economy is equally distant from avarice and profusion. Avarice hoards, not for the purpose of consuming or repro- ducing, but for the mere sake of hoarding; it is a kind of" in- stinct, or mechanical impulse, much to the discredit of those in whom it is detected; whereas, true economy is the offspring of prudence and sound reason, and does not sacrifice necessa- ries to superfluities, like the miser, when he denies himself present comforts, in the view of luxury, ever prospective and never to be enjoyed. The most sumptuous entertainment may be conducted with economy, without diminishing, but rather adding to its splendour, which the slightest appearance of ava- rice would tarnish and deface. The economical man balances his means against his present or future wants, and those of his family and friends, not forgetting the calls of humanity. The miser regards neither family nor friends; scarcely attends to his own personal wants, and is an utter stranger to those of mankind at large. Kconomy never consumes without an ob- ject; avarice never willingly consumes at all: the one is a sober and rational study, the only one that supplies the means of fulfilling our duties, and being at the same time just and gene- rous; the other a vile propensity to sacrifice every thing to the sordid consideration of self. Economy has not unreasonably been ranked among the vir- tues of mankind; for, like the other virtues, it implies self-com- mand and control; and is productive of the happiest conse- quences; the good education of children, physical and moral; the careful attendance of old age; the calmness of mind, so ne- cessary to the good conduct of middle life; and that indepen- dence of circumstances which alone can secure against merce- nary motives, are all referable to this quality. Without it, there can be no liberality, none at least of a permanent and- wholesome kind; for, when it degenerates into prodigality, it is an indiscriminate largess, alike to deserving and undeserv- ing; stinting those who have claims in favour of those who have none. It is common to see the spendthrift reduced to beg a favour from people that he has loaded with his bounty; for what he gives now, one expects a return will some day be call- ed for; whereas, the gifts of the economical man are purely gra- tuitous; for he never gives except from his superfluities. The 366 ON CONSUMPTION. book hi. latter is rich with a moderate fortune; but the miser and the prodigal are poor, though in possession of the largest resources. Economy is inconsistent with disorder, which stumbles blindfold over wealth, sometimes missing what it most de- sires, although close within its reach, and sometimes seizing and devouring what it is most interested in preserving; ever impelled by the occurrences of the moment, which it either can not foresee, or can not emancipate itself from; and always unconscious of its own position, and utterly incapable of choosing the proper course for the future. A household, conducted without order, is preyed upon by all the world: neither the fidelity of the servants, nor even the parsimony of the master, can save it from ultimate ruin. For it is ex- posed to the perpetual recurrence of a variety of little outgo- ings, on every occasion, however trivial.* Among the motives that operate to determine the consump- tion of individuals, the most prominent is luxury, that fre- quent theme of declamation, which, however, 1 should proba- bly not have dwelt upon, could I expect that every body will take the trouble of applying the principles I have been labour- ing to establish; and were it not always useful to substitute reason for declamation. Luxury has been defined to be, the use of superfluities.! For my own part, I am at a loss to draw the line between su- perfluities and necessaries; the shades of difierence are as in- distinct and completely blended as the colours of the rainbow. Taste, education, temperament, bodily health, make the de- grees of utility and necessity infinitely variable, and render it * I reinenibcr being- once in the country a witness of the numberless mi- nute losses, thiit neg-lectfiil housekeeping' entails. For want of a trumpeiy latch, the gate of the poultiy-yard was for ever open; there being- no means of closing' it externally, it was on the swing every time a person went out; and many of the poultry were lost in consequence. One day, a fine young porker made his escape into the woods, and the whole family, gardener, cook, milk-maid, &c., presently turned out in quest of the fugitive. The gardener was the first to discover the object of pursuit, and, in leaping a ditch to cut off his further escape, got a sprain that confined him to his bed for the next fortniglit; the cook fovmd the linen burnt, that she had left hung up before the fire to dry; and the milk-maid, having forgotten in her liaste to tie up the cattle properly in the cow-house, one of the loose cows had broken the leg of a colt that happened to be kept in the same shed. — The linen burnt, and the gardener's work lost, were worth full 20 crowns; and the colt about as much more: so that here was a loss in a few minutes of 40 crowns, purely for want of a latch, that might have cost a few sous at the utmost; and this in a household where the strictest economy was ne- cessary, to say nothing of the suffering of the poor man, or the anxiety and other troublesome incidents. The misfortune was to be sure not very se- rious, nor the loss very heavy; yet, when it is considered, that similar neglect was the occasion of repeated disasters of the same kind, and ultimately of the ruin of a worthy family, it was deserving of some little attention. f Steuart, Essay on Pol. Econ. book ii. c. 20. The same writer has in another passage observed, that every thing not absolutely Bfetessary to bare existence is a superfluity. CHAP. V. ON CONSUMPTION. 367 impossible to employ, in an absolute sense, terms, which al- wa\'^s of necessity convey an idea of relation and comparison. The line of demarcation between necessaries and superflui- ties shifts with the fluctuating condition of society. Strictly speaking, mankind might exist upon roots and herbs, with a sheepskin for clothing, and a wigwam for lodging; 5?et, in the present state of European society, we cannot look upon bread or butcher's-meat, woollen-clothes or houses of masonry, as luxuries. For the same reason, the line varies also according to the varying circumstances of individual fortune; what is a necessary in a large town, or in a particular line of life, may, in another line of life, or in the country, be a mere superflui- ty. Wherefore, it is impossible exactly to define the bounda- ry between the one and the other. Smith has fixed it a little in advance of Steuart; including in the rank of necessaries, besides natural wants, such as the established rules of decency and propriety have made necessary in the lower classes of society. But Smith was wrong in attempting to fix at all what must, in the nature of things, be ever varying. Luxury may be said, in a general way, to be, the use or consumption of dear articles; for the term dear is one of rela- tion, and, therefore, may be properly enough applied in the definition of another term, whose sense is likewise relative. Luxury* with us in France conveys the idea rather of osten- tation than of sensuality; applied to dress, it denotes rather the superior beauty and impression upon the beholder, than superior convenience and comfort to the wearer; applied to the table, it means rather the splendour of a sumptuous banquet, than the exquisite fare of the solitary epicure. The grand aim of luxury in this sense is to attract admiration by the ra- rity, the costliness, and the magnificence of the objects dis- played, recommended probably neither by utility, nor con- venience, nor pleasurable qualities, but merely by their dazzling exterior and effect upon the opinions of mankind at large. Luxury conveys the idea of ostentation; but ostenta- tion has itself a far more extensive meaning, and comprehends every quality assumed for the purpose of display. A man may be ostentatiously virtuous, but is never luxuriously so; for luxury implies expense. 1 bus, luxury of wit or genius is a metaphorical expi'ession, implying a profuse display or ex- penditure, if it may be so called, of those qualities of the in- tellect, which it is the characteristic of good taste to deal out with a sparing hand. Although, with us in France, what we term luxury is chiefly directed to ostentatious indulgence, the excess and refinement of sensuality are equally unjustifiable, and of pre- cisely similar effect; that is to say, of a frivolous and incon- * The Eng-lish term luxury has a much more sensual meaning than the French luxe, and seems to comprise both luxe and luxure, the luxm, or luxu- ria, and luxuries of the Latin writers. 368 ON CONSUMPTION. book iii. siderable enjoyment or satisfaction, obtained by a large con- sumption, calculated to satisfy more urgent and extensive wants. But I should not stigmatize as luxury that degree of variety or abundance, which a prudent and well informed per- son in a civilized community would like to see upon his table upon domestic and common occasions, or aim at in his dress and abode, when under no compulsion to keep up an appear- ance. I should call this degree of indulgence judicious and suitable to his condition, but not an instance of luxury. Having thus defined the term luxur}^, we may go on to in- vestigate its effect upon the well-ordering or economy of na- tions. Under the head of unproductive consumption is comprised the satisfaction of many actual and urgent wants, which is a purpose of sufficient consequence to outweigh the mischief, that must ensue from the destruction of values. But what is there to compensate that mischief, where such consumption has not for its object the satisfaction of such wants? where money is spent for the mere sake of spending, and value de- stroyed without any object beyond its destruction? It is supposed to be beneficial, at all events, to the produ- cers of the articles consumed. But it is to be considered, that the same expenditure must take place, though not, perhaps, upon objects quite so frivolous; for the money withheld from luxurious indulgences is not absolutely thrown into the sea; it is sure to be spent either upon more judicious gratifications or upon reproduction. In one way or other, all the revenue, not absolutely sunk or buried, is consumed by the receiver of it, or by some one in his stead: and in all cases whatever, the encouragement held out by consumption to the producer is co- extensive with the total amount of revenue to be expended. Whence it follows: 1. That the encouragement which ostentatious extravagance affords to one class of production is necessarily withdrawn from another. 2. That the encouragement resulting from this kind of con- sumption cannot increase, except in the event of an increase in the revenue of the consumers; which revenue, as we can not but know by this time, is not to be increased by luxurious, but solely by reproductive, consumption. How great, then, must be the mistake of those, who, on ob- serving the obvious fact, that the production always equals the consumption, as it must necessarily do, since a thing can not be consumed before it is produced, have confounded the cause with the effect, and laid it down as a maxim, that consump- tion originates production; therefore, that frugality is directly adverse to public prosperity, and that the most useful citizen is the one who spends the most. The partisans of the two opposite systems above adverted to, the economists, and the advocates of exclusive commerce, or the balance of trade, have made this maxim a fundamental CHAP. V. ON CONSUMPTION. 369 article of their creed. The merchants and manufacturers, who seldom look beyond the actual sale of their products, or in- quire into the causes, which may operate to extend their sale, have warmly supported a position, apparently so consistent with their interests; the poets, who are ever apt to be seduced by appearances, and do not consider themselves bound to be wiser than politicians and men of business, have been loud in the praise of luxury*; and the rich have not been backward in adopting principles, that exalt their ostentation into a vir- tue, and their self-gratification into beneficence. t This prejudice, however, must vanish, as the increasing knowledge of political economy begins to reveal the real sources of wealth, the means of production, and the effect of consumption. Vanity may take pride in idle expense, but will ever be held in no less contempt by the wise, on account of its pernicious effects, than it has been all along, for the mo- tives by which it is actuated. These conclusions of theory have been confirmed by ex- perience. Misery is the inseparable companion of luxury. The man of wealth and ostentation squanders upon costly trinkets, sumptuous repasts, magnificent mansions, dogs, horses, and mistresses, a portion of value, which, vested in productive occupation, would enable a multitude of willing labourers, whom his extravagance now consigns to idleness and misery, to provide themselves with warm clothing, nourishing food, and household conveniencies. The gold buckles of the rich man leave the poor one without shoes to his feet; and the la- • Though it is not every subject that allows equal scope to poetical genius, it does not seem, that error affords a finer field than truth. The lines of Voltaire on the system of the world, and on the discoveries of Newton regarding the properties of light, are strictly conformable to the rules of science, and nowise inferior in beauty to those of Lucretius on the fanciful dogmas of the Epicurean school. But if Voltaire had been better acquainted with the principles of political economy, he would never have given utterance to such sentiments as the following: Sachez surtout que le luxe enrichit Un grand etat, s'il en perdun petit. Cette splendeur, cette pompe mondaine, D'un regne heureux est la marque certain.. Le riche est ne pour beaucoup depenser .... The progress of science compels those, who covet literary fame, to make themselves acquainted with general principles at the least; without a close adherence to truth and nature, there is little chance of permanent reputa- tion, even in the poetical department. f La Repuhlique a Men affaire De Gens, qui ne depensent rien,- Je ne sais d'homme necessaire, Que celui dont le luxe epand beaucoup de Men. La Fontaine, Avantage de la Science. " Were the rich not to spend their money freely," says Montesquieu, " the poor would starve." Esprit des Lois, liv. vii. c. 4. 54 370 ON CONSUMPTION. book hi. bourer will want a shirt to his back, while his rich neighbour glitters in velvet and embroidery. It is vain to resist the nature of things. Magnificence may do what it will to keep poverty out of sight, yet it will cross it at every turn, still haunting, as if to reproach it for its ex- cesses. This contrast was to be met with at Versailles, at Rome, at Madrid, and in every seat of royal residence. In a recent instance, it occurred in France in an afflicting degree, after a long series of extravagant and ostentatious administra- tion; yet the principle is so undeniable, that one would not suppose it had required so terrible an illustration.* Those, who are little in the habit of looking through the ap- pearance to the reality of things, are apt to be seduced by the glitter and the bustle of ostentatious luxury. They take the display of consumption as conclusive evidence of national pros- perity. If they could open their eyes, they would see, that a nation verging towards decline will for some time continue to preserve a show of opulence; like the establishment of a spendthrift on the high road to ruin. But this false glare can not last long: the effort dries up the sources of reproduction, and, therefore, must infallibly be followed by a state of apathy and exhaustion of the political frame, which is only to be remedied by slow degrees, and by the adoption of a regimen the very reverse to that, by which it has thus been reduced. It is distressing to see the fatal habits and customs of the nation one is attached to by birth, fortune, and social affec- tion, extending their influence over the wisest individuals, and those best able to appreciate this danger and foresee its disas- * There are other circumstances, that contribute to veil the residence of the court in an atmosphere of human misery. It is there, that personal ser- Tice is consumed b}^ wholesale; and that is of all things the most rapidly consumed, being-, indeed, consumed as fast as produced. Under this de- nomination, is to be comprised the agency of the soldiery, of menial ser- vants, of public functionaries, whether useful or not, of clerks, lawyers, judges, civilians, ecclesiastics, actors, musicians, di'olls, and numerous other hangers-on, who all crowd towards the focus of power and occupation, civil, judicial, military, or religious. It is there also, that material products seem to be more wantonly consumed. The choicest viands, tlie most beau- tiful and costly stuffs, the rarest works of art and fashion, all seem emulous to reach this general sink, whence little or nothing ever emerges. Yet, if the accumulated values, that are drained from every quarter of the national territory to feed the consumption of the seat of royalty, were distributed with any regard to equity, they would probably suffice to main- tain all classes in comfort andplent)^ Though such drains must always be calamitous, because they absorb value, and yield no return, at any rate the local populatioa might be pretty well off; but it is notorious that wealth is no where less equally diffused. The prince, the favourite, a mistress, or a bloated peculator, takes the lion's share, leaving to the subordinate drones the pittance assigned to them by the generosity or caprice of their superiors. The residence of an overgrown propi'ietor upon his estate then only tends to diffuse abundance and cheerfulness around him, when his expen- diture is directed to objects of utility, rather than of pomp; in which case, he is really an adventurer in agriculture, and an accumulator of capital in the shape of improvements and ameliorations. CHAP. V. ON CONSUMPTION. 371 trous consequences. The number of persons, who have suffi- cient spirit and independence of fortune to act up to their prin- ciples, and set themselves forward as an example, is extremely- small. Most men yield to the torrent, and rush on ruin with their eyes open, in search of happiness; although it requires a very small share of philosophy to see the madness of this course, and to perceive, that, when once the common wants of nature are satisfied, happiness is to be found, not in the frivolous enjoyments of luxurious vanity, but in the moderate exercise of our physical and moral faculties. Wherefore, those, who abuse great power, or talent, by ex- erting it in diffusing a taste for luxury, are the worst enemies of social happiness. If there is one habit, that deserves more encouragement than another, in monarchies as well as repub- lics, in great states as well as small, it is this of economy. Yet, after all, no encouragement is wanted; it is quite enough to withdraw favour and honour from habits of profusion; to af- ford inviolable security to all savings and acquirements; to give perfect freedom to their investment and occupation in every branch of industry, that is not absolutely criminal. It is alleged, that, to excite mankind to spend, or consume, is to excite them to produce, inasmuch as they can only spend what they may acquire. This fallacy is grounded on the as- sumption, that production is equally within the ability of man- kind as consumption; that it is as easy to augment as to ex- pend one's revenue. But, supposing it were so, nay further, that the desire to spend, begets a liking for labour, although experience by no means warrants such a conclusion, yet there can be no enlargement of production, without an augmenta- tion of capital, which is one of the necessary elements of pro- duction; but it is clear, that capital can only be accumulated by frugality; and how can that be expected from those, whose only stimulus to production is the desire of enjoyment? Moreover, when the desire of acquirement is stimulated by the love of display, how can the slow and limited progress of real production keep pace with the ardour of that motive? will it not find a shorter road to its object, in the rapid and disreputable profits of jobbing and intrigue, classes of industry most fatal to national welfare, because they produce nothing themselves, but only aim at appropriating a share of the pro- ducts of other people? It is this motive, that sets in motion the despicable art and cunning of the knave, leads the petti- fogger to speculate on the obscurity of the laws, and the man of authority to sell to folly and wickedness that patronage, which it is his duty to dispense gratuitously to merit and to right. Pliny mentions having seen Paulina at a supper, dress- ed in a network of pearls and emeralds, that cost 40 millions of sestertii, (1) as she was ready to prove by her jeweller's (1) [About 140,000 dollai's. Some English ladles wear jewels of greater 372 ON CONSUMPTION. book hi. bills. It was bought with the fruit of her ancestor's specula- tions. " Thus," says the Roman writer, " it was to dress out his grand-daughter in jewels at an entertainment, that Lollius forgot himself so far, as to lay waste whole provinces, to be- come the object of detestation to the Asiatics he governed, to forfeit the favour of Caesar, and end his life by poison." This is the kind of industry generated by love of display. If it be pretended, that a system, which encourages profu- sion, operates only upon the wealthy, and thus tends to a bene- ficial end, inasmuch as it reduces the evil of the inequality of fortune, there can be little difficulty in showing, that profusion in the higher, begets a similar spirit in the middling and lower, classes of society, which last must, of course, the soonest ar- rive at the limits of their income; so that, in fact, universal profusion has the effect of increasing, instead of reducing that inequality. Besides, the profusion of the wealthier class is always preceded, or followed, by that of the government, which must be fed and supplied by taxation, that is always sure to fall more heavily upon small incomes than on large ones.* The apologists of luxury have sometimes gone so far as to cry up the advantages of misery and indigence; on the ground, that, without the stimulus of want, the lower classes of man- kind could never be impelled to labour, so that neither the upper classes, nor society at large, could have the benefit of their exertions. Happily, this position is as false in principle as it would be cruel in practice. Were nakedness a sufficient motive of ex- ertion, the savage would be the most diligent and laborious, for he is the nearest to nakedness, of his species. Yet his in- dolence is equally notorious and incurable. Savages will often fret themselves to death, if compelled to work. It is observa- ble throughout Europe, that the laziest nations are those nearest approaching to the savage state; a mechanic in good circum- stances, at London or Paris, would execute twice as much work in a given time, as the rude mechanic of a poor district. • In favour of luxury, the following paradoxical argument has been ad- vanced; for what is too ridiculous to be hazarded in such a cause? "that, since luxury consumes superfluities only, the objects it destroys are of lit- tle real utility, and therefore the loss to society can be but small." There is this ready answer: the vahie of the objects consumed by luxury must have been reduced by the competition of producers to a level with the charges of production, wherein are comprised the profits of the producers. Objects of luxury are equally the product of land, capital, and industry, which might have been employed in raising objects of real utility, had the demand taken that direction; for production invariably accommodates itself to the taste of the consumers. value; but some read the passage in Pliny Quadringenties, instead of Quad' ragies Sestertium. This would make the jewels of Paulina worth 1,400,000 dollars; the more probable sum.] AMEiiicAif EditoKo CHAP. VI. ON CONSUMPTION. 373 Wants multiply as fast as they are satisfied; a man who has a jacket is for havin^^ a coat; and, when he has his coat, he must nave a great coat too. The artisan, that is lod2;ed in an apart- ment by himself, extends his views to a second; if he has two shirts, he soon wants a dozen, for the comfort of more fre- quent change of linen; whereas, if he has none at all, he never feels the want of it. No man feels any disinclination to make a further acquisition, in consequence of having made one al- ready. The comforts of the lower classes are, therefore, by no means incompatible with the existence of society, as too many have maintained. The shoemaker will make quite as good shoes in a warm room, with a good coat to his back, and wholesome food for himself and his family, as when perishing with cold in an open stall; he is not less skilful or inclined to work, because he has the reasonable conveniences of life. Linen is washed as well in England, where washing is carried on comfortably within doors, as where it is executed in the nearest stream in the neighbourhood. It is time for the rich to abandon the puerile apprehension of losing the objects of their sensuality, if the poor man's com- forts be promoted. On the contrary, reason and experience concur in teaching, that the greatest variety, abundance, and refinement of enjoyment are to be found in those countries, where wealth abounds most, and is the most widely diffused. CHAPTER VI. ON PUBLIC CONSUMPTION. SECTION I. Of the Nature and general Effect of Public Consumption. Besides the wants of individuals and of families which it is the object of private consumption to satisfy, the collection of many individuals into a community gives rise to a new class of wants, the wants of the society in its aggregate capacity, the satisfaction of which is the object of public consumption. The public buys and consumes the personal service of the minister, that directs its afiairs, the soldier, that protects it from external violence, the civil or criminal judge, that pro- 274 ON CONSUMPTION. book m. tects the rights and interests of each member against the ag- gression of the rest. All these different vocations have their use, although they may often be unnecessarily multiplied or overpaid ; but that arises from a defective political organiza- tion, which it does not fall within the scope of this work to investigate. We shall see presently whence it is, that the public derives all the values, wherewith it purchases the service of its agents, as well as the articles its wants require. All we have to con- sider in this chapter is, the mode in which its consumption is operated, and the consequences resulting from it. If I have made myself understood in the commencement of this third book, my readers will have no difficulty in compre- hending, that public consumption, or that which takes place for the general utility of the whole community, is precisely analogous to that consumption, which goes to satisfy the wants of individuals or families. In either case, there is a destruc- tion of values, and a loss of wealth; although, perhaps, not a shilling of specie goes out of the country. By way of ensuring conviction of the truth of this position, let us trace from first to last the passage of a product towards ultimate consumption on the public account. The government exacts from a tax-payer the payment of a given tax in the shape of money. To meet this demand, the tax-payer exchanges part of the products at his disposal for coin, which he pays to the tax-gatherer:* a second set of government agents is busied in buying with that coin cloth and other necessaries for the soldiery. Up to this point, there is no value lost or consumed: there has only been a gratuitous transfer of value, and a subsequent act of barter: but the value contributed by the subject still exists in the shape of stores and supplies in the military depot. In the end, however, this value is consumed; and then the portion of wealth, which passes from the hands of the tax-payer into those of the tax- gatherer, is destroyed and annihilated. Yet it is not the sum of money that is destroyed: that has only passed from one hand to another, either without any return, as when it passed from the tax-payer to the tax-gath- erer; or in exchange for an equivalent, as when it passed from the government agent to the contractor for clothing and sup- * Although the capitalist and landholder receive their interest and rent ■originally in the shape of money, and have, therefore, no occasion, to go through any previous act of exchange, to obtain wherewithal to pay the tax, yet such a previous exchange must have been effected by the adveaitur- er, who turns the land or capital to account. The effect is precisely the same, as if the rent or interest had been paid in kind; i. e. in the immediate products of the land or capital; and the landholder or capitalist had paid the tax either by the direct transfer of part of those products, or by first selling them, and afterwards paying over the proceeds. On this subject, vide su- pra. Book II. chap. 5, for the mode in which revenue is distributed amongst the community. CHAP. VI. ON CONSUMPTION. 375 plies. The value of the money survives the whole operation, and goes through three, four, or a dozen hands, without any- sensible alteration; it is the value of the clothing and neces- saries that disappears, with precisely the same effect, as if the tax-payer had, with the same money, purchased clothing and necessaries for his own private consumption. The sole dif- ference isj that the individual in the one case, and the state in the other, enjoys the satisfaction resulting from that con- sumption. The same reasoning may be easily applied to all other kinds of public consumption. When the money of the tax- payer goes to pay the salary of a public officer, that officer sells his time, his talents, and his exertions, to the public, all of which are consumed for public purposes. On the other hand, that officer consumes, instead of the tax-payer, the value he receives in lieu of his services; in the same manner as any clerk or person in the private employ of the tax-payer would do. There has been long a prevalent notion, that the values, paid by the community for the public service, return to it again in some shape or other; in the vulgar phrase, that what gov- ernment and its agents receive is refunded again by their ex- penditure. This is a gross fallacy; but one, that has been productive of infinite mischief, inasmuch as it has been the pretext for a great deal of shameless waste and dilapidation. The value paid to government by the tax-payer is given with- out equivalent or return: it is expended by the government in the purchase of personal service, of objects of consumption: in one word, of products of equivalent value, which are actually transferred. Purchase or exchange is a very different thing from restitution.* Turn it which way you will, this operation, though often very complex in the execution, must always be reducible by analysis to this plain statement, A product consumed must always be a product lost, be the consumer who he may; lost without return wherever no value or advantage is received in return; but, to the tax-payer, the advantage derived from the services of the public functionary, or from the consumption effected in the prosecution of public objects, is a positive return. If, then, public and private expenditure affect social wealth in the same manner, the principles of economy, by which it should be regulated, must be the same in both cases. There are not two kinds of economy, any more than two kinds of • Dr. Hamilton, in his valuable tract upon The Naiimud Debt of Great Britain, illustrates the absurdity of the position here attacked, by com- paring- it to the "forcible entry of a robber into a merchant's house, who should take away his money, and tell him he did him no injury, for the money, or part of it, would be employed in purchasing the commodities he dealt in, upon which he would receive a profit." The encouragement af- forded by the public expenditure is precisely analogous. 376 ON CONSUMPTION. book hi. honesty, or of morality. If a government or an individual consume in such a way, as to give birth to a product larger than that consumed, a successful effort of productive industry will be made. If no product result from the act of consump- tion, there is a loss of value, whether to the state or to the in- dividual; yet, probably, that loss of value may have been productive of all the good anticipated. Military stores and supplies, and the time and labour of civil and military func- tionaries, engaged in the effectual defence of the state, are well bestowed, though consumed and annihilated; it is the same with them, as with the commodities and personal service, that have been consumed in a private establishment. The sole benefit resulting in the latter case is, the satisfaction, of a want; if the want had no existence, the expense or consump- tion is a positive mischief, incurred without an object. So likewise of the public consumption; consumption for the mere purpose of consumption, systematic profusion, the creation of an office, for the sole purpose of giving a salary, the destruc- tion of an article, for the mere pleasure of paying for it, are acts of extravagance either in a government or an individual, in a small state or a large one, a republic or a monarchy. Nay, there is more criminality in public, than in private ex- travagance and profusion; inasmuch as the individual squan- ders only what belongs to him; but the government has no- thing of its own to squander, being, in fact, a mere trustee of the public treasure.* What, then, are we to think of the principles laid down by those writers, who have laboured to draw an essential distinc- tion between public and private wealth; to show, that econo- my is the way to increase private fortune, but, on the contra- ry, that public wealth increases with the increase of public consumption: inferring thence this false and dangerous con- clusion, that the rules of conduct in the management of pri- vate fortune and of public treasure, are not only different, but in direct opposition? If such principles were to be found only in books, and had never crept into practice, one might suffer them without care or regret to swell the monstrous heap of printed absurdity; but it must excite our compassion and indignation to hear them professed by men of eminent rank, talents, and intelligence; and still more to see them reduced into practice by the agents of public authority, who can enforce error and absurdity at the point of the bayonet or mouth of the cannon, t * It is mere usurpation in a government, to pretend to a right over the property of individuals, or to act as if possessing such a right; and usurpa- tion can never constitute right; although it may confer possession. Were it otherwise, a thief, who had once, hy force or fraud, obtained possession of another man's property, could never be called upon to make restitution, when overpowered and taken prisoner, for he might set up the plea of legitimate ownership. ■j- The reader will readily perceive, that this and many other passages. CHAP. VI. ON COxNSUMPTION. 377 Madame de Maintenon mentions in a letter to the Cardinal de Noailles, that, when she one day urged Louis XIV. to be more liberal in charitable donations, he replied, that Royalty dispenses charity by its profuse expenditure; a truly alarming dogma, and one, that shows the ruin of France to have been reduced to principle.* False principles are more fatal than even intentional misconduct; because they are followed up with erroneous notions of self-interest, and are long persevered in without remorse or reserve. If Louis XIV. had believed his extravagant ostentation to have been a mere gratification of his personal vanity, and his conquests the satisfaction of personal ambition alone, his good sense and proper feeling would probably, in a short time, have made it a matter of con- science to desist, or at any rate, he would have stopt short for his own sake; but he was firmly persuaded, that his prodigality was for the public good as well as his own; so that nothing could stop him, but misfortune and humiliation, t wei'e written under the pressure of a military despotism, which had assum- ed the absokite disposal of the national resources, and suffered no one to express a doubt of the justice and policy of its acts. * Fenelon, Vauhan, and a very few more, of the most disting-uished ta- lent, had a confused idea of the ruinous tendency of this system; but they failed in impressing' the rest of the world with the same conviction, for want of just notions on the subject of the production and consumption of wealth. Thus Vauhan, in his Bixme royalc says, « the present misery of France is atti'ibutable, not to the rigour of the climate, the character of the inhabi- tants, or the barrenness of the soil: for the climate is most favourable, the people active, diligent, dextrous, and numerous: but to" the frequency and long' continuance of wai', and to the ignorance and neglect of economy.' Fenelon had expressed the same sentiments in several admirable passages of his Telemaque, but they passedformere declamation, as well they might; for he was not qualified to prove their truth and accui'acy. -j- When Voltaire tells us, speaking of the superb edifices of Louis XIV., that they were by no means burthensome to the nation, but served to cir- culate money in tlie community, he gives a decisive proof of the utter ignorance of the most celebrated French writers of his day upon these matters. He looked no further than the money employed on the occasion; and, when the view is limited to that alone, the extreme of prodigality ex- hibits no appearance of loss; for money is, in fact, an item, neither of reve- nue, nor of annual consumption. But a little closer attention will convince us of the fallacy of this position, which would lead us to the absurd infer- ence, that no consumption whatever has occurred within the yeai', when- ever the amount of specie at tlie end of it is found to be nowise diminish- ed. The vigilance of the historian should have traced the 900 millions of fr. expended on the chateau of Versailles alone, from the original produc- tion by the laborious efforts of the productive classes of the nation, to the first exchange into monej', wherewith to pay the taxes, through the second exchange into building- materials, painting, gilding, &c. to tlie ultimate consumption in that sliape, for the personal g-ratification of the vanity of tlie monarch. The money acted as a mere means of facilitating the trans- fers of value in the course of the transaction; and the winding up of the ac- count will show, a destruction of value to the amount of 900 millions oi'fr., balanced by the production of a palace, in need of constant repair, and of tlie splendid promenade of the gardens. 55 378 ON CONSUMPTION. book hi. So little were the true principles of political economy un- derstood, even by men of the greatest science, so late as the 18th century, that Frederic II. of Prussia, with all his anxiety in search of truth, his sagacity, and his merit, writes thus to D'Alembert, in justification of his wars: 'My numerous ar- mies promote the circulation of money, and disburse impartial- ly amongst the provinces the taxes paid b}^ the people to the state.' Again I repeat, this is not the fact; the taxes paid to the government by the subject are not refunded by its expen- diture. Whether paid in money or in kind, they are converted into provisions and supplies, and in that shape consumed and destroyed by persons, that never can replace the value, be- cause they produce no value whatever.* It was well for Prus- sia that Frederic 11. did not square his conduct to his princi- ples. The good he did to his people, by the economy of his internal administration, more than compensated the mischief of his wars. Since the consumption of nations, or the governments which represent them, occasions a loss of value, and, consequently, of wealth, it is only so far justifiable, as there results from it some national advantage, equivalent to the sacrifice of value. The whole skill of government, therefore, consists in the continual and judicious comparison of the sacrifice about to be incurred, with the expected benefit to the community; for I have no he- sitation in pronouncing every instance, where the benefit is not equivalent to the loss, to be an instance of folly, or of crimi- nality, in the government. It is yet more monstrous, then, to see how frequently govern- ments, not content with squandering the substance of thepeo^ plet in folly and absurdity, instead of aiming at any return of Even land, tliough imperishable, may be consumed in the shape of the vahie received for it. It has been asserted, that France lost nothing by the sale of her national domains after the revolution, because they were all sold and transferred to French subjects; but what became of the capital paid in the shape of purchase-money, when it left the pockets of the purchasers? Was it not consumed and lost? * In the execution of a national military enterprise, two different values pass thi-ough the hands of the government or its agents: 1. The value paid in taxes by the public at large: 2. The value received in supplies and ser- vices from the parties affording them. For the first of these, no return whatever is made; for the second, an equivalent is paid in wages or purchase- money. Wherefore, there it has no ground for saying, that the govern- ment refunds with one hand what is received with the other; that the whole transaction is a mere circulation of value, and causes no loss to the nation; for the government returns but 1, where it receives 2; the loss of the other half falls upon the community at large. Thus, the national, being but the aggregate of individual, wealth, is diminished to the extent of the total consumption of the government, minus the product of the public establish- ment; as we shall presently see more in detail. ■\ It has been seen in the concluding chapter of Book II., that, inasmuch as population is always commensurate with production, the obstruction of the progi'essive multiplication of products is a preventive check to the fur- CHAP. VI. ON CONSUMPTION. 379 value, actually spend that substance in brinojinj^ down upon the nation calamities innumerable; practise exactions the most cruel and arbitrary, to forward schemes the most extrava2;ant and wicked; first rifle the pockets of the subject, to enable them afterwards to urge him to the further sacrifice of his blood. Nothing, but the obstinacy of human passion and weakness, could induce me again and again to repeat these un- palatable truths, at the risk of incurring the charge of declama- tion. The consumption effected by the government* forms so large a portion of the total national consumption, amounting some- times to a sixth, a fifth, or even a fourth partt of the total con- sumption of the community, that the system acted upon by the government, must needs have a vast influence upon the advance or decline of the national prosperity. Should an individual take it into his head, that the more he spends the more he gets, or that his profusion is a virtue; or should he yield to the pow- erful attractions of pleasure, or the suggestions of perhaps a reasonable resentment, he will in all probability be ruined, and his example will operate upon a very small circle of his neigh- bours. But a mistake of this kind in the government will en- tail misery upon millions, and possibly end in the national downfal or degradation. It is doubtless very desirable, that private persons should have a correct knowledge of their per- ther multiplication of the human race; and that the waste of capital, the extinction of industry, and the exhaustion of the sources of production, amounts to positive decimation of those in actual existence. A wicked or ignorant administration may, in this way, be a far more destructive scourge, than war with all its atrocities. * By government, I mean, the ruling power in all its branches, and under whatever constitutional form; it would be wrong to limit the term to the executive branch alone; the first enactment of a law is as much an act of authority, as its subsequent enforcement. j- The consumption of a nation may undoubtedly exceed its aggTegate annual revenue; but we can hardly suppose that of Great Britain to have done so; for she has evidently been advancing in opulence, up to the pre- sent time, whence it may be inferred, that her consumption, at the very utmost, only equals her revenue. Gentz, who will hardly be accused of underrating the financial resources of that country, estimated her total an- nual revenue at no more than 200 millions sterling; Dr. Beeke at 2i8 mil- lions, inclusive of 100 millions for the revenues of industry. Granting her to have made some furtjier progress since those estimates were made, and that her total revenue in 1813, had advanced to 224 millions, we are told by Colquhoun, in his Wealih, Fou'er, and Resources of the British Empire, that her public expenditure in that year amounted to 112 millions. By this statement it should seem, that her public expenditure then amounted to the half of the total expenditure of the nation! Moreover, the expenses of her central government do not include all her pubhc charges; there are to be added, county and parish rates, poor rates, &,c. &c. The business of government might be conducted, even in extensive empires, at a charge of not more than one per cent, upon the aggregate of individual revenue; but, to attain this degree of perfection, a vast improvement is still requisite in the department of practical policy. 380 ON CONSUMPTION. book m, sonal interests; but it must be infinitely more so, that govern- ments should possess that knowledge. Economy and order are virtues in a private station; but, in a public station, their influence upon national happiness is so immense, that one hardly knows how sufficiently to extol and honour them in the guides and rulers of national conduct. An individual is fully sensible of the value of the article he is consuming; it has probably cost him a world of labour, per- severance, and economy; he can easily balance the satisfaction he derives from its consumption against the loss it will in- volve. But a government is not so immediately interested in regularity and economy, nor does it so soon feel the ill conse- quences of the opposite qualities. Besides, private persons have a further motive than even self-interest; their feelings are concerned; their economy may be a benefit to the objects of their affection; whereas, the economy of a ruler accrues to the benefit of those he knows very little of; and perhaps he is but husbanding for an extravagant and rival successor. Nor is this evil remedied, by adopting the principle of he- riditary rule. The monarch has little of the feelings common to other men in this respect. He is taught to consider the for- tune of his descendants as secure, if they have ever so little as- surance of the succession. Besides, the far greater part of the public consumption is not personally directed by himself; con- tracts are not made by himself, but by his generals and minis- ters; the experience of the world hitherto, all tends to show, that aristocratical republics are more economical, than either monarchies or democracies. Neither are we to suppose, that the genius, which prompts and excites great national undertakings, is incompatible with the spirit of public order and economy. The name of Charle- magne stands among the foremost in the records of renown; he achieved the conquest of Italy, Hungary, and Austria; re- pulsed the Saracens; broke the Saxon confederacy; and ob- tained at length the honours of the purple. Yet Montesquieu has thought it not derogatory to say of him, that "the father of a family might take a lesson of good house-keeping from the ordinances of Charlemagne. His expenditure was conducted with admirable system; he had his demesnes valued with care, skill, and minuteness. We find detailed in his capitularies, the pure and legitimate sources of his wealth. In a word, such was his regularity and thrift, that he gave orders for the eggs of his poultry yards, and the surplus vegetables of his garden to be brought to market."* The celebrated Prince Eugene, who displayed equal talent in negotiation and administration as in the field, advised the Ernpevor Charles VI., to take the advice of merchants and men of business, in matters of finance.t * Esprit des Lois, liv. xxxi. c. 18. j Memoires du Frince Eugene par luimeme, p. 187. The authenticity of this work has been contested, as well as the Testuuient Folitique of Kiche- CHAP. VI. ON CONSUMPTION. 381 Leopold, when Grand Duke of Tuscany, towards the close of the 18th century, gave an eminent example of the resources, to be derived from a rigid adherence to the principles of pri- vate economy, in the administration of a state of very limited extent. In a few years, he made Tuscany one of the most flourishing states of Europe. The most successful financiers of France, Suger, Abbe de St. Dennis, the Cardinal d'Amboise, Sully, Colbert, and Neck- er, have all acted on this same principle. All found means of carrying into effect the grandest operations by adhering to the dictates of private economy. The Abbe de St. Dennis furnished the outfit of the second crusade; a scheme, that re- quired very large supplies, although one I am far from approv- ing. The Cardinal furnished Louis XII. with the means of making his conquest of the Milanese. Sully accumulated the resources, that afterwards humbled the house of Austria. — Colbert supplied the splendid operations of Louis XIV. Neck- er provided the ways and means of the only successful war waged by France in the iSth century.*' Those governments, on the contrary, that have been per- petually pressed with the want of money, have been obliged, like individuals, to have recourse to the most ruinous, and sometimes the most disgraceful, expedients to extricate them- selves. Charles the Bald put his titles and safe-conducts up to sale. Thus, too, Charles II. of England sold Dunkirk to the French king, and took a bribe of 80,000/. from the Dutch, to delay the sailing of the English expedition to the East Indies, in 1680, intended to protect their settlements in that quarter, which, in consequence, fell into the hands of the Dutchmen. t Thus, too, have governments committed fre- quent acts of bankruptcy, sometimes in the shape of adultera- tion of their coin, and sometimes by open breach of their en- gagements. Louis XIV. towards the close of his reign, having utterly exhausted the resources of a noble territory, was reduced to the paltry shift of creating the most ridiculous offices, making his counsellors of state, one an inspector of fagots, another a lincenser of barber-wig-makers, another visiting inspector of fresh, or taster of salt, butter, and the like. Such paltry and mischievous expedients can never long defer the hour of ca- lamities, that must sooner or later befall the extravagant and lieu. If not themselves the authors, they must at least have been men of equal capacity, of wliich there is still less probability. • He contrived to meet the charges of the American war, without the imposition of any additional taxes. He has been reproached, indeed, with having' incurred heavy loans; but it is obvious, that, so long- as lie found means to pay the interest upon them without fresh taxation, they were nowise burthensome upon the nation; and that the interest must have been defrayed by retrenchment of the expenditure. ■j" Raynal. Ilistoire des Etah. des Europ. dans les hides, torn. ii. p. 36. 382 ON CONSUMPTION. book hi. spendthrift ,2;overnments. "When aman will not listen to rea- son," says Franklin, " she is sure to make herself felt. " Fortunately, an economical administration soon repairs the mischiefs of one of an opposite character. Sound health can not be restored all at once; but there is a gradual and percepti- ble improvement: every day some cause of complaint disap- pears, and some new faculty comes again into play. Half the re- maining resources of a nation, impoverished by an extrava- gant administration, are neutralized by alarm and uncertainty; whereas, credit* doubles those of a nation, blessed with one of a frugal character. It would seem, that there exists in the politic, to a stronger degree than even in the natural, body a principle of vitality and elasticity, which can not be ex- tinguished without the most violent pressure. One can not look into the pages of history, without being struck with the rapidity, with which this principle has operated. It has no where been more strikingly exemplified, than in the frequent vicissitudes that our own France has experienced since the commencement of the revolution. Prussia has afforded ano- ther illustration in our time. The successor of Frederick the Great squandered the accumulations of that monarch, which were estimated at no less a sum than 228 millions of yr««c*, and left behind him besides a debt of 112 millions. In less than eight years, Frederick William III. had not only paid oiT his father's debts, but actually began a fresh accumulation; such is the power of economy, even in a country of limited extent and resources! SECTION II. Of the prinapal Objects of National Expenditure. In the preceding section, it has been endeavoured to show, that, since all consumption by the public is in itself a sacrifice of value, an evil balanced only by such benefit, as may result to the community from the satisfaction of any of its wants, a good administration will never spend for the mere sake of * The expressions, credit is declining, credit is reviving, are common in the mouths of the g-enerahty, who are, for the most part, ignorant of the precise meaning of credit. It does not imply confidence in the government exchisivelv; for the bulk of the community have no concern with govern- ment, in respect to their pi'ivate affairs. Neither is it exclusivel}'^ apphed to the mutual confidence of individuals; for a person in good repute and circumstances, does not forfeit them all at once; and, even in times of gene- ral distress, the forfeiture of individual character is by no means so univer- sal, as to justify the assertion, that credit is at an end. It would rather seem to imply, confidence in future events. The temporary dread of taxa- CHAP. VI. ON CONSUMPTION. 383 spending, but take care to ascertain that the public benefit, resulting, in each instance, from the satisfaction of a public want, shall exceed the sacrifice incurred in its acquirement. A comprehensive view of the principal public wants of a civilized community, can alone qualify us to estimate with tolerable accuracy the sacrifice it is worth while for the com- munity to make for their gratification.* The public consumes little else, but what have been de- nominated, immaterial products, that is to say, products de- stroyed as soon as created; in other words, the services or agency, either of human beings, or of other objects, animate or inanimate.t It consumes the personal service of all its functionaries, ci- vil, judicial, military, or ecclesiastical. It consumes the agency of land and capital. The navigation of rivers and seas, utility of roads and ground open to the public, are so much agency. derived by the public from land, of which either the abso- lute property, or the beneficial enjoyment, is vested in the public. Where capital has been vested in the land, in the shape of buildings, bridges, artificial harbours, causeways, dikes, canals, &c. the public then consumes the agency, or the rent of the land, plus the agency, or the interest, of the capi- tal so vested. Sometimes the public maintains establishments of produc- tive industry; for instance, the porcelain manufacture of Sevres, the Gobelin tapestry, the salt works of Lorraine and of the Jura, &c. in France. When concerns of this kind bring more than their expenditure, which is but rarely the case, they fur- nish part of the national revenue, and must by no means be classed among the items of national charge. tion, arbitrary exaction, or violence, will deter numbers from exposing- their persons or their property; undertakings, however promising- and well- planned, become too hazardous; new ones are altogether discouraged, old ones feel a diminution of profit; merchants contract their operations; and consumption in general falls off, in consequence of the decline and the un- certainty of individual revenue. There can be no confidence in future events, either under an enterprising, ambitious, or unjust government, or under one, that is wanting in strength, decision, or method. Credit, like ci-ystallization, can only take place in a state of quiescence. * A mere sketch is all that can be expected in a work like the present: a complete treatise on government would be equally inappropriate with a survey of the arts, when it became incidentally necessary to touch upon the processes of manufacture. Yet, either would be a valuable addition to literary wealth. ■j" Tiiis rule must be taken with some qualification. The habitual lar- gesses of corn, distributed by the emperors to the peo])le of ancient Rome, •were material objects of public consimiption. So likewise the provisions of all kinds consumed in hospitals and ])risions, and the fireworks used on occasions of public display or rejoicing, for the amusement of the people at large. 384 ON CONSUMPTION. bookiii. Of the Charge of Civil and Judicial Administration. The charge of civil and judicial administration is made up, partly of the specific allowances of magistrates and other offi- cers,- and partly of such degree of pomp and parade, as may be deemed necessary in the execution of their duties. Even if the burthen of that pomp and parade be thrown wholly or partially upon the public functionary, it must ultimately fall upon the shoulders of the public, for the salar}^ of the function- ary must be raised, in proportion to the appearance he is ex- pected to make. This observation applies to every descrip- tion of functionary, from the prince to the constable inclusive; consequently, a nation, which reverences its prince only when surrounded with the externals of greatness, with guards, horse and foot, laced liveries, and such costly trappings of royalty, must pay dearly for its taste. If, on the contrary, it can be content to respect simplicity rather than pageantry, and obey the laws, though unaided by the attributes of pomp and cere- mony, it will save in proportion. This is what made the charges of government so light in many of the Swiss cantons, before the revolution, and in the North American colonies be- fore their emancipation. It is well known, that those colonies, though under the dominion of England, had separate govern- ments, of which they respectively defrayed the charge; yet the whole annual expenditure all together amounted to no more than 64,700/. sterling, ' An ever memorable example,' ob- serves Smith, ' at how small an expense three millions of peo- ple may not only be governed, but well governed.'* * It should be recollected, however, that they were at no charge of de- fence from external attack, except in respect to the savage tribes of the interior. From the official account of the receipts and disbursements of the United States, in the year 1806, presented by Mr. Gallatin, then Secretary of the Treasury, it appears that the total expenditure fell short of 12 millions of dollars, of which 8 millions went to pay the interest of the public debt; leaving a sura of 4 millions only (i. e. somewhat more than 21 millions of francs') for the charge of government, that is to say, the civil, judicial, mili- tary, and other public functions of a population of 12 millions: which is wholly defrayed by taxes on imports, (a) (a) This account is exclusive of the local disbursements of the different States. The population of the Union, in 1806, v/as never estimated higher than 8 millions. The public debt and charges have both advanced very rapidly since that period, principally in consequence of the second war with Great Britain. The accounts for the year 1820 show a receipt of 22,326^244 dollars, inclusive of loans and balance of preceding year; and an expenditure of 25,064,413 dollars, inclusive of interest on the public debt; exhibiting a deficit of $2,638,169. The estimates for 1821, show a receipt of 16,550,000 dollars, and an expenditure of 21,163,417 dollars, exhibiting a deficit, in- clusive of that of 1820, of no less than 7,451,595 dollars, wiiicli has been re- duced b}^ retrenchments to 4,658,483 dollars: to meet tills, a loan has been again proposed, as the onlj' alternative of a return to internal taxation. If CHAr. VI. ON CONSUMPTION. 385 Causes entirely of a political nature as well as the form of government which they help to determine, have an influence in apportioning the salaries of public officers, civil and judi- cial, the charge of public display, and those likewise of public institutions and establishments. Thus, in a despotic govern- ment, where the subject holds his property at the will of the sovereign, who fixes himself the charge of his household, that is to say, the amount of the public money which he chooses to spend on his personal necessities and pleasures and the keep- America should persist in her views of naval aggrandizement, and in her absurd imitation of the errors of the English prohibitive system, and, above all, in her attempt to return to a metallic money, she will probably soon find her finances still less flourishing' than at present. (1) T. (I) [The population of the United States, according to the Census, was in 1790 3,929,326 1800 5,309,326 1810 7,239,903 And the following presents, at one view, the amount of the population of all the States and Territories, agreeably to the Census of 1820. States. 1 Maine ...... 298,335 2 New-Hampshire . . . _ . 244,161 3 Massachusetts ..... 523,287 4 Rhode Island ..... 83,059 5 Connecticut ...... 275,248 6 Vermont ...... 235,764 7 New York ...... 1,372,812 8 New Jersey ..... 277,575 9 Pennsylvania - - . - . . 1,049,458 10 Delaware ...... 72,749 11 Maryland ...... 407,350 12 Virginia ...... 1,065,366 13 North Carolina ..... 638,829 14 South Carolina ..... 502,741 15 Georgia ...... 340,989 16 Ohio ...... 585,434 17 Kentucky ...... 564,317 18 Indiana ...... 148,178 19 Illinois ...... 55,211 20 Missouri ...... 66,586 21 Tennessee ...... 422,813 22 Mississipi ...... 75,448 23 Alabama ...... 103,816 24 Louisiana . . . . . . 153,407 Terihtoiiies. 1 District of Columbia ..... 33,039 2 Michigan ...... 8,896 3 Arkansas ...... 14,273 4 Florida ...... 12,000 9,631,141 American Editoe. 56 386 ON CONSUMPTION. book iii. ing up of the royal establishment, that charge will probably be fixed at a higher rate, than where it is arranged and con- tested between the representatives of the prince and of the tax-payers respectively. The salaries of inferior public officers in like manner de- pend, partly upon their individual importance, and partly upon the general plan of government. Their services are dear or cheap to the public, not merely in proportion to what they actually cost, but likewise in proportion as they are well or ill executed, A duty ill performed is dearly bought, however little be paid for it; it is dear too, if it be superfluous, or un- necessary; resembling in this respect an article of furniture, that, if it do not answer its purpose, or be not wanted, is mere- ly useless lumber. Of this description, under the old regime of France, were the officers of high-admiral, high-steward of the household, the king's cup-bearer, the master of his hounds, and a variety of others, which added nothing even to the splendour of royalty, and were merely so many means of dis- pensing personal favour and emolument. For the same reason, whenever the offices of government are needlessly multiplied, the people are saddled with charges, which are not necessary to the maintenance of public order. It is only giving an unnecessary form to that benefit, or pro- duct, which is not at all the better of it, if indeed it be not worse.* A bad government, that can not support its violence, injustice, and exaction, without a multitude of mercenaries, sa- tellites, and spies, and gaols innumerable, makes its subjects pay for its prisons, spies, and soldiers, which nowise contri- bute to the public happiness. On the other hand, a public duty may be cheap, although very liberally paid. A low salary is wholly thrown away upon an incapable and inefficient officer; his ignorance will Erobably cost the public ten times the amount of his salary; ut the knowledge and activity of a man of ability are fully equivalent to the pay he receives; the losses he saves to the public, and the benefits derived from his exertions, greatly outweigh his personal emolument, even if settled on the most liberal scale. There is real economy in procuring the best of every thing, even at a larger price. Merit can seldom be engaged at a low rate, because it is applicable to more occupations than one. The talent, that makes an able minister, would, in another profession, make a good advocate, physician, farmer, or mer- chant; and merit will find both employment and emolument in all these departments. If the public service ofier no ade- * An example occurs to me of a city of France, whose municipal admin- istration was both mildly and efficiently conducted before 1789, at a charge of 1000 crowns per annum only; but under the Imperial government, though it cost 30,000 /r., afforded no security against the caprice and arbitrary will of the sovereie-n. CHAP. VI. ON CONSUMPTIOiN. 387 quate reward for its exertion, it will choose some other more promising occupation. Integrity is like talent; it can not be had without paying for it, which is not at all wonderful; for the honest man can not resort to those discreditable shifts and contrivances, which dis- honesty looks to as a supplemental resource. The power, which commonly accompanies the exercise of public functions, is a kind of salary, that often far exceeds the pecuniary emolument attached to them. It is true, that, in a well ordered state, where law is supreme, and little is left to the arbitrary control of the ruler, there is little opportunity of indulging the caprice and love of domination implanted in the human breast. Yet the discretion, which the law must inevi- tably vest in those who are to enforce it, and particularly in the ministerial department, together with the honour common- ly attendant on the higher offices of the state, have a real va- lue, which makes them eagerly sought after, even in countries where they are by no means lucrative. The rules of strict economy would probably make it advisa- ble to abridge all pecuniary allowance, wherever there are other sufficient attractions to excite a competition for office, and to confer it on none but the wealthy, were there not a risk of losing, by the incapacity of the officer, more than would be gained by the abridgment of his salary. This, as Plato well observes in his Republic, would be like entrusting the helm to the richest man on board. Besides, there is some danger, that a man, who gives his services for nothing, will make his authority a matter of gain, however rich he may be. The wealth of a public functionary is no security against his venality: for ample fortune is commonly accompanied with desires as ample, and probably even more ample, especially if he have to keep up an appearance, both as a man of wealth and as a magistrate. Moreover, supposing what is not alto- gether impossible, namely, that one can meet with wealth united with probity, and with, besides, the activity requisite to the due performance of public duty, is it wise to run the risk of adding the preponderance of authority to that of wealth, which is already but too manifest? With what grace could his employers call to account an agent, who could assume the merit of generosity, both with the people and with the govern- ment? There are, however, some ways, in which the gratui- tous services of the rich may be employed with advantage; particularly in those departments, that confer more honour than power: as in the administration of institutions of public charity, or of public coi-rection or punishment. In France under the old reghne, the government, when harassed with the want of money, was in the habit of putting up its offices to sale. This is the very worst of all expedients: it introduces all the mischiefs of gratuitous service; for the emolument is then no more, than the interest of the capital expended in the purchase of the office; and has the additional 388 ON CONSUMPTION. book m. evil of costing to the state as much, as if the service were not gratuitously performed; for the public remains charged with the interest of a capital, that has been consumed and lost. It has been sometimes the practice to consign certain civil functions, such as the registry of births, marriages, and deaths, to the ecclesiastical body, whose emoluments, arising from their clerical duties, may be supposed to enable them to exe- cute these without pay. But there is always danger in con- fiding the execution of civil duties to a class of men, that pre- tend to a commission from a still higher than the national au- thority. * In spite of every precaution, the public or the monarch will never be served so well or so cheaply as individuals. In- ferior public agents can not be so narrowly watched by their superiors, as private ones; nor have the superiors themselves an equal interest in vigilant superintendence. Besides, it is easy enough for underlings to impose on a superior, who has many to look after, is perhaps placed at a distance, and can give but little attention to each individually; and whose vanity makes him more alive to the officious zeal of his inferior, than to the real service and utility, that the public good requires. As to the monarch and the nation, who are the parties most interested in good public administration, because it consoli- dates the power of the one and enlarges the happiness of the other, it is next to impossible for them to exert a perpetual and effectual control. In most cases, this duty must of necessity devolve on agents, who will deceive them when it is their in- terest to do so, as is proved by abundance of examples. " Pub- lic services," says Smith, "are never better performed, than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in performing them." Accordingly, he recommends, that the salaries of judges should be paid at the final determination of each suit, and the share of each judge proportioned to their respective trouble in the progress of it. This would be some encouragement to the diligence of each particular judge, as well as to that of the court, in bringing litigation to an end. * Several times during the last century the Molinist priesthood refused to execute their clerical duties in favour of the Jansenists, in spite of all the government could do; on tlie pretence, that it was better to obey the divine command as conveyed by the voice of the Pope, than that of any human authority, (a) (a) This inconvenience can arise only in countries, where there is an ex- clusive national clmrch, subjected, in matters of doctrine and discipline, to an independent or external superior: as in countries embracing the faith of Rome. But there is another inconvenience, that has been mucli dwelt upon by an eminent divine of the Scottish church; viz. the inconvenience of di- recting the attention of the priesthood from its clerical to civil functions, and, by a confusion of such different duties, abridging the benefit of divi- sion of labour. T. CHAP. VI. ON CONSUMPTION. 3S9 There would be some difficulty in applying this method to all the branches of the public service; and it would probably in- troduce as great abuses in the opposite way; but it would at least be productive of one good; viz. preventing the needless multiplication of offices. It would likewise give the public the same advantage of competition, as enjoyed by individuals, in respect to the services they call for. Not only are the time and labour of public men in general better paid for than those of other persons, besides being often wasted by their own mismanagement, without the possibility of an efficient check; but there is often a further enormous waste, occasioned by compliance with the customs of the coun- try, and court etiquette. It would be curious to calculate the time wasted in the toilet, or to estimate, if possible, the many dearly-paid hours lost, in the course of the last century, on the road between Paris and Versailles. Thus, in the governments of Asia, there is an immense waste of the time of the superior public servants in tedious and ceremonious observances. The monarch, after allowing for the hours of customary parade, and those of personal plea- sure, has little time left to look after his own affairs, which, consequently, soon go to ruin. Frederick II. of Prussia, by adopting a contrary line of conduct, and by the judicious dis- tribution and apportionment of his time, contrived to get through a great deal of business himself. By this means, he really lived longer than older men than himself, and succeed- ed in raising his kingdom to a first rate power. His other great qualities, doubtless, contributed to his success; but they would not have been sufficient, without a methodical arrange- ment of his time. Of Charges, Military and Naval. When a nation has made any considerable progress in com- merce, manufacture, and the arts, and its products have, con- sequently, become various and abundant, it would be an im- mense inconvenience, if every citizen were liable to be drag- ged from a productive employment, which has become neces- sary to society, for the purposes of national defence. The cultivator of the soil works no longer for the sustenance of himself and family only, but also for that of many other fami- lies, who are either owners of the soil, and share in its pro-^ duce, or traders and manufacturers, that supply him with ar- ticles he can not do without. He must, therefore, cultivate a larger extent of surface, must vary his tillage, keep a larger stock of cattle, and follow a complex mode of cultivation, that will fully occupy his leisure between seed-time and harvest.*" * The Greeks, until the second Persian war, and the Romans, until the siege of Veii, regularly made their military campaigns in that interval. Na^ tions of hunters or shepherds, that pay little attention to the arts, and none 390 ON CONSUMPTION. book iii. Still less can the trader and manufacturer afford thus to sa- crifice time and talents, whereof the constant occupation, ex- cejDt (luring the intervals of rest, is necessary to the produc- tion, from which they are to derive their suhsistence. The ovi'ners of land let out to farm may, undoubtedly, serve as soldiers without pay; as, indeed, the nobility and gentry do, in some measure, in monarchical states; but they are, for the most part, so much accustomed to the sweets of social existence, so little goaded by necessity towards the conception and achievement of great enterprises, and feel so little of the en- thusiasm of emulation and esprit de corps, that they common- ly prefer a pecuniary sacrifice, to that of comfort, and possi- bly of life. And these motives operate equally with the own- ers of capital. All these reasons have led individuals, in most modern states, to consent to a taxation, that may enable the monarch or the republic to defend the country against external violence with a hired and professional soldiery, who are, however, too apt to become the tools of their leader's ambition or tyranny. When war has become a trade, it benefits, like all other trades, from the division of labour. Every branch of human science is pressed into its service. Distinction or excellence, whether in the capacity of general, engineer, subaltern, or even private soldier, can not be attained without long training, perhaps, and constant practice. The nation, which should act upon a different principle, would lie under the disadvan- tage of opposing the imperfection, to the perfection, of art. Thus, excepting the cases, in which the enthusiasm of a whole nation has been roused to action, the advantage has uniformly been on the sideof a disciplined and professional soldiery.- The Turks, although professing the utmost contempt for the arts of their Christian neighbours, are compelled by the dread of extermination to be their scholars in the art of war. The European powers were all forced to adopt the military tactics of the Prussians; and, when the violent agitation of the French revolution pressed every resource of science to the aid of the armies of the republic, the enemies of France were obliged to follow the example. This extensive application of science, and adaptation of fresh means and more ample resources to military purposes, have made war far more expensive now than in former times. It is necessary now-a-days, to provide an army beforehand, with supplies of arms, ammunition, magazines of provision, ox'dnance, &c. , equal to the consumption of one campaign at the least. The invention of gun-powder has introduced the use of weapons more complex and expensive, and very chargeable in to agriculture, like the Tartars and Arabs, are less circumscribed in time, and can prosecute their warlike enterprises in any quarter, that promises booty, and furnishes pasturage. Hence the vast area of the conquests of Attila, Genghis-Khan, and Tamerlane, and of the Moors and the Turks, CHAP. VI. ON CONSUMPTION. 391 the transport, especially the field and battering trains. More- over, the wonderful improvement of naval tactics, the variety of vessels of every class and construction, all requiring the utmost exertion of human genius and industry; the yards, docks, machinery, store-houses, &c. have entailed upon na- tions addicted to war almost as heavy an expense in peace, as in times of actual hostility; and obliged them not only to ex- pend a great portion of their income, but to vest a great amount of capital likewise, in military establishments. In addition to all which, it is to be observed, that the modern colonial S3^s- tem, that is to say, the system of retaining the sovereignty of towns and provinces in distant parts of the world, has made the European states open to attack and aggression in the most remote quarters of the globe, and the whole world the theatre of warfare, when any of the leading powers are the bellige- rents.* Wealth has, consequently, become as indispensable as valour to the prosecution of modern warfare; and a poor nation can no longer withstand a rich one. Wherefore, since wealth can be acquired only by industry and frugality, it may safely be predicted, that every nation, whose agriculture, manufacture and commerce, shall be ruined by bad government, or exorbi- tant taxation, must infallibly fall under the yoke of its more provident neighbours. We may further conclude, that hence- forward national strength will accompany national science and civilization; for none but civilized nations can maintain con- siderable standing armies; so that there is no reason to appre- hend the future recurrence of those sudden overthrows of civ- ilized empires by the influx of barbarous tribes, of which his- tory affords many examples. War costs a nation more than its actual expense; it costs, be- sides, all that would have been gained, but for its occurrence. When Louis XIV. in 1672, resolved, in a fit of passion, to chastise the Dutch for the insolence of their newspaper writers, Boreel, the Dutch ambassador, laid before him a memorial, showing that France, through the medium of Holland, sold produce annually to foreign nations, to the amount of sixty millions fr. at the then scale of price; which will fall little short of 120 millions at the present. But the court treated his representations as the mere empty bravado of an ambassador. To conclude: the charges of war would be very incorrectly estimated, were we to take no account of the havoc and de- struction it occasions; for that one at least of the belligerents, whose territory happens to be the scene of operations, must be exposed to its ravages. The more industrious the nation, the more does it suffer from warfare. When it penetrates into a * It has been calculated that every soldier, brought into the field by- Great Britain, during- her last war with America, cost her twice as much as one on the continent of Europe. And the other charges of warfare must of course be aggravated by the distance in an equal ratio. 392 ON CONSUMPTION. book hi. district abounding in agricultural, manufacturing and commer- cial establishments, it is like a fire in a place full of combusti- bles; its fury is aggravated, and the devastation prodigious. Smith calls the soldier an unproductive labourer; would to God he were nothing more, and not a destructive one into the bar- gain! he not only adds no product of his own («) to the gene- ral stock of wealth, in return for the necessary subsistence he consumes, but is often set to work to destroy the fruits of other people's labour and toil, without doing himself any benefit. The tardy, but irresistible expansion of intelligence will pro- bably operate a still further change in external political rela- tions, and with it a prodigious saving of expenditure for the purposes of war. Nations will be taught to know that they have really no interest in fighting one another; that they are sure to suffer all the calamities incident to defeat, while the advantages of success are altogether illusory. According to the international policy of the present day, the vanquished are sure to be taxed by the victor, and the victor by domestic au- thority: for the interest of loans must be raised by taxation. There is no instance on record, of any diminution of national expenditure being effected by the most successful issue of hos- tilities. And, what is the glory it can confer more than a mere toy of the most extravagant price, that can never even amuse rational minds for any length of time? Dominion by land or sea will appear equally destitute of attraction, when it comes to be generally understood, that all its advantages rest with the rulers, and that the subjects at large derive no benefit what- ever. To private individuals, the greatest possible benefit is entire freedom of intercourse, which can hardly be enjojred except in peace. Nature prompts nations to mutual amity; and, if their governments take upon themselves to interrupt it, and engage them in hostility, they are equally inimical to their own people, and to those they war against. If their subjects are weak enough to second the ruinous vanity or ambition of their rulers in this propensity, I know not how to distinguish such egregious folly and absurdity, from that of the brutes that are trained to fight and tear each other to pieces, for the mere amusement of their savage masters. But human intelligence will not stand still; the same impulse that has hitherto borne it onwards, will continue to advance it yet further.* The very circumstance of the vast increase of • Those who deny the progessive influence of human reason, must have studied history to very httle purpose. The perfldy and cruelty of war has considerably abated, in Europe, more than in Asia or America, and most of (a) This is too generally expressed. Where security from external attack is only to be had by means of a professional soldiery, the soldier is a pro- ductive agent, — productive of the immaterial product, security from exter- nal attack, than which, under certain circumstances, none can be more valu- able. T. CHAP. VI. ON CONSUMPTION. 393 expense attending national warfare has made it impossible for governments henceforth to engage in it, without the public assent, express or implied; and that assent will be obtained with the more difficulty, in proportion as the public shall be- come more generally acquainted with their real interest. The national military establishment will be reduced to what is bare- ly sufficient to repel external attack; for which purpose little more is necessary, than a small body of such kinds of troops, as can not be had without long training and exercise; as of ca- valry and artillery. For the rest, nations will rely on their militia, and on the excellence of their internal polity: for it is next to impossible to conquer a people, unanimous in their attachment to their national institutions; and their attachment will always be proportionate to the loss they will incur by a change of domination.* Of the Charges of public Instruction. Two questions have been raised in Political Economy; 1. whether the public be interested in the cultivation of science in all its branches? 2. whether it be necessary, that the public should be at the expense of teaching those branches, it has an interest in cultivating? Whatever be the position of man in society, he is in constant dependence upon the three kingdoms of nature. His food, his clothing, his medicines, every object either of business or of pleasure, is subject to fixed laws; and the better those laws are understood, the more benefit will accrue to society. Every individual, from the common mechanic, that works in wood or clay, to the prime minister that regulates with a dash of his pen the agriculture, the breeding of cattle, the mining, or the commerce of a nation, will perform his business the better, the better he understands the nature of things, and the more his understanding is enlightened. For this reason, every advance of science is followed by an increase of social happiness. A new application of the lever, or of the power of wind or water, or even a method of reduc- ing the friction of bodies, will, perhaps, have an influence on twenty difierent arts. An uniformity of weights and mea- sures, arranged upon mathematical principles, would be a all amongst the most polished of the European nations. The ungenerous character of some recent military enterprises roused so much public indig- nation, as to make them recoil upon the projectors with ruinous violence. * I am here speaking of the only sure reliance in an enlightened age. A people, that has nothing to lose by a change of domination, may defend itself with the most determined gallantry. The Moosulman will rush on certain destruction, in the cause of a prince and a faith, that are neither of them worth defending. Bat political and religious prejudice will sooner or later fall to the ground; and leave mankind to seek for some more rea- sonable object of devotion. 57 394 ON CONSUMPTION. book hi. benefit to the whole commercial world, if it were wise enough to adopt such an expedient. An irnportant discovery in as- tronomy or geology may possibly afford the means of ascer- taining the longitude at sea with precision; which would be an immense advantage to navigation all over the world. The naturalization in Europe of a new botanical genus or species might possibly influence the comfort of many millions of in- dividuals.* Among the numerous classes of science, theoretical and practical, which it is the interest of the public to advance and promote, there are fortunately many, that individuals have a personal interest in pursuing, and which the public, therefore, IS not called upon to pay the expense of teaching. Every ad- venturer in any branch of industry is urged most strongly by self-interest to learn his business and whatever concerns it: the journeyman gains in his apprenticeship, besides manual dexterity, a variety of notions and ideas only to be learnt in the work-shop, and which can be no otherwise recompensed, than by the wages he will receive. But it is not every degree or class of knowledge, that yields a benefit to the individual, equivalent to that accruing to the ?ublic. In treating abovet of the profits of the man of science, have shown the reason, why his talents are not adequately remunerated; yet theoretical is quite as useful to society as practical knowledge; for how could science ever be applied to the practical utility of mankind, unless it were discovered and preserved by the theorist? It would rapidly degenerate into mere mechanical habit, which must soon decline; and the downfal of the arts would pave the way for the return of ig- norance and barbarism. In every country that can at all appreciate the benefits to be derived from the enlargement of human faculties, it has been deemed by no means a piece of extravagance, to support acade- mies and learned institutions, and a limited number of very superior schools, intended not as mere repositories of science, and of the most approved modes of instruction, but as a means of its still further extension. But it requires some skill in the management, to prevent such establishments from operating as an impediment, instead of a furtherance, to the progress of knowledge, and as an obstruction rather than as an avenue to the improvement of education. Long before the revolution, it had become notorious, that most of our French universities had been thus perverted from the intention of their founders. All * Should the expected success attend the attempt to naturalize in Europe the flax of New-Zealand, which is greatly superior to that of Europe in the length and delicacy of the fibre, as well as in the abundance of the crop, it is possible that fine linen may be produced at the rate now paid for the coarsest quality; which would greatly improve the cleanliness and health of the lower classes. f Book II. chap. 7, sect. 2. CHAP. VI. ON CONSUMPTION. 395 the principal discoveries were made elsewhere; and most of them had to encounter the weight of their influence over the rising generation and credit with men in power.*(l) From this example, we may see how dangerous it is, to en- trust them with any discretionary control. If a candidate pre- sents himself for examination, he must not be referred to teachers, who are at the same time judges and interested par- ties, sure to think well of their own scholars, and ill of those of every body else. The merit of the candidate should alone decide, and not the place where he happens to have studied, nor the length of his probation; for to oblige a student in any science, medicine for instance, to learn it at a particular place, is, possibly, to prevent his learning it better elsewhere; and, to prescribe any fixed routine of study, is, possibly, to prevent his fixing a shorter road. Moreover, in deciding upon com- parative merit, there is much unfairness to be apprehended from the esprit de corps of such communities. Encouragement may, with perfect safety, be held out to a mode of instruction of no small efficacy; I mean, the composi- * What was denominattd an University, under the reig-n of Napoleon, was a still more miscliievous institution; being-, in fact, but a most expen- sive and vexatious contrivance, for depraving- the intellectual faculties of the rising- g-eneration, by substituting-, in tiie place of just and correct notions of things, opinions calculated to perpetuate the political slavery of their country. (1) ["It is chiefly," observes Dtjgai-d Stewart, "in judg-ing- of ques- tions coming home to their business and bosoms, that casual associations lead mankind astray; and of such associations, how incalculable is the num- ber arising from false systems of religion, oppressive forms of government, and absiu'd plans of education! The consequence is, that wliile the physi- cal and mathematical discoveries of fornter ages present themselves to the hand of the historian, like masses of pure and native gold, thetrutlis which we are here in quest of may be compared to iron, which, althoiigh at once the most necessary and the most widely diffused of all the metals, common- ly requires a discriminating eye to detect its existence, and a tedious as well as nice process, to extract it from the ore." " To the same circumstance it is owing, that improvements in Moral and in Political Science do not strike the imagination with nearly so great force as the discoveries of the Mathematician or of the Chemist. When an inve- terate prejudice is destroyed by extirpating the cas-aal associations on which it was grafted, how powerful is the new impulse given to the intellectual faculties of man! Yet how slow and silent the process by which the effect is accomplished! Were it not, indeed, for a certain class of learned authors, who, from time to time, heave the log into the deep, we should hardly be- lieve that the reason of the species is progressive. In this respect, the re- ligious and academical establishments in some parts of Europe are not with- out their use to the historian of the human mind. Immoveably moored to the same station by the strength of their cables, and the weight of their anchors, they enable him to measure the rapidity of the current by which the rest of the world are borne along." Vidt Preface to Stewart's Dissertations, p. 28, Boston edition.'^ Ameuican Editoh. 396 ON CONSUMPTION, book iir. tion of good elementary* works. The reputation and profit of a good book in this class do not indemnify the labour, sci- ence, and skill, requisite to its composition. («) A man must be a fool to serve the public in this line where the natural pro- fit is so little proportioned to the benefit derived to the public. The want of good elementary books will never be thoroughly supplied, until the public shall hold out temptations, sufficient- ly ample to engage first-rate talents in their composition. It does not answer to employ particular individuals for the ex- press purpose; for the man of most talent will not always suc- ceed the best: nor to offer specific premiums; for they are often bestowed on very imperfect productions, and the encourage- ment ceases the moment the premium is awarded. But merit in this kind should be paid proportionately to its degree, and always liberally. A good work will thus be sure to be super- seded by a better, till perfection is at last attained in each class. And I must observe, by the way, that there is no great expense incurred by liberally rewarding excellence; for it must always be extremely rare; and, what is a great sum to an individual, is a small matter to the pockets of a nation. These are the kinds of instruction most calculated to promote national wealth, and most likely to retrograde, if not in some measure supported by the public. There are others, which are essential to the softening of national manners, and stand yet more in need of that support. When the useful arts have arrived at a high degree of per- fection, and labour has been very generally and minutely sub- divided, the occupation of the lowest classes of labourers is reduced to one or two operations, for the most part simple in themselves, and continuallv repeated: to these their whole thought and attention are directed; and from them they are seldom diverted by any novel or unforeseen occurrence: their intellectual faculties, being rarely or never called into play, must of course be degraded and brutified, and themselves ren- dered incapable of uttering two words of common sense out of their peculiar line of business, and utterly devoid of any gene- rous ideas or elevated notions. Elevation of mind is generated bj'' enlarged views of men and things, and can never exist in a being incapable of conceiving the general bearings and con- * Under this head, I would include, the fundamental parts of knowledg-e in every department, and the familiar instruction adapted to each specific calling, respectively; such as would impart at a cheap rate to the hatter, the metal-founder, the potter, the dyer, &c. the general principles of their re- spective arts. Works of this kind keep up a constant channel of communi- cation between the practical and theoretical branches, and enable them to profit mutually by each other's experience. (a) This can only be true where the demand for such works is limited. In England, works of instruction are probably amongst the most profitable to the authors. T. CHAP. VI. ON CONSUMPTION. 397 nexions of objects. A plodding-mechanic can conceive no connection between the inviolability of property and public prosperity, or how he can be more interested in that prosper- ity, than his more wealthy neighbour; but is apt to consider all these capital benefits as so many encroachments on his rights and happiness. ■ A certain degree of education, of reading, of reflection while at work, and of intercourse with persons of his own condition, will open his mind to these conceptions, as well as introduce a little more delicacy of feeling into his conduct, as a father, a husband, a brother, or a citizen. But, in the vast machinery of national production, the mere manual labourer is so placed, as to earn little or nothing more than a bare subsistence. The most he can do is, to rear his young family, and bring them up to some occupation: he can not be expected to give them that education, which we have supposed the well-being of society to require. If the commu- nity wish to have the benefit of more knowledge and intelli- gence in the labouring classes, it must dispense it at the pub- lic charge. This object may be obtained by the establishment of primary schools, of reading, writing, and arithmetic. These are the groundwork of all knowledge, and are quite sufficient for the civilization of the lower classes. In fact, one can not call a nation civilized, nor, consequently, possessed of the benefits of civilization, until the people at large be instructed in these three particulars: till then it will be but partially reclaimed from barbarism. With the help of these advantages alone, it may safely be affirmed, that no transcendant genius or supe- rior mind will long remain in obscurity, or be prevented from displaying itself to the infinite benefit of the community. The faculty of reading alone will, for a few sous, put a man in pos- session of all that eminent men have said or done in the line, to which the bent of genius impels. Nor should the female part of the creation be shut out from this elementary educa- tion; for the public is equally interested in their civilization; and they are indeed the first, and often the only teachers of the rising generation. It would be the more unpardonable in governments to ne- glect the business of education, and abandon to their present ignorance the great majority of the population in those na- tions of Europe, that pretend to the character of refinement and civilization, now that the improved methods of mutual in- struction, that have been tried with such complete success, af- ford a ready and most economical means of universally dijETus- ing knowledge amongst the inferior classes.* * According to the new method, introduced by Lancaster, and perfected by subsequent teachers, a single master with very httle aid of books, pens, or paper, can rapidly and effectually teach reading, writing, and vulgar arithmetic, to five or six hundred scholars at a time. This truly economi- cal result is produced, by taking advantage of the slightest superiority of 398 ON CONSUMPTION. book hi. Thus, none but elementary and abstract science, — ^the high- est and the lowest branches of knowledge, are so much less favoured in the natural course of things, and so little stimulated by the competition of demand, as to require the aid of that au- thority, which is created purposely to watch over the public interests. Not that individuals have no interest in the support and promotion of these, as well as of the other, brancnes of knowledge; but they have not so direct an interest, — the loss occasioned by their disappearance is neither so immediate nor so perceptible; a flourishing empire might retrograde, until it reached the confines of barbarism, before individuals had ob- served the operating cause of its decline. I would not be understood to find fault with public establish- ments for purposes of education, in other branches than those I have been describing. I am only endeavouring to show, in what branches a nation may wisely, and with due regard to its own interest, defray the charge out of the public purse. Every diffusion of such knowledge, as is founded upon fact and ex- perience, and does not proceed upon dogmatical opinions and assertions, every kind of instruction, that tends to improve the taste and understanding, is a positive good; and, conse- quently, an institution calculated to diffuse it must be benefi- cial. But care must be taken, that encouragement of one branch shall not operate to discourage another. This is the general mischief of premiums awarded by the public; a pri- vate teacher or institution will not be adequately paid, where the same kind of instruction is to be had for nothing, though perhaps, from inferior teachers. There is, therefore, some danger, that talent may be superseded by mediocrity; and a check be given to private exertions, from which the resources of the state might expect incalculable benefit. The only important science, which seems to me not suscep- inlellig'ence of one above another, and directing- the motive of emulation, natural to the human breast, tovi^ards an useful object. A larg^e school is commonly divided into forms, consisting- each of eight cliildren, as nearly equal in advancement as possible, and instructed by a child somewhat more advanced, called The Monitor, These forms again are divided into eight classes; of which the lowest learns to pronounce the letters of the alphabet, and to trace their figures rudely with the finger upon sand spread out upon a flat board; and the highest is able to write on paper, and to practise the four rules of arithmetic. The children of each form are ranged according to their progress; and whoever can not give the answer, is immediately su- perseded by a more apt scholar. As soon as a child is perfected in one class, he is transferred to the next in degree. The lessons are received, sometimes in a sitting posture, and sometimes upright, with slates affixed to the walls. The instruction is thus always accommodated to the age and faculties of the child; it necessaril}' arrests and rewards his attention; and involves that personal activity, essential to the infant frame. The whole is conducted in a single apartment, and usually under the superintendence of a single master or mistress. The general adoption of this method will probably be for some time opposed by custom and prejudice; but its utility and conformity to the order of nature will ensure its ultimate and universal prevalence. CHAP. VI. ON CONSUMPTION. 399 tible of being taught at the public charge, is that of Moral Phi- losophy, which may be considered as either experimental or doctrinal. The former consists in the knowledge of moral qualities, and of the chain of connection between events de- pendent upon human will; and forms indeed a part of the study of man, which is best pursued by social converse and inter- course. The latter is a series of maxims and precepts, pos- sessing very little influence upon human conduct, which is best guided in the relations of public and of private life, by the operation of good laws, of good education, and of good example.* The sole encouragement to virtue and good conduct, that can be relied on, is, the interest that every body has in dis- covering and employing no persons but those of good charac- ter. Men the most independent in their circumstances want something more to make them happy; that is to say, the ge- neral esteem and good opinion of their fellow-creatures: and these can only be acquired by putting on the appearance at least of estimable qualities, which it is much easier to acquire than to stimulate. The influence of the sovereign or ruling body, upon the manners of the nation, is very extensive, be- cause it employs a vast number of people; but it operates less beneficially than that of individuals, because it is less interest- ed in employing none but persons of integrity. If to its luke- warm ness in this particular be added, the example of immo- rality and contempt far honesty and economy too frequently held out to the people by their rulers, the corruption of nation- al morals will be wonderfully accelerated, t But a nation may be rescued from moral degradation by the re-action of oppo- site causes. Colonies are, for the most part, composed of by no means the most estimable classes of the mother-country: in a very short time, however, when the hopes of return are wholly abandoned, and the settlers have made up their minds to pass the rest of their lives in their new abode, they gradual- ly feel the necessity of conciliating the esteem of their fellow- citizens, and the morals of the colony improve rapidly. By morals, I mean, the general course of human conduct and be- haviour. * I am strongly disposed to say the same of logic. Were nothingtaiight, but what is consistent with truth and good sense, logic would follow of it- self as a matter of course: all the teaching in the world will never make a man a good reasoner, whose notions and ideas of things are unsound and erroneous; and, with the foundation of just notions, he will require no teaching to make him reason well. Just ideas of things are only to be ac- quired by attentive examination; by taking account of every particular concerning them, and of nothing but what concerns them; which is the object of all knowledge in general, and by no means of logic alone. f The bad example of a vicious prince is of the most fatal tendenc}'; it is notorious to all the world, and protected and abetted by public authority: and it is sure to be reflected by tlie subservience of courtiers to the ex- treme poiut of imitative servility. 400 ON CONSUMPTION. book m. These are the causes, that have a positive influence upon national morality. To these must be added, the effect of edu- cation in general, in opening the eyes of mankind to their real interests, and softening the temper and disposition. Religious instruction ought, strictly speaking, to be defray- ed by the respective religious communions and societies, each of which regards the opinions of the rest as heretical, and na- turally revolts at the injustice of contributing to the propaga- tion of what it deems erroneous, if not criminal, (a) Of the Charges 0/ Public Benevolent Institutions. It has been much debated, whether individual distress has any title to public relief. I should say none, except inasmuch as it is an unavoidable consequence of existing social institu- tions. If infirmity and want be the effect of the social sys- tem, they have a title to public relief; provided always, that it be shown, that the same system affords no means of preven- tion or cure. But it would be foreign to the matter to discuss the question of right in this place. All we need do is, to con- sider benevolent institutions with regard to their nature and consequences. When a community establishes at the public charge any in- stitution for benevolent purposes, it forms a kind of saving- bank, to which every member contributes a proportion of his revenue, to entitle him to claim a benefit, in the event of ac- cident or misfortune. The wealthy are generally impressed with an idea, that they shall never stand in need of public charitable relief; but a little less confidence would become them better. No man can reckon in his own case upon the con- tinuance of good fortune, with as much certainty as upon the permanence of his wants and infirmities: the former may de- sert him; but the latter are inseparable companions. It is enough to know, that good fortune is not inexhaustible, to in- fuse an apprehension, that it may some day or other be ex- hausted: one has but to look round, and this apprehension will be confirmed by the experience of numbers, whose misfortunes were to themselves quite unexpected. (a) These considerations would lead to the much agitated question, of the justice and expediency of a national church, which it would be tedious to enlarge upon. Suffice it to say, that, in like manner as the improving morality of a nation makes the duties of civil government gradually less voluminous and requisite; so its improving knowledge renders the lessons of the pulpit less efficacious and less necessary. Wherefore, it should seem, that the clerical body, being thus eased of great part of their laboui's, should be made available to the state for other purposes; as for that of dif- fusing and perpetuating primary instruction, and the like; or should be reduced in numbers and emolument, in proportion to the reduction of their utility. For a national church, as before observed, is a mere civil in- stitution. T. CHAP. VI. ON CONSUMPTION. 401 Hospitals for the sick, alms-houses, and asylums for old age and infancy, inasmuch as they partially relieve the poorer classes from the charge of maintaining those, who are natural- ly dependent on them, and thereby allow population to ad- vance somewhat more rapidly, have a natural tendency a little to depress the wages of labour. That depression would be greater still, if such establishments should be so multiplied, as to take in all the sick, aged, and infants of those classes, who would then have none but themselves to provide for out of their wages. If they were entirely done away, there would be some rise of wages, although not sufficient to maintain so large a labouring population, as may be kept up with their help; for the demand for their labour would be somewhat re- duced by the advance of its price. From these two extreme suppositions, we may judge of the effect of those effijrts to relieve indigence, which all nations have made in some degree or other; and see the reason, why the distress and relief go on increasing together, although not exactly in the same ratio. Most nations preserve a middle course between the two ex- tremes, affording public relief to a part only of those, who are helpless from age, infancy, or casual sickness. Of the rest they endeavour to rid themselves in one of two ways; either by requiring certain qualifications in the applicants, whether CI age, of specific disease, or, perhaps, of mere interest and favouritism; or by limiting narrowly the extent of the relief afibrded, giving it upon hard terms to the applicants, or at- taching some degree of shame to the acceptance.* It is a distressing reflection, that there are no other methods of confining the number of applicants for relief within the means available to the community, except the offer of hard conditions, or the want of a patron. It were to be desired, that asylums of the more comfortable class, instead of favour- itism, should be open to unmerited misfortune only; and that, to prevent improper nominations, the pretensions of the can- didate should be ascertained by the inquest of a jury. The rest can probably be protected from too great an influx of in- digence, by no other means consistent with humanity, except the observance of severe, though impartial, discipline, sufficient to invest them with some degree of terror. This evil does not apply to the asylums devoted to invalid soldiers and sailors. The qualification is so plain and intelli- gible, that the doors ought to be shut against none who are possessed of it; and the comforts of the institution can never * At Paris, the limitation of relief afforded by the Hospice des IncurableSt and those of Petites liaisons, of St. Louis, of Charite, and many others, is of the former kind; the admissions to the Hotel-Dieu, Biceire, Saltpetrieref and Ejifans-Trouves, are subject to a limitation of the latter kind. As the number of applicants duly qualified for admission in the establishment first mentioned always exceeds theii- capactiy, the choice must ultimately be decided by favour or interest. 58 402 ON CONSUMPTION. book hi, increase the number of applicants. Their being nursed in the public asylums with the same domestic care and comfort, as are to be found in the homes of persons of the same class in life, and indulged in repose, and some even of the whims of old age, will undoubtedly somewhat enhance the charge, that is to say, so far as it might prolong lives, that otherwise might fall a sacrifice to wretchedness; but this is the utmost increase of charge; and it is one, that neither patriotism nor humanity will grudge.* The houses of Industry, that are multiplying so rapidly in America, Holland, Germany, and France, are noble and ex- cellent institutions of public benevolence. They are designed to provide all persons of sound health with work according to their respective capacities: some of them are open to any workman out of employ, that chooses to apply; others are a kind of houses of correction, where vagrants, beggars and of- fenders, are kept to work for fixed periods. Convicts have sometimes been set to hard labour in their respective voca- tions, during their confinement; whereby the public has been wholly or partially relieved from the charge of keeping up gaols, and a method contrived for reforming the morals of the criminals, and rendering them a blessing, instead of a curse, to society. Indeed, such establishments can hardly be reckoned among the items of public charge; for, the moment their production equals their consumption they are no longer an incumbrance to any body. They are of immense benefit in a dense popu- lation, where, amidst the vast variety of occupations, some must unavoidably be in a state of temporary inaction. The perpetual shiftings of commerce, the introduction of new pro- cesses, the withdrawing of capital from a productive concern, accidental fire, or other calamity, may throw numbers out of employment; and the most deserving individual may, without any fault of his own, be reduced to the extreme of want. In these institutions, he is sure of earning at least a subsistence, if not in his own line, in one of a similar description. The grand obstacle to such establishments is, the great out- lay of capital they require. They are adventures of indus- try, and as such must be provided with a variety of tools, im- plements, and machines, besides raw material of different kinds to work upon. Before they can be said to maintain them- selves, they must earn enough to pay the interest of the capi- tal embarked, as well as their current expenses. The favour shown them by the public authority, in the gra- * Yet it is well worth consideration, whether It be not more to the ad- vantag-e, both of the state and of its pensioners, to maintain them at their own homes upon a fixed income, or to board them out with individuals. The Mb^ de St. Pierre, whose mind was ever actively at work for the pub- lic good, has estimated the charge of maintaining the invalids in their sump- tuous establishment at Paris, to be three times as much as that of their maintenance at their respective homes, dnnales Polit. p. 209. CHAP. VI. ON CONSUMPTION. 403 tuitous supply of the capital and buildings, and in many other particulars, would make them interfere with private under- takings, were they not subject, on the other hand, to some pe- culiar disadvantages. They are obliged to confine their ope- rations to such kinds of work, as sort with the feebleness and general inferiority in skill of the inmates, and can not direct them to such as may be most in demand. Moreover, it is in most of them a matter of regulation and police, to lay by al- ways the third or fourth-part of the labourer's wages or earn- ings, as a capital to set him up, on his quitting the establish- ment: t,his is an excellent precaution, but prevents their work- ing at such cheap rates, as to drive all competition out of the market. Although the honour, attached to the direction and manage- ment of institutions of public benevolence, will generally at- tract the gratuitous service of the affluent and respectable part of the community, yet, when the duties become numerous and laborious, they are commonly discharged by gratuitous ad- ministrators with the most unfeeling negligence. It was pro- bably by no means wise, to subject all the hospitals of Paris to a general superintendence. At London, each hospital is separately administered; and the whole are managed with more economy and attention in consequence. A laudable emula- tion is thereby excited amongst the managers of rival establish- ments; which affords an additional proof of the practicability and benefit of competition in the business of public adminis- tration. Of the Charges of Public Edifices and Works. I shall not here attempt to enumerate the great variety of works requisite for the use of the public; but merely lay down some general rules, for calculating their cost to the nation. It is often impossible to estimate with any tolerable accuracy the public benefit derived from them. How is one to calculate the utility, that is to say, the pleasure, which the inhabitants of a city derive from a public terrace or promenade. It is a positive beaefitto have, within an easy distance of the close and crowded streets of a populous town, some place where the population can breathe a pure and wholesome atmosphere, and take health and exercise, under the shade of a grove, or with a verdant prospect before the eye; and where school-boys can spend their hours of recreation; yet this advantage it would be impossible to set a precise value upon. The amount of its cost, however, may be ascertained or es- timated. The cost of every public work or construction con- sists: — 1, Of the rent of the surface whereon it is erected; which rent amounts to what a tenant would give for it to the proprie- tor. 2. Of the interest of the capital expended in the erection. 404 ON CONSUMPTION. book iii. 3. Of the annual charge of maintenance. Sometimes, one or more of these items may he curtailed. When the soil, whereon a public work is erected, will fetch nothing from either a purchaser or a tenant, the public will be charged with nothing in the nature of rent; for no rent could be got if the spot had never been built on, A bridge, for in- stance, costs nothing but the interest of the capital expended in its construction, and the annual charge of keeping it in re- pair. If it be suffered to fall into decay, the public consumes, annually, the agency of the capital vested, reckoned in the shape of interest on the sum expended, and, gradually, the ca- pital itself, into the bargain; for, as soon as the bridge ceases to be passable, not only is the agency or rent of the capital lost, but the capital is gone likewise. Supposing one of the dikes in Holland to have cost in the outset, lOOjOOOyr.; the annual charge on the score of interest, at 5 per cent, will be 5000/r.; and, if it cost 3000 fr. more in the keeping it up, the total annual charge will be 8000 ^r. The same mode of reckoning may be applied to roads and canals. If a road be broader than necessary, there is annually a loss of the rent of all the superfluous land it occupies, and, besides, of all the additional charge of repair. Many of the roads out of Paris are ISO feet wide, including the unpaved part on each side: whereas, a breadth of 60 feet would be full wide for all useful purposes, and would be quite magnificent enough, even for the approaches to a great metropolis. The surplus is only so much useless splendour; indeed, I hardly know how to call it so; for the narrow pavement in the centre of a broad road, the two sides of which are impassable the greater part of the year, is an equal imputation upon the libe- rality, and upon the good sense and taste of the nation. It gives a disagreeable sensation, to see so much loss of space, more particularly if it be badly kept. It appears like a wish to have magnificent roads, without havingthe means of keeping them uniform and in good condition ; like the palaces of the Italian nobles, that never feel the effects of the broom. Be it as it may, on the sides of the road, I am speaking of, there is a space of 120 feet, that might be restored to cultiva- tion; that is to say, 50 cirpens to the ordinary league. Add together the rent of the surplus land, the interest of the sum expended in the first cost and preparation, and the annual charge of keeping up the unnecessary space, which is some- thing, badly as it is kept up; you will then ascertain the sum France pays annually for the very questionable honour of hav- ing roads too wide, by more than the half, leading to streets too narrow, by three-fourths. * • With all this waste of space in the great roads of France, there are in none of them either paved or gravelled foot-\va3's, passable at seasons, or stone seats, for the passengers to rest upon, or places of temporary shelter from the weather, or cisterns to quench the thirst 5 all which might be add- ed with a very trifling expense. CHAP. VII. ON CONSUMPTION. 105 Roads and canals are costly public works, even in countries where they are under judicious and economical manage- ment. Yet, probably, in most cases, the benefits they afford to the community far exceed the charges. Of this the reader may be convinced, on reference to what has been said above of the value generated by the mere commercial operation of transfer from one spot to another,* and of the general rule, that every saving in the charges of production is so much gain to the consumer.! Were we to calculate, what would be the charge of carriage upon all the article and commodities, that now pass along any road in the course of a year, if the road did not exist, and compare it with the utmost charge un- der present circumstances, the whole difference, that would appear, will be so much gain to the consumers of all those ar- ticles, and so much positive and clear net profit to the com- munity.J Canals are still more beneficial; for in them the saving of carriage is still more considerable. § Public works of no utility, such as palaces, triumphal arches, monumental columns, and the like, are items of national luxu- ry. They are equally indefensible, with instances of private prodigality. The unsatisfactory gratification, afforded by them to the vanity of the prince or the people, by no means balances the cost, and often the misery, they have occasioned. CHAPTER VII. or THE ACTUAL CONTRIBUTORS TO PUBLIC CONSUMPTION. A PORTION of the objects of public consumption have, in some very rare instances, been provided by a private indivi- dual. We see occasional acts of private munificence, in the * Book I. chap. 9. |Boak 11. chap. 3. i To say, that, if the road were not in existence, the charge of transport could never be so enormous as here sug-gested, because the transport would never take place at all, and people would contrive to do without the ob- jects of U-ansport, would be a strange way of eluding' the argument. Self- denial of this kind, enforced by the want of means to purchase, is an in- stance of poverty, not of wealth. The poverty of the consumer is extreme, in respect to every object he is thus made too poor to purchase: and he be- comes richer in respect to it, in proportion as its price or value declines. § In lieu of canals, iron rail-roads from one town to another, will proba- bly be one day constructed. The saving in the costs of transport would pro- bably exceed the interest of the very heavy expense in the outset. Besides 406 ON CONSUMPTION. book iit. erectioa of a hospital, the laying out of a road, or of public gardens, upon the land, and at the cost, of an individual. In ancient times, examples of this kind were more frequent though much less meritorious. The private opulence of the ancients was commonly the fruit of domestic, or provincial, plunder and speculation, or perhaps the spoil of a hostile nation, pur- chased with the blood of fellow citizens. Among the moderns, though such excess do sometimes occur, individual wealth is, in the great majorit}^ of cases, the fruit of personal industry and economy. In England, where there are so many institu- tions founded and supported by private funds, most of the for- tunes of the founders and supporters have been acquired in in- dustrious occupations. It requires a greater exertion of gene- rosity to sacrifice wealth, acquired by a long course of toil and self-denial, than to give away what has been obtained by a stroke of good fortune, or even by an act of lucky temerity. Among the Romans, a further portion of the public con- sumption was supplied directly by the vanquished nations who were subjected to a tribute, which the victors consumed. In most modern states («), there is some territorial proper- ty vested, either in the nation at large, or in the subordinate communities, cities, towns, and villages, which is leased out, or occupied directly by the public. In France_, most of the public lands of tillage and pasturage, with their appurtenances, are let out on lease; the government reserving only the na- tional forests under the direct administration of its agents. The produce of the whole forms a considerable item in the catalogue of public resources. But these resources consist for the most part of the produce of taxes, levied upon the subjects or citizens. These taxes are sometimes national; i. e. levied upon the whole nation, and paid into the general treasury of the state, whence the public national expenditure is defrayed; and sometimes local, or pro- vincial, i. e. levied upon the inhabitants of a separate canton, or province only, and paid into the local treasury, whence are defrayed the local expenses. It is a principle of equity, that consumption should be charg- ed to those, who derive gratification from it; consequently, those countries must be pronounced to be the best governed, in respect of taxation, where each class of inhabitants contri- butes in taxation proportionately to the benefit derived by it from the expenditure. the additional facllit)^ of movement, roads of this kind would remedy the violent jolting of passengers and goods. Undertakings of suclr magnitude can only be prosecuted in countries, where capital is very abundant, and where the government inspires the adventurers with a firm assurance of reaping themselves the profit of the adventure. (a) And in most of those of antiquity. T. cHAr. vir. ON CONSUMPTION. 407 Every individual and class in the community is benefited l)y the central administration, or, in other words, the general go- vernment: so likewise of the security afforded by the national military establishment; for the provinces can hardly be secure from external attack, if the enemy have possession of the me- tropolis, and can thence overawe and control them; imposing laws upon districts where his force has not penetrated, and dis- posing of the lives and property, even of such as have not seen the face of an enemy. For the same reason the charge of fortresses, arsenals, and "diplomatic agents is properly thrown upon the whole community. It would seem, that the administration of justice should be classed among the general charges, although the security and advantage it affords have more of a local character. — When the magistracy of Bordeaux arrests and tries an offend- er, the public internal security of France is unquestionably promoted. The charge of gaols and court-houses necessarily follows that of the magistracy. Smith has expressed an opinion, that civil justice should be defrayed by the litigating parties; which would be more practicable than at present, were the judges in the appointment of the parties in each par- ticular case, and no otherwise in the nomination of the public authority, than inasmuch as the choice might be limited to specified persons of approved knowledge and integrity. They would then be arbitrators and a sort of equitable jurors, and might be paid proportionately to the matter in dispute without regard to the length of the suit; and would thus have an ob- vious interest in simplifying the process, and sparing their own time and trouble, as well as in attracting business by the gene- ral equity of their decisions, (a) But local administration and local institutions of utility, plea- sure, instruction, or beneficence, appear to yield a benefit ex- clusively to the place or district where they are situated. — Wherefore, it should seem, that their expenses ought to fall, as in most countries they do, upon the local population. Not (a) Our author seems in this passag-e to have become a convert to the opinion of Smith, in respect to the civil tribunals of a nation, from which he had expressed his dissent, in former editions. Though arbitration may be a very good mode of setthng civil suits, where the parties are both anxious to come to a settlement, and indeed is frequently resorted to, and should always be encouraged; yet it is manifest, that there must be a com- pulsory tribunal for tlie obstinate, or refractory. And, since security of person and property is the main object of social institutions, it is but just, that invasion in a particular instance should be repelled and deterred at the public charge. In strict justice, tlie invader should be held to make good the whole damage; and so he is, or ought to be, in the shape of costs, fine, damages, or otherwise. But it is not consistent with equity that the suf- ferer should be deterred from pui'suing his claim, by superadding a propor- tion of the outlay upon the judicial establishment to the charge of witnesses and agents, wliich he must necessarily advance, and to the risk of inability in the dehnquent, even in the event of ultimate success. T. 408 ON CONSUMPTION. book hi. but that the nation at large derives some benefit from good provincial administration, or institutions. A stranger has ac- cess to the public places, libraries, schools, walks, and hospi- tals of the district; but the principal benefit unquestionably results to the immediate neighbourhood. It is good economy to leave the administration of the local receipts and disbursements to the local authorities; particu- larly where they are appointed by those, whose funds they administer. There is much less waste, when the money is spent under the eye of those, who contribute it, and who are to reap the benefit; besides, the expense is better proportioned to the advantage expected. When one passes through a city or town badly paved and ill-conditioned, or sees a canal or harbour in a state of dilapidation, one may conclude, in nine cases out of ten, that the authorities, who are to administer the funds appropriated to those objects, do not reside on the spot. In this particular, small states have an advantage' over more extensive ones. They have more enjoyment from a less ex- penditure upon objects of public utility or amusement; be- cause they are at nand to see that the funds, destined to the object, are faithfully applied. CHAPTER Vlll. OP TAXATION. («) SECTION I. Of the Effect of all kinds of Taxation in general. Taxation is the transfer of a portion of the national pro- ducts from the hands of individuals to those of the govern- ment, for the purpose of meeting the public consumption or expenditure. Whatever be the denomination it bears, whether tax, contribution, duty, excise, custom, aid, subsidy,* grant, * What avails It, for Instance, that taxation is imposed by consent of the people or their representatives, if there exist in the state a power, that by- its acts can leave the people no alternative but consent? De Lolme in his (a) L'Imput, expressed in English by the general term, taxation, as dis- tinguished from impot, tax, the particular tenn. T. CHAP. VIII. ON CONSUMPTION. 409 or free gift, it is virtually a burthen imposed upon individuals, either in a separate or corporate character, by the ruling power for the time being, for the purpose of supplying the consump- tion it may think proper to make at their expense; in short, an impost, in the literal sense. It would be foreign to the plan of this work, to inquire in whom the right of taxation is or ought to be vested. In the science of political economy, taxation must be considered as matter of fact, and not of right; and nothing further is to be regarded, than its nature, the source whence it derives the values it absorbs, and its effect upon national and individual interests. The province of this science extends no further. The object of taxation is, not the actual commodity, but the value of the commodity, given by the tax-payer to the tax- gatherer. Its being paid in silver, in goods, or in personal service, is a mere accidental circumstance, which may be more or less advantageous to the subject or to the sovereign. The essential pdint is, the value of the silver, the goods, or the ser- vice. The moment that value is parted with by the tax-payer, it Is positively lost to him; the moment it is consumed by the government or its agents, it is lost to all the world, and never reverts to, or re-exists in, society. This, I apprehend, has already been demonstrated, when the general effect of public consumption was under consideration. It was there shown, that, however the money levied by taxation may be refunded to the nation, its value is never refunded; because it is never returned gratuitously, or refunded by the public fuctionaries, without receiving an equivalent in the way of barter or ex- change. The same causes, that we have found to make unproductive consumption no-wise favourable to reproduction, prevent taxa- tion from at all promoting it. Taxation deprives the producer of a product, which he would otherwise have the option of derivmg a personal gratification from, if consumed unproduc- tively, or of turning to profit, if he preferred to devote it to an useful employment. One product is a means of raising ano- ther; and, therefore, the subtraction of a product must needs diminish, instead of augmenting, productive power. It may be urged, that the pressure of taxation impels the productive classes to redouble their exertions, and thus tends to enlarge the national production, I answer, that, in the first Essay on the English Constitution., says, that the right of the Crown to make war is nugatory, while the people have the right of refusing the sup- plies for carrying it on. May it not be said, with much more truth, that the right of the people to deny the supplies is nugatory, when the crown has involved them in a predicament, that makes consent a matter of ne- cessity? The liberties of Great Britain have no real security, except in the freedom of the press; which rests itself, rather upon the liabits and opinions of the nation, than upon legal enactments or judicial decisions. A nation is free, when it is bent on freedom; and the most formidable obstacle to the establishment of civil liberty is, the absence of the desire for it. 5d 410 ON CONSUMPTION. book hi. place, mere exertion can not alone produce, there must be capital for it to work upon, and capital is but an accumulation of the very products, that taxation takes from the subject: that, in the second place, it is evident, that the values, which industry creates expressly to satisfy the demands of taxation, are no increase of wealth; for they are seized on and devoured by taxation. It is a glaring absurdity to pretend, that taxation contributes to national wealth, by engrossing part of the na- tional produce; and enriches the nation by consuming part of its wealth. Indeed, it would be trifling with my reader's time, to notice such a fallacy, did not most governments act upon this principle, and had not well-intentioned and scientific writers endeavoured to support and establish it.* If, from the circumstance, that the nations most grievously taxed are those most abounding in wealth, as Great Britain for example, we are desired to infer, that their superior wealth arises from their heavier taxation, it would be a manifest inver- sion of cause and effect. A man is not rich, because he pays largely; but he is able to pay largely, because he is rich. It would be not a little ridiculous, if a man should think to en- rich himself by spending largely, because he sees a rich neighbour doing so. It must be clear, that the rich man spends, because he is rich; but never can enrich himself by the act of spending. Cause and effect are easily distinguished, when they occur in succession; but are often confounded, when the operation is continuous and simultaneous. Hence, it is manifest, that, although taxation may be, and often is, productive of good, when the sums it absorbs are properly applied, yet, the act of levying is always attended with mischief in the outset. And this mischief good princes and governments have always endeavoured to render as in- considerable to their subjects as possible, by the practice of economy, and by levying, not to the full extent of the peo- ple's ability, but' to such extent only, as is absolutely unavoid- able. That rigid economy is the rarest of princely virtues, is owing to the circumstance of the throne being constantly beset with individuals, who are interested in the absence of it; and who are always endeavouring, by the most specious reasoning, * By the same reasoning' it has been attempted to prove, that luxury and barren consumption operate as a stimulus to production. Yet, they are less mischievous than taxation; inasmuch as they redound to the personal gratification of the party himself: whereas, to use the expedient of taxation as a stimulative to increased production, is to redouble tlie exertions of the community, for the sole purpose of multiplying its privations, rather than its enjoyments. For, if increased taxation be applied to the support of a complex, overgrown, and ostentatious internal administration, or of a super- fluous and disproportionate mihtary establishment, that may act as a drain of individual wealth, and of the flower of the national youth, and an ag- gressor upon the peace and happiness of domestic life, will not this be pay- ing a.1 dearly for a grievous public nuisance, as if it were a benefit of the flrst magnitude? CHAP. VIII. ON CONSUMPTION. 411 to impress the conviction, that magnificence is conducive to public prosperity, and that profuse public expenditure is bene- ficial to the state. It is the object of this third book to expose the absurdities of such representations. Others there are, who are not impudent enough to pretend, that puplic profusion is a public benefit; yet undertake to show by arithmetical deduction, that the people are scarcely burthen- ed at all, and are equal to a much higher scale of taxation. As Sully tells us in his Memoirs, " The ear of the prince is assail- ed by a set of flattering advisers, who think to make their court to him by perpetually suggesting new ways of raising money; discharged functionaries for the most part, whose ex- perience of the sweets of office has left no other impression, than the tincture of the baneful art of fiscal extortion; and who seek to recommend themselves to power and favoui^, by com- mending it to the lips of royalty."* Others suggest financial projects, and ways and means for filling the coffers of the prince, as they assert, without fleecing the subject. But no plan of finance can give to the govern- ment, without taking either from the people, or from the go- vernment itself in some other way; unless it be a downright adventure of industry. Something can not be produced out of nothing by a mere touch of the wand. However an opera- tion may ne cloaked in mystery, however often we may twist and turn and. transform values, there are but two ways of ob- taining them; viz. creating oneself, or taking from others. The best scheme of finance is, to spend as little as possible; and the best tax is always the lightest. Admitting these premises, that taxation is the taking from individuals a part of their property! for public purposes; that the value levied by taxation never reverts to the members of the community, after it has once been taken from them; and that taxation is not itself a means of reproduction; it is impos- sible to deny the conclusion, that the best taxes, or, rather those that are least bad, are 1. Such as are the most moderate in their ratio. 2. Such as are least attended with those vexatious circum- stances, that harass the tax-payer without bringing any thing into the public exchequer. 3. Such as press impartially on all classes. 4. Such as are least injurious to reproduction. * Memoires, liv. xx. ■|- It is hardly necessary to controvert an opinion, entertained by sove- reigns in times past, respecting' the property of their subjects. We find Louis XIV. writing in these terms, professedly for the instruction of his son in matters of government; " Kings are absolute lords naturally possessing the entire and uncontrolled disposal of all property, whether belonging to the church or to the laity, to be exercised at all times with due reganl to economy, and to the general interests of the state." (Euvres de Louis XIY., Memoires Hist. J. D, 1666. 412 ON CONSUMPTION. book hi. 5. Such as are rather favourable than otherwise to the na- tional morality; that is to say, to the prevalence of habits, use- ful and beneficial to society. These positions are almost self-evident; yet I shall proceed to illustrate them successively, with some few observations. 1. Of such as are most moderate in their ratio. Since taxation does, in point of fact, deprive the tax-payer of a product, which is to him, either a means of personal grati- fication, or a means of reproduction, the lighter the tax is, the less must be the privation. Taxation, pushed to the extreme, has the lamentable effect, of impoverishing the individual, without enriching the state. We may readily conceive how this can happen, if we recall to our attention the former position; viz. that each tax-payer's consumption, whether productive or not, is always limited to the amount of his revenue. No part of his revenue, there- fore, can be taken from him, without necessarily curtailing his consumption in the same ratio. This must needs reduce the demand for all those objects he can no longer consume, and particularly those affected by taxation. The diminution of demand must be followed by diminution of the supply of pro- duction; and, consequently, of the articles liable to taxation. Thus, the tax-payer is abridged of his enjoyments, the pro- ducer of his profits, and the public exchequer of its receipts.* * In France, before 1789, the average annual consumption of salt was estimated at 91bs. per head in the districts subject to the gabelle, and at 181bs. per head in those exempt from that impost. De Monthieu, Influence des divers Impots, p. 141. Thus, taxation in this form obstructed the pro- duction of 1-2 of this article in the districts subjected to it, and reduced to 1-2 the enjoj'ment it was capable of affording; to say nothing of the other mischiefs resulting from it; the injury to tillage, to the feeding of cattle, and to the preparation of salted goods; the popular animosity against the collectors of the tax, the consequent increase of crime and conviction, and the consignment to the gallies of numerous individuals, whose industry and courage might have been made available to the increase of national opulence. In 1804, the English government raised the duties on sugar 20 per cent. It might have been expected, that their average product to the public ex- chequer would have been advanced in the same ratio; i. e. from 2,778,000/. the former amount, to 3,330,000/.: instead of which, the increased duties produced but 2,537,000/,- exhibiting an absolute deficit. Speech of Henry Brougham, Esq. M. P. March, 13, 1817. The people of Great Britain might consume French wines at a very little advance upon the prices of France, and have the enjoyment of an unadul- terated, wholesome, and exhilarating beverage, costing perhaps a shilling a bottle. But the exorbitant duty upon this article has reduced its im- port and the product of the duty to a very trifle; and thus, the sole benefit resulting from the tax to the British nation is, the total privation of a cheap and wholesome object of consumption. The two last examples are a sufficient answer to the objection taken by Ricardo to this passage of my text; on the ground, that taxation is not in- jurious to production in the aggregate, inasmuch as the consumption of the state itself replaces that of individuals, which is annihilated by the tax. A tax, that robs the individual, without benefit to the exchequer, substitutes CHAP. vm. ON CONSUMPTION. 413 This is the reason why a tax is not productive to the public exchequer, in proportion to its ratio; and why it has become a sort of apophthegm, that two and two do not make four in the arithmetic of finance. Excessive taxation is a kind of suicide, whether laid upon objects of necessity, or upon those of luxury; but there is this distinction, that, in the latter case, it extin- guishes only a portion of the products on which it falls, to- gether with the gratification they are calculated to afford; while, in the former, it extinguishes both production and con- sumption, and the tax-payer nimself into the bargain. Were it not almost self-evident, this principle might be il- lustrated, by abundant examples of the profit the state derives from a moderate scale of taxation, where it is sufficiently awake to its real interests. When Turgot, in 1775, reduced to i the market-dues and duties of entry upon fresh sea-fish sold in Paris, their product was no-wise diminished. The consumption of that article must, therefore, have doubled, the fishermen and dealers must have doubled their concerns and their profits; and, since population always increases with increasing production, the number of consumers must have been enlarged; and that of producers must have been enlarged likewise; for an increase of profits, that is to say, of individual revenue, multiplies savings, and thus generates the multiplication of capital and of families; and that very increase of production will, beyond all doubt, augment the product of taxation in other branches; to say no- thing of the popularity accruing to the government from the alleviation of tne national burthens. The government agents, who farm or administer the collec- tion of the taxes, very often abuse their interest and authority, to construe all doubtful points of fiscal law in their own fa- vour, and sometimes to create obscurity for the purpose of profiting by it. The effect is precisely the same, as if the scale of taxation were raised pro tanto.*^ Turgot adopted a con- no public consumption whatever, in place of the private consumption it extinguishes. * Of this a striking instance is given in a work entitled, Dlverses Mies sur la Legislation et V Adminisiration, pur M. C. St. Paul. One of the principal bankers of Paris having died in 1817, the dutj' on legacies and inheritance was levied upon the aggregate of his credit-account, and not upon the ba- lance after deducting the debits; and this by virtue of a proviso in the re- venue laws, which charges the duty upon the gross estate of a defunct, and not upon the residue after discharge of the outstanding claims. The dan- ger of fraud upon the revenue in stating the account is not sufficient to justify the exaction of more than is fairly due. The same department is in the habit of giving no notice to the execu- tors or other parties, of the payments falling due, until after the legal time has expired, in the hope of their incurring the penalty of default. The revolution had abolished this official and fiscal severity; but it was revived by the imperial government, and has been acted upon ever since. A clerk or officer has no chance of pi'omotion, unless he shows a disposition on all occasions to postpone the interests of the public to those of the exchequer. 414 t)N CONSUMPTION. book m. trary course, and made it a rule to lean always to the side of the tax-payer. The public contractors made a great outcry at this innovation, declaring that it was impossible for them to fulfil their engagements, and ofiering to collect on the govern- ment account and risk. The event, however, falsified their predictions by an actual increase of the receipts. The greater lenity in the collection proved so advantageous to production, and the consumption consequent upon it, that the profits, which had before not exceeded 10,550,000 /m, rose to 60,- 000,000 liv.; an advance which could hardly be credited, if it were not attested by unquestionable evidence.* We are told by Humboldt,t to whom we are indebted for a variety of valuable information, that in thirteen years from 1778, during which time Spain adopted a somewhat more liberal system of government in regard to her American de- pendencies, the increase of the revenue in Mexico alone amounted to no less a sum than 100 millions of dollars; and that she drew from that country, during the same period, an ad- dition in the single article of silver, to amount of 14,500,000 dollars. We may naturally suppose, that, in those years of prosperity, there was a corresponding, and rather greater in- crease of individual profits; for that is the source, whence all public revenue is derived. A similar course of conduct has invariably been followed by a similar efiect;J and it is a great satisfaction to a writer of liberal principles to be able to prove by experience, that mode- ration is the best policy. § * (Euvres dt Turgot, torn. i. p. 170. The accounts of the farmers-general were minutely stated, and rig-idly investigated, because the crown partici- pated in their profits. ■\ Essai Pol. sur la Nouvelle Espagne, liv. v. c. 12. t This position is further confirmed by an instance mentioned in a letter, addressed in 1785, by the then Marquis of Lansdowne to the Abbe Morellet, stating', « that in respect to the article of tea, the good effect of the reduc- tion of duty had surpassed all expectation. The amount of sale had ad- vanced from 5,000,0001bs. to 12,000,0001bs.,in spite of many unfavourable circumstances; besides which, smuggling had been so much crippled, that the public revenue had been increased to a degree that astonished every body.' § This doctrine has been combated by Ricardo, in his Principles of Po- litical Economy and Taxatimi. That writer maintains, that since the amount and the product of industry is always proportionate to the quantum of the capital engaged in it, the extinction of one branch by taxation must needs be compensated by the product of some other, towards which the industry and capital, thrown out of employ, will naturally be diverted. I answer, that whenever taxation diverts capital from one mode of employ- ment to another, it annihilates the profits of all who are thrown out of em- ploy by the change, and diminishes those of the rest of the community; for industry may be presumed to have chosen the most profitable channel. I will go further, and say, that a forcible diversion of the current of produc- tion anniliilates many additional sources of profit to industry. Besides, it makes a vast difference to the public prosperity, whether the individual or CHAr. VIII. ON CONSUMPTION. 415 Upon the same principles, it will be easy to demonstrate in the next place, that the taxes least mischievous are: 2. Such as are least attended with those vexatious circum- stances, that harass the tax-payer, without bringing any thing into the public exchequer. It has been held by many, that the costs of collection are no very great evil, inasmuch as they are refunded to the commu- nity in some other shape. On this head, I must refer my readers to what has been already observed.* These costs are no more refunded, than the net proceeds of the taxes them- selves; because both the one and the other consists in reality, not of the money, wherein the taxes are paid, but of the value, wherewith the tax-payer procures that money, and the value which the government again procures with it; which latter is destroyed and consumed outright. The necessities of princes have operated far more effectually than their regard to the public good, to introduce the practice of better order and economy in the financial departments of most European states during the two last centuries, than in former times. The people are generally made to bear as much as they can well stand under; so that every saving in the charge of collection has gone to swell the receipts of the exchequer. Sully tells us in his Memoirs,t that, for 30,000,000 liv. brought into the royal treasury, in 1598, by means of taxa- tion, individuals were out of pocket 150,000,000 /m; and as- sures us, that he had with great pains ascertained the fact, however incredible it might appear. Under the administra- tion of Necker, upon a revenue of 557,500,000, liv. the charges of collection amounted to no more than 58,000,000 liv,; yet, un- der his management, there were 250,000 persons employed in the collection, most of them, however, had other collateral oc- cupations. The charge was, therefore, about 10 4-5 per cent.; yet this is m.uch higher than the rate at vvhich the business is done in England. J Besides the charge of collection, there are other circum- the state be the consumer. A thriving and lucrative branch of industry promotes the creation and accumulation of new capital; whereas, under the pressure of taxation, it ceases to be lucrative; capital diminishes gra- dually instead of increasing; wealth and production decline inconsequence, and prosperity vanishes, leaving behind the pressure of unremitting taxa- tion. Ricardo has endeavoured to introduce the unbending maxims of geometrical demonstration; in the science of political economy^ there is no method less worthy of reliance. * Chap. V. sect. 1. f Liv. xx. \ Under tlie system of Napoleon, which made civilization retrograde to this, as well as in most otlier particulai's, the charges of collection, in which must be included the cliarge of privation and the irrecoverable arrears, were much more considerable; but the full extent of the mischief he caused is not vet ascertained. 416 ON CX)NSUMPTION. book iii. stances, that are burthensome to the people without being pro- ductive of gain to the public revenue. Lawsuits, imprison- ment and other preventive measures, entail additional expense, without procuring the smallest increase of revenue. And this addition is sure to fall on the most necessitous class of tax-pay- ers; for the other classes pay without litigation or constraint. Such odious means of enforcing the payment of taxes are precisely the same, as demanding of a man \2fr. because he has not wherewithal to pay 10 fr. Rigour is never necessary to enforce taxation where it presses lightly on the resources of individuals; but when a state is so unfortunate, as to be obliged to impose heavy burthens, of two evils, the process of levy by distress is preferable to that of personal constraint. For at any rate, by seizing and selling the tax-payer's goods, and thereby raising the arrears of his taxes, he is compelled to pay no more than is due; and the whole of what he does pay goes into the public purse. On this account it is, that works executed by the public re- quisition of labour, as the roads were in France under the old regime, are always a mischievous kind of taxation. The time lost by the labourers put in requisition in coming three or four leagues, perhaps, to their work, and that which is always wasted by people who get no pay, and work against their in- clination, is all a dead loss to the public, with no return of revenue. Even supposing the work to be well executed, there is often more loss incurred by the interruption of the regular agricultural pursuits, than gain made from the compulsory employment that has been substituted. Turgot called upon the surveyors and engineers of the respective provinces for an estimate of the average expense, one year with another, of keeping up old roads, and constructing the usual number of new ones, directing them to make their calculations on the most liberal scale. The estimate of the annual expense, made in compliance with his orders, amounted to 10,000,000 liv. for the whole kingdom: whereas, according to the calculations of Turgot, the old corvie system involved a sacrifice to the na- tion of 40,000,000 Zm* Days of rest, enjoined either by law, or by custom and usage too powerful to be infringed upon, are another kind of taxation, productive of nothing to the public purse. 3. Such as press impartially on all classes. Taxation being a burthen, must needs weigh lightest on each individual, when it bears upon all alike. When it presses in- equitably upon one individual or branch of industry, it is an indirect, as well as a direct, incumbrance; for it prevents the particular branch or the individual from competing on even * Necker reckons the corvee at 20 millions only; but probably he takes account of nothing, but the value of the day-labour exacted; and does not notice the injury resulting- from this method of supplying the public neces- sities. CHAP. VIII. ON CONSUMPTION. 417 terms with the rest. An exemption, granted to one manufac- ture, has often been the ruin of several others. Favour to one is most commonly injustice to all others. The partial assessment of taxation is no less prejudicial to the public revenue, than unjust to individual interests. Those who are too lightly taxed, are not likely to cry out for an in- crease; and those who are too heavily taxed, are seldom regular in their payments. The public revenue suffers in both ways. It has been questioned whether it be just to tax that portion of revenues, which is spent on luxuries, more heavily than that spent on objects of necessity. It seems but reasonable to do so; for taxation is a sacrifice to the preservation of society and of social organization, which ought not to be purchased by the destruction of individuals. Yet, the privation of absolute necessaries implies the extinction of existence. It would be somewhat bold to maintain, that a parent is bound in justice to stint the food or clothing of his child, to furnish his contin- gent to the ostentatious splendour of a court, or the needless magnificence of public edifices. Where is the benefit of social institutions to an individual, whom they rob of an object of positive enjoyment or necessity in actual possession, and oSer nothing in return, but the participation in a remote and con- tingent good, which any man in his senses would reject with disdain? But how is the line to be drawn between necessaries and superfluities? In this discrimination, there is the greatest diffi- culty; for the terms, necessaries and superfluities, convey no determinate or absolute notion, but always have reference to the time, the place, the age and the condition of the party; so that, were it laid down as a general rule, to tax none but su- perfluities, there would be no knowing where to begin, and where to stop. All that we certainly know is, that the income of a person or a family may be so confined, as barely to suffice for existence; and may be augmented from that minimum up- wards by imperceptible gradation, till it embrace every grati- fication of sense, of luxury, or of vanity; each successive gra- tification being one step further removed from the limits of strict necessity, till at last the extreme of frivolity and caprice is arrived at; so that, if it be desired to tax individual income, in such manner as to press lighter, in proportion as that in- come approaches to the confines of bare necessity, taxation must not only be equitably apportioned, but must press on re- venue with progressive gravity. In fact, supposing taxation to be exactly proportionate to in- dividual income, a tax of ten per cent, for instance, a family possessed of 300,000 /r. per annum would pay 30,000 fr. in taxes, leaving a clear residue of 270,000 /r. for the family ex- penditure. With such an expenditure, the family could not only live in abundance, but could still enjoy a vast number of gratificationsby no means essential to happiness. Whereas ano- ther family, with an income of 300 /r., reduced by taxation to 60 418 ON CONSUMPTION. book m. 210 fr. per annum, would, with our present habits of life, and w?ys of thinking, be stinted in the bare necessaries of sub- sistence. Thus, a tax merely pi'oportionate to individual in- come would be far from equitable; and this is probably what Smith meant, by declarins; it reasonable, that the rich man should contribute to the public expenses, not merely in pro- portion to the amount of his revenue, but even somewhat more. For my part, I have no hesitation in going further, and saying, that taxation can not be equitable, unless its ratio is progres- sive.* 4. Such as are least injurious to reproduction. Of the values, whereof taxation deprives individuals, a great part would, undoubtedly, if left at the disposal of the individu- als themselves, have gone to the satisfaction of their wants and appetites; but some part would have been laid by, and have gone to the further accumulation of productive capital. Thus, all taxation may be said to injure reproduction, inasmuch as it prevents the accumulation of productive capital. This effect is more direct and serious, whenever the tax- Eayer is obliged to withdraw a part of the capital already em- arked, for the purpose of enabling him to pay the tax; which case, as Sismondi has shrewdly observed, resembles the exac- tion of a tithe upon grain at seed-time, instead of harvest time. Of this kind is the tax on legacies and successions. An heir, succeeding to a property of 100,000yr. and called upon for a tax of 5 per cent, upon it, will pay it, not out of his ordinary income, burthened as it is already with the ordinary taxes, but dut of the inheritance, which is thereby reduced to 95,000/n Wherefore, if it happen to be a vested capital of 100,000 /r., and be reduced by the tax to 95,000 /r., the national capital will be diminished to the amount of the 5000 fr. thus diverted into the public exchequer. It is the same with all taxes upon the transfer of property. The owner of land worth 100,000 /r. will get but 95,000/r. for it, if the purchaser be saddled with a tax of 5 per cent. The seller will have a disposable capital of 95,000yr. onl}^, in lieu of land worth 100,000 /r.; and the national capital will sustain a loss of the difference. Should the purchaser be so bad an arithmetician, as to pay the full value of the land, without allowing for the tax, he will sacrifice a capital of 105,000 ^r. in * Wealth of Nations, book v. c. 2. It has been objected, that a pro- gressive scale of taxation presents the disadvantage of operating as a pen- alty to deter activity and frugality from the accumulation of capital. But it must be obvious, that taxation of all kinds subtracts a portion only, and generally a very moderate portion, of the addition made to the fortune of an individual; so that every one has a much stronger inducement to invite, than penalty to deter, accumulation. If a person had to pay 200 fr. more in taxes, upon every addition of lOOO/r. to his revenue, still he would mul- tiply his enjoyments in a larger ratio than his sacrifices. Vide what is said in Sect. 4. "of the same Chapter, on the subject of the land-tax of England. Ibid. CHAP. vTii. ON CONSUMPTION. 119 thepurchaseofvalueto the amount of but 100,000/r. In either ease, the loss to the national capital will betlie same; although, in the latter, it will fall upon the purchaser instead of the seller. Taxes upon transfer, besides the mischief of pressing upon capital, are a clog to the circulation of property. But, has the public any interest in its free circulation? So long as the ob- ject is in existence, is it not as well placed in one hand as in another? Certainly not. The public has a perpetual interest in the utmost possible freedom of its circulation; because by that means it is most likely to get into the hands of those, that can make the most of it. Why does one man sell his land? but because he thinks he can lay out the value to more advan- tage in some channel of productive industry. And why does another buy it? but because he wishes to invest a capital, that is laying idle or less productively vested; or because he thinks it capable of improvement. The transfer tends to augment the national income, because it tends to augment the income of the two contracting parties. If they be deterred by the ex- penses of the transfer, those expenses will have prevented this probable increase of the national income. Such taxes, however, as encroach upon the productive ca- pital of the community, and, consequently, abridge the de- mand for labour and the profits of industry within the commu- nity, possess, in a very high degree, one quality, which that distinguished political economist, Arthur Young, has pro- nounced to be an essential requisite in taxation; viz. the facili- ty and cheapness of collection.* Since taxation presents at best but a choice of evils, a nation, heavily burtnened, will probably do well, in submitting to a moderate impost upon capital. Taxes upon law-process, and, generally all that is paid to law officers and agents, are taxes upon capital.(l) For litiga- tion is not proportionate to the income of the suitors, but to accident, to the complexity of family interests, and to the im- perfections of the law itself. * This is the reason, why it has been found practicable to raise the duty on registration to its present high scale. Were it reduced, the product to the exchequer would probably be equally great; and the nation would en- joy the benefit of greater freedom of circulation, besides experiencing less encroachment upon its capital, (a) (a) The effect on the national capital would be pi-ecisely the same; the repeated action of the tax would make up for its lenity. T. (1) [Taxes upon law-pi-ocess are the most grievous and oppressive that have ever been resorted to, and since the appearance of Mr. Bentham's work on Law taxes, no one, who has read it, can doubt their impolicy. It is said in the Edinburgh Review, (vol. 27, page 358) "that one day Mr. 420 ON CONSUMPTION. book m. Forfeitures are equally a tax on capital. The influence of taxation upon production is not confined to the circumstance of diminishing one of its sources, that is to say, capital; it operates besides in the nature of a penalty, in- flicted upon certain branches of production and consumption. Patents, licences to follow any specified calling, and, general- ly, all taxes, that bear directly upon industr}^, are liable to this objection; but, when moderate in their ratio, industry will con- trive to surmount such obstacles without much difficulty. Nor is industry affected only by taxes bearing directly upon it; it is indirectly affected by sucn also, as bear upon the con- sumption of the articles it has to work upon. The products consumed in reproduction are, for the most part, those of primary necessity; and taxes, that discourage such products, must be injurious to reproduction. This is more especially the case in respect to those raw materials of manu- facture, which can only be consumed reproductively. An ex- cessive duty upon cotton- wool checks the production of all ar- articles, wherein that substance is worked up.* Brazil is a country abounding in articles, that might be cured and exported, if they were allowed to be salted. Its fishe- ries are very productive, and cattle so abundant, that they are killed merely for the sake of the hide. Indeed, it is thence that our tanneries in Europe are in a great measure supplied. But the salt duties prevent the export of either fish or meat; and thus, for the sake of a revenue of a million o^ francs, per- haps incalculable mischief is done to the productive powers of the country, as well as to the public revenue, which they might be made to yield. in like manner, as taxation operates in the nature of a pen- • In both England and France, premiums are given upon the importation of specific raw materials, with a view to encourage manufacture. This is an error on the opposite side. Upon this principle, instead of a tax on the product of land, a bounty should be given to all, who would take the trou- ble to cultivate; for domestic agriculture furnishes the raw material of most manufactures; as grain in particular, which is transformed, through the me- diation of human exertion, into value of various kinds, exceeding that con- sumed in the process. Customs or duties of import upon any article what- ever are equally equitable with direct taxes upon land;, both are positive evils; but the lighter the tax, the smaller the injury. Rose, in Mr. Pitt's presence, took Mr. Bentham aside, and informed him that they had read the pamphlet — that its reasoning was unanswerable — and that it was resolved there should be no more such taxes." " Yet Budget after Budget," remarks the reviewer, " has since been formed, in which those duties have made a part; and Mr, Pitt himself was found to patronize them upon his return to office in 1804." All the arguments ever brought forward in support of tliis objectionable impost, have been triumphantly re- futed by Mr. Bentham, in this work, which, it is said, in the same Review, "for closeness of reasoning, has not perhaps been equalled, and for excel- lence of style, has certainly never been surpassed."] AMEniDAiv Ebjtob. CHAP. viTi. ON CONSUMPTION. 421 alty, to discourage reproductive consumption, it may be em- ployed to check consumption of an unproductive kind; in which case, it has the two-fold advantage, of subtracting no value from reproductive investment, and of rescuing values from unproductive consumption, to be employed in a manner more beneficial to the communit5\ This is the advantage of all taxes upon luxuries.* When sums, levied by taxation upon capital, instead of be- ing simply expended by the government, are laid out upon productive objects; or, when individuals contrive to make good the deficiency out of their private savings, the positive mischief of taxation is then balanced by a counteracting bene- fit. The proceeds of taxation are reproductively vested, when laid out in improving the internal communications, construct- ing harbours, or other such works of utility. Governments sometimes employ a part of the revenue thus realized in ad- ventures of industry. Colbert did so, when he made advances to the manufacturers of Lyons. The governments of Ham- burgh, and of some other places in Germany, were in the ha- bit of embarking their revenues in productive undertakings; and it is said, that the authorities of Berne were in the habit of so employing a part of its revenues every year; but such in- stances are of very rare occurrence. 5. Such as are rather favourable than otherwise to the na- tional morality; that is to say, to the prevalence of habits, use- ful and beneficial to society. Taxation influences the habits of a nation, in the same way as it operates upon its production and consumption, viz: by imposing a pecuniary penalty upon specified acts; and it is, moreover, possessed of the grand requisites to render punish- ment effectual; namely, moderation and difficulty of evasion.! Without reference, therefore, to the purposes of finance and revenue, it is a powerful engine in the hands of government, for either corrupting or reformingthe national morals, and may be directed to the promotion of idleness or industry, extrava- gance or economy. The tax of five per cent, upon all hands devoted to produc- tive husbandry, and the exemption of pleasure-grounds, which existed in France before the revolution, operated, of course,, as a premium upon luxury, and a penalty upon agricultural enterprise. The tax of one per cent, upon the redemption of ground- * When it is absolutely necessary to lay a tax on a particular kind of con- sumption or industry, which it is desirable not to extinguish altogether, the burthen must be light in the commencement, and increased gradually and cautiousl3\ But, if it be desired to repress or annihilate a mischievous class of consumption or industry, the full weight of the tax should be thrown upon it at once. f The efficacy of these characteristics of punishment has been placed be- yond all doubt by Beccaria, in his tract, Dei delitti e delle pent; 422 ON CONSUMPTION. book hi. rents and rent-charges was virtually a penalty upon an act, equally advantageous to the parties and to the community at large; a fine upon the meritorious exertions of prudent land- owners to pay off their incumbrances. The law of Napoleon, exacting from each scholar, educated in a private academy, a specified payment into the chests of the public universities, operated as a penalty upon that mode of education, which alone can soften national manners and fully develop the faculties of the human mind.* When a government derives a profit from the licensing of lotteries and gambling-houses, what does it else but offer a premium to a vice most fatal to domestic happiness, and de- structive of national prosperity? How disgraceful is it, to see a government thus acting as the pander of irregular desires, and imitating the fraudulent conduct it punishes in others, by holding out to want and avarice the bait of hollow and deceit- ful chance !t • Tills species of tux is still more iniquitous, because it must fall either upon orphans, or upon parents, who are disposed to submit to personal pri- vations, for the purpose of rearing- valuable citizens; because it is heavier in proportion to the number of children, and the degree of privation of the parent; and because it is disproportionate to the means of the individual, poor and rich being taxed alike, A parent of moderate fortune, with one son only, pays as much to the university as all the rest of his taxes together: if he have more sons than one, he is still worse off. Thus was this institu- tion converted by the usurper into an instrument of fiscal extortion, suffi- cient of itself to have ensured the relapse into barbarism, even had it never been made the medium of instilling false ideas or habits of sei-vility. The pretext, of making the profits of private establishments contribute to the expense of compulsory tuition, is by no means satisfactory. Supposing the tuition of the public Lycees to be, of all others, the best calculated to train up useful citizens; and, admitting' the justice of compelling a father, or a teacher to his choice, to bring his pupil to the lectures of the authorized professors, still the parties, least in need of this instruction, are those already placed in private establisJiments of education, and entrusted to teachers of their own selection. It may be for the interest of the community at large, to dispense particular classes of learning gratuitously; but it is the grossest oppression to force learning upon individuals, and make them pay dear for it into the barg-ain. If any one class in particular ought to defray the charge of moderate gratuitous tuition, it is that, which has no children of its own, and is in the perception of all the benefits of social life, without being sub- ject to all its bui'thens. f Lotteries and games of hazard, besides occupying- capital unprofitably, involve the waste of a vast deal of time, that might be turned to useful ac- count; and this item of expenditure can never redound to the profit of the exchequer. They have the fui-ther mischievous effect of accustoming man- kind to look to chance alone for what their own talents or enterprlze might attain; and to seek for personal gain, rather in the loss of others, than in the original sources of wealth. The reward of active energy appeal's paltry be- side the bait of a capital prize. Moreover, lotteries are a sort of tax, that, however voluntarily incurred, falls almost v/holly upon the necessitous; for nothing, but the pressure of want can drive mankind to adventure, with the chances manifestly against them. The suras thus embarked are for the most part, the portion of misery; or, what is worse, the fruit of actual crime. CHAP. VIII. ON CONSUMPTION. 423 On the contrary, taxes, that check and confine the excesses of vanity and vice, besides 3'ielding; a revenue to the state, operate as a means of prevention. Humboldt mentions a tax upon coclf-fighting, which yields to the Mexican government 45,000 dollars per annum, and has the further advantage of checking that cruel and barbarous diversion. Exorbitant or inequitable taxation promotes fraud, falsehood, and perjury. Well-meaning persons are presented with the distressing alternative, of violating truth, or sacrificing their interests in favour of less scrupulous fellow-citizens. They can not but feel involuntary disgust, at seeing acts, in them- selves innocent, and sometimes even useful and meritorious, branded with the name, and subjected to all the consequences, of criminality. These are the principal rules, by which present or future taxation must be weighed, with a view to the public prosperi- ty. Ater these general remarks, which are applicable to taxation in all its branches, it may be useful to examine the various modes of assessment; in other words, the methods adopted for procuring money from the subject; as well as to inquire, upon what classes of the community the burthen prin- cipally falls. SECTION 11. Of the different Modes of Assessment, and the Classes they press upon respectively. Taxation, as we have seen above, is a requisition by the government upon its subjects for a portion of their products, or of their value. It is the business of the political economist to explain the effects resulting froin the nature of the products put in requisition, and from the mode of apportioning the burthen, as well as upon whom the burthen of the charge really falls, since it must inevitably fall upon some one or other. The application of the above principles in a few spe- cific instances will show, how they may be applied in all others. The public authority levies the values taken in the way of taxation, sometimes in the shape of money, sometimes in kind, according to its own wants, or the ability of the tax-payer. In whatever shape it is paid, the actual contribution of the tax- payer is always of the value of the article he gives. If the government, wanting or pretending to want corn, or leather, or woollens^ makes a requisition of those articles upon the tax-payer, and obliges him to furnish them' in kind, the tax paid amounts exactly to what the payer has expended in pro- curing those articles, or what he could have sold them for, if 424 ON CONSUMPTION. book hi. the government had not taken them from him. This is the only way of ascertaining the amount of the tax, whatever price or rate the government may set upon it in the plenitude of its power. So, likewise, the charges of collection, in whatever shape they may appear, are always an aggravation of the assess- ment, whether they accrue to the profit of the state or not. — If the tax-payer be obliged to lose his time, or transport his goods, for the purpose of paying the tax, the whole of the time lost, or expense of transport, is an aggravation of the tax. Among the contributions, that a government exacts from its subjects, should likewise be comprised, all the expenses which its political conduct may bring upon the nation. Thus, in es- timating the expenses of war, we must include the value of equipment and pocket-money, with which the military are supplied by themselves or their families; the value of the time lost by the militia; the sums paid for exemption and substi- tutes; the full charge of quarters for the troops; the pillage and destruction they may be guilty of; the presents and at- tentions lavished on them by friends or countrymen on their return: to all which must be added, the alms extorted from pity and compassion by the misery consequent upon such mis- rule. For, in fact, none of these values need have been taken from the members of the community under a better system of government. And, although none of them have gone into the treasury of the monarch, yet have they been jDaid by the peo- ple, and their amount is as completely lost, as if they had con- tributed to the happiness of the hiiman species. Hence, we may form some notion of the extent of the na- tional sacrifices. But, from what source are they drawn? — Doubtless, either from the annual product of the national in- dustry, land, and capital; that is to say, from the national re- venue; or from the values previously saved and accumulated; that is to say, from the national capital. When taxation is moderate, the subject can not only pay his taxes wholly out of his revenue, but will not be altogether disabled from besides saving some part of that revenue: and, although some of the tax-payers may be obliged to trench up- on their capital for the payment of their taxes, the loss to the general stock is amply reimbursed by the savings, which this happy state of affairs allows others to effect. But it is far otherwise, when military despotism or usurped authority extorts excessive contributions. Great part of the taxes is then taken from the vested and accumulated capital; and, if the country be long subjected to its domination, the revenues of each successive year are progressively reduced, and the ruin and depopulation of the country will recoil upon its rulers, unless their downfal be accelerated by their own folly and excesses. Under the protecting influence of just and regular govern- CHAP. viri. ON CONSUMPTION. 425 ment, on the contrary, there is a progressive annual enlarge- ment of the profits and revenues, on which taxation is to be levied; and that taxation, without any alteration of its ratio, gradually becomes more productive by the mere multiplica- tion of taxable products. Nor is the government more deeply interested in moderat- ing the ratio of taxation, than in its impartial assessment up- on every class of individual revenue, and its equal pressure upon all. In fact, when revenue is partially affected, taxation sooner reaches the extreme limits of the ability of some classes, while others are scarcely touched at all: it becomes vexatious and destructive, before it arrives at the highest practicable ra- tio. The burthen is galling, not because of its weight, but because it does not rest upon all shoulders alike. The different methods employed to reach individual reve- nues, may be classed under two grand divisions — direct, and indirect, taxation; the former is, the absolute demand of a specific portion of an individual's real or supposed revenue; the latter, a demand of a specific sum on each act of consump- tion of certain specified objects, to which that income may be applied. In neither case, is the real subject of taxation that commodi- ty, on which the estimate is made, and which forms the ground- work of the demand for the tax; or of necessity that value, whereof a part is taken by the state; individual revenue is the only real subject of taxation; and the specific commodity is selected only as a more or less effective means of discovering and attacking that revenue. If individual honesty could in every case be relied on, the matter would be simple enough; all that would be requisite would be, to ask each person the amount of his annual profits, that is to say, his annual revenue. The contingent of each would be readily settled, and one tax only necessary, which would be at the same time the most equitable, and the cheapest in the collection. This was the method adopted at Hamburgh, before that city fell into mis- fortune; but it can never be practised, except in a republic of small extent, and very moderately taxed. As a means of assessing direct taxation proportionately to the respective revenues of the tax-payers, governments some- times compel the production of leases by landlords, or, where there is no lease, set a value on the land, and demand a cer- tain proportion of that value from the proprietor; this is called a land-tax.* Sometimes they estimate the revenue by the rent of the habitation, and the number of servants, horses and carriages kept, and make the assessment accordingly. This is called in France, the tax on moveables. t Sometimes they calculate the profits of each person's profession or calling, by the extent of the population and district where it is followed. * Cuntrihrdum-fonclere — "j" mobiliere. 61 426 ON CONSUMPTION. book hi. This is called in France, the license-tax.* All these different modes of assessment are expedients of direct taxation. In the assessment of indirect taxation, and such as is in- tended to bear upon specific classes of consumption, the object itself is alone attended to, without regard to the party who may incur the charge. Sometimes a portion of the value of the specific product is demanded at the time of production; as in France, in the article of salt. Sometimes the demand is made on entry, either into the state, as in the duties of import;! or into the towns only, as in the duties of entry.f — Sometimes a tax is demanded of the consumer at the moment of transfer to him from the last producer; as in the case of the stamp duty in England, (a) and the duty on theatrical tickets in France. Sometimes the government requires a commodity to bear a particular mark, for which it makes a charge, as in the case of the assay-mark of silver, and stamp on newspapers. Sometimes it monopolizes the manufacture of a particular ar- ticle, or the performance of a particular kind of business; as in the monopoly of tobacco, and the postage of letters. Some- times, instead of charging the commodity itself, it charges the payment of its price; as in the case of stamps on receipts and mercantile paper. All these are different ways of raising a revenue by indirect taxation; for the demand is not made on any person in particular, but attaches upon the product or ar- ticle taxed. § It may easily be conceived, that a class of revenue, which may escape one of these taxes, will be affected by another; and that the multiplicity of the forms of taxation gives a great approximation to its equal distribution; provided always, that all are kept within the bounds of moderation. Every one of these modes of assessment has peculiar ad- vantages and peculiar disadvantages, besides the general evil of all taxation, viz: that of approaching a part of the pro- ducts of the community to purposes little conducive to its hap- piness and reproductive powers. Direct taxation, for instance, is cheap in the collection; but, on the other hand, it is paid with reluctance, and must be enforced with considerable harsh- ness and rigour. Besides, it bears very inequitably upon the individual. A rich merchant, charged only 600 /r. for his li- cense, makes an annual profit, perhaps, of 100,000 /K; while the retailer, who can scarcely be supposed to make more than * Les Patentes. f Douanes. t Octroi. § Not because they affect the tax-payer indirectly; for this circumstance is equally applicable to many items of direct taxation; as, for instance, to the license-tax fpaicntesj, part of which falls indirectly upon the consumer, who buys of the licensed dealer. (a) It is difficult to say, what branch of the English stamp-duties is here al- luded to. T. CHAP. viir. ON CONSUMPTION. 427 4000 /r., is charged for his license lOOyr., which is the lowest rate. The revenue of the land-holder is already affected by the land-tax, before it is further reduced by the tax on move- ables; while the capitalist is subjected to the latter burthen only. Indirect taxation has the recommendation of being levyable with more ease, and with less apparent vexation or hardship. All taxes are paid with reluctance, because the equivalent to be expected for them, i. e. the security afforded by good or- der and government, is a negative benefit, which does not im- mediately interest individuals; for the benefit afforded consists rather in prevention of ill, that in the diffusion of good. But the buyer of the taxed commodity does not suspect himself to be paying for the protection of government, which probably he cares very little about; but merely for the commodity it- self, which is an object of his urgent desire, although, in fact, that price is aggravated by the tax. The inducement to con- sume is strong enough to include the demand of the govern- ment; and he readily parts with a value, that procures an im- diate gratification. It is this circumstance, that makes such taxes appear to be voluntary. And, indeed, so much so were they considered by the United States before their emancipation, that, although the right of the British Parliament to tax America without her consent was stoutly denied, yet she was ready to acknow- ledge the right of imposing taxes upon consumption, which every body could evade if he pleased, by abstaining from the articles taxed.* Personal taxes are viewed in a different light, and have more of the character of ostensible spoliation. Indirect taxation is levied piecemeal, and paid by individu- als according to their respective ability at the moment. It in- volves none of the perplexity of separate assessments on each province, department, or individual; or of the inquisitorial in- spection into private circumstances; nor does it make one per- son suffer for the default of another. The inconvenience of appeals and private animosities, as well as of levy by distress or imprisonment, is avoided altogether. Another advantage of indirect taxation is, that it enables the government to bias the different classes of consumption; fa- vouring such as promote the public prosperity, as does repro- ductive consumption of all kinds: and checking such as tend • Vide Examination of T?. Franklin, at the bar of the House of Com- mons, 1766. Memoirs, vol. i. Appendix 6. (a) (ff) The denial went to the whole of what is called interiial taxation; the admission, which appears on the part of the American agents to have been a concession for the sake of peace, went no farther than to external taxes for the regulation of trade. And even tliis concession on the part of some of the agents was very soon retracted, and the right of taxation denied in loto. Ibid. vol. i. passim. T. 428 ON CONSUMPTION. book hi. to public impoverishment, as do all kinds of unproductive con- sumption; discouraging the costly and insipid indulgences of the wealthy, and promoting the simpler and cheaper enjoy- ments of the poor and industrious. It has been objected to indirect taxation, that it entails a heavy expense of collection and management, and a large es- tablishmentof clerks,officers,directors,and subordinate agents; but it is observable, that these charges may be vastly reduced by good administration. The excise and stamp-duties in En- gland cost but 3i per cent, in the collection in the year 1 799. * There are few classes of direct taxation, that are managed so economically in France. It has been further objected, that its product is uncertain and fluctuating; whereas, the public exigencies require a regu- lar and certain supply: but there has never been any lack of bidders, whenever such taxes have been let out to farm; and experience has shown, that the product of every class of taxa- tion may always be nearly estimated and safely reckoned upon, except in very rare and extraordinary emergencies. Besides, taxes on consumption are necessarily various; so that, the defi- cit of one is covered by the surplus of another. Indirect taxation is, however, an incentive to fraud, and obliges governments to brand with the character of guilt, ac- tions that are innocent in their nature; and, consequently, to resort to a distressing severity of punishment. But this mis- chief is never considerable, until taxation has grown excessive, so as to make the temptation to fraud counterbalance the dan- ger incurred. All excess of taxation is attended with this evil; that, without enlarging the receipts of the public purse, it mul- tiplies the sufferings of the population. It may be observed, that consumption, and, consequently, individual revenue, are unequally affected by indirect, as well as by direct, taxation: for the private consumption of many articles is not proportionate to the revenue of the consumer. The possessor of an annual revenue of 1 00,000 /r. does not consume in the year an hundred times as much salt, as the possessor of a revenue of 1000 Jr. only. But this inequality may be obviated by the variety of taxes on consumption. Moreover, it is to be recollected, that such taxes fall upon in- comes already charged with the taxes on land and on move- ables. A person, whose whole income is derived from land, in i^espect to which he is taxed in the first instance, pays on the same income a second tax under the head of moveables; and a third on every taxed article, that he buys and con- sumes. Although all these kinds of taxes be paid in the outset, by the persons of whom they are demanded by the public authority, * Gamier, Traduction de Smith, torn. iv. p. 438. According to Arthur Young-, the stamp-duties in his time cost but 5,691/. in the collection, upon a receipt of 1,330,000/.; which is less than | per cent. CHAP. VIII. ON CONSUMPTION. 429 it would be wrong to suppose, that they always ultimately fall on the original payers, who, in many instances, are not the parties really charged, but merely advance the tax in the first instance, and contrive to get indemnified wholly or partially by the consumers of their own peculiar products. But the rate of indemnity is infinitely diversified by the respective circumstances of the individuals. Of this diversity, we may form some notion, by the consi- deration of the following general facts: When the taxation of the producers of a specific commodity operates to raise its price, part of the tax is paid by the con- sumers of the commodity. If its price be no-wise raised, it falls wholly upon the producers. If the commodity, instead of being thereby advanced in price, is deteriorated in quality, a portion of the tax at least must fall upon the consumer; for a purchase of inferior quality at equal price is equivalent to a purchase of equal quality and superior price. Every addition to price must needs reduce the number of those possessed of the ability to purchase; or, at any rate, must diminish the extent of that ability.*^ There is much less salt consumed, when it sells for 3s. than when it sells for Is. the lb. Now, the ratio of the demand to the means of production being lowered, productive agency in this department is worse paid; that is to say, the master-manufacturer of salt, and all the sub- ordinate agents and labourei's, together with the capitalists, that supplies the funds, and the landlord of the premises where the concern is carried on, must be content with smaller profits, because their product is less in demand, t The productive classes, indeed, naturally strive to indemnify themselves to the amount of the tax; but, they can never succeed to the full ex- tent, because the intrinsic value of the commodity, that, I mean, which goes to pay the charges of production, is really diminished. So that, in fact, the tax upon an article never raises its total price by the full amount of the tax; because, to do so, the total demand must remain the same; which it never can do. Wherefore, in such cases, the tax falls, partly upon * Suprci, Book II. chap. 1. ■f- The position, that the interest of the capitahst and the rent of the landlord are thereby lowered, however paradoxical it may appear, is, ne- vertheless, quite true. It may be asked, why should the capitalist, who makes the advance to the manufacturer, or the landlord, whose land he occupies, lower their demands, in consequence of a portion of the product being subtracted by taxation? But is no allowance to be made for conse- quent delay of payment, claims of allowances, failures, and legal expenses? All, or at least a portion, of which must fall upon the landlord and capital- ist: and often without any suspicion on their part, that they are thus made to participate in the burthen. In a complex social organization, the pres- sure of taxation is often imperceptible. This shows the danger of adherance to invariable principle; and of aban- doning the experimental method of Smith, and consti'ucting a system of theoretical deduction, as some recent English writers have done, in imita- tion of the economists of the last century. 430 ON CONSUMPTION. book hi. those, who still continue to consume, notwithstanding the in- crease of price, and partly upon the producers, who raise a less product, and find that, in consequence of the reduced de- mand, they really obtain less on the sale, when the tax comes to be deducted. The public revenue gains the whole excess of price to the consumer, and the whole of the profit, which the producer is thus compelled to resign. The effect is analogous to that of gunpowder, which at the same time propels the bul- let, and makes the piece recoil. By laying a tax upon the consumption of woollens, their consumption is reduced, and the revenue of the wool-grower suffers in consequence. It is true, he may take to a different kind of cultivation; but we may fairly suppose, that, under all the circumstances of soil and situation, the rearing of sheep was the most profitable kind of culture; otherwise, he would not have chosen it. A change in the mode of cultivation must, therefore, involve a loss of revenue. But the clothier and the capitalist will each be subjected to a portion of the loss result- ing from the tax. Each concurrent producer is affected by a tax on an article of consumption, in proportion only to the share he may have in raising the product taxed. When the owner of the soil furnishes the greatest part of the value of a product, as he does in respect to products con- sumed nearly in the primary state, he it is that bears the greatest part of that portion of the tax, which falls on the pro- ducers. A duty of entry upon the wine imported into the towns, falls heavily upon the wine-grower; but an exorbitant excise upon lace will affect the flax-grower in a degree hardly perceptible; whereas, all the other producers, the dealers, the operative and speculative manufacturers, who create the far greater proportion of the value of the lace, will suffer very se- verely. When the value of a product is partly of foreign, and partly of domestic creation, the domestic producers bear nearly the whole burthen of the tax. A tax upon cottons in France will reduce the earnings of her cotton manufacturers, by lowering the demand for their product; thus, part of the tax will fall on them. But the wages of the productive agency of the cot- ton-growers in America will be very little affected indeed, un- less there be a concurrence of other circumstances. In fact, the tax would reduce the consumption in France 10 per cent, perhaps, and the demand in America 1 per cent, only, if the demand from France were but one tenth of the general demand upon America. The taxation of an object of consumption, if it be one of primary necessity, operates upon the price of almost all other products, and consequently falls upon the revenues of all the other consumers. An octroi upon meat, corn, and fuel, at their entry into a town, enhances the price of every thing manufactured in it; while a tax upon the tobacco there consum- CHAP. VIII. ON CONSUMPTION. ^31 ed makes no other commodity dearer, the producers and con- sumers of tobacco alone are affected; and for a very plain rea- son; the producer who indulges in superfluities has to main- tain a competition with another, who abstains from them; but, if he pays a tax upon necessaries, he need fear no competition; for his neighbours will be all in the same predicament. The direct taxation of the productive classes must, a fortiori^ affect the consumers of their products, but can never raise the prices of those products so much, as completely to indemnify the producer; because as I have repeatedly explained, the in- creased price abridges the demand, and the contraction of the demand reduces the profits of all the productive agency, that has been exerted in the supply. Of the concurrent producers of a specific product, some can more easily evade the effect of the tax than others. The capi- talist, whose capital is not absolutely vested and sunk in a par- ticular business, may withdraw it and transfer it elsewhere, from a concern that yields him a reduced interest, or has be- come more hazardous. The adventurer or master-manufactur- er, may in many cases, liquidate his account, and transfer his labour and intelligence to some other quarter. Not so the land-owner and proprietor of fixed capital.* An acre of vine- yard or cornland will only produce a given quantity of corn or wine, whatever be the ratio of taxation; which may take the h or even § of the net produce, or rent as it is called, and yet the land be tilled for the sake of the remaining i, or \.\ The rent, that is to say, the portion assigned to the proprietor, M^ill be reduced, and that is all. The reason will be manifest to any one, who considers, that in the case supposed, the land continues to raise and supply the market with the same amount of produce as before; while on the other hand, the mo- tives in which the demand originates remain just as they were. J * Vidt Supra. Book I. chap. 4. for the explanation of the mode, in which the land-holder concurs in production by the advance of his land; and must, therefore, be included amongst the productive classes. ■j- The cultivation need never be abandoned altogether, until taxation takes more than the whole surplus product, applicable to the payment of rent; it is then worth nobody's while to cultivate at all; for not only could the proprietor receive nothing, the whole being appropriated by the state; but the farmer would be compelled to pay to the state a higher rent, than he could afford. i: There is this peculiarity attending the products of agricultural industry; viz: that their average piice is not raised by growing scai-city, because popu- lation is sure to decline co-extensively with the declining supply of human aliment; so that the demand necessarily diminishes equally with the supply. Thus, it is not found, tliat wheat is dearer in tliose countries, where great part of the land is tlirown out of tillage, than where it is all in a high state of cultivation. In Spain, wheat is not now dearer, than in the time of Fer- dinand and Isabella, though it is thei'e produced in much less abundance; for the number of mouths to be fed is also much less. On the contrar}', the lands of both England and France were less cultivated in the middle ages than at the present day; and their product of grain less abundant; yet it 433 ON CONSUMPTION. book hi. If, then, the intensity of supply and demand must both remain the same, in spite of any increase or diminution of the ratio of the direct taxation upon the land, the price of the product supplied will likewise remain unchanged; and nothing but a change of price can saddle the consumer with any portion what- ever of that taxation.* Nor can the proprietor evade the tax even by the sale of the estate; for the price or purchase money will be calculated ac- cording to the revenue which may be left him by taxation. The purchaser makes his estimate according to the net reve- nue, charges and taxes deducted. If the ordinary interest on such investments of capital be five per cent, an estate, that before would have sold for 100,000 /r., will fetch but 80,000 fr. when it comes to be charged with an annual tax of 1000 fr. ; for its actual product to the proprietor will not exceed 4000 y^. The effect is precisely the same, as if government were to appropriate to itself 1-5 of the land in the country; which would make no difierence at all to the consumers of its produce.t But property in dwelling-houses is otherwise circumstanced; a tax upon the ownership raises the rents; for a house, or rather the satisfaction it yields to the occupier, is a product of manufacture and not of land; and the high rate of house-rent reduces the production and consumption of houses, in the like manner as of cloth or any other manufactured commodity. Builders, finding their profits reduced, will build less; and con- sumers, finding the accommodation dearer, will content them- selves with inferior lodging. From all those circumstances, we may judge of the temerity of asserting as a general maxim, that taxation falls exclusively upon any specific class or classes of the community. It always falls upon those who can find no means of evasion; for every one naturally tries to shift the burthen off his own shoulders if possible; but the ability to evade it is infinitely varied, ac- cording to the various forms of assessment, and the position of each individual in the social system. Nay more; it varies at different times even in the same channel of production. does not appear, from a comparison of other values, that it was then much dearer than at present. The product and the population were both great- ly inferior; and the slackness of demand counterbalanced the slackness of supply. * It is a mistake to suppose, that the tax must bear equally upon the proprietor and the farmer, who finds the requisite capital and industry; for taxation can have no effect, either in reducing the quantity of land capable of cultivation, or in multiplying the number of farmers, able and willing" to undertake it; and, if neither supply and demand in this branch be varied, the ratio of rent must needs remain unaltered likewise. \ The Economists were quite correct in their position, that a land or ter- ritorial tax falls wholly upon the net product, and, consequently, upon the proprietors; but they were wrong in extending the doctrine so far as to assert, that all other taxes were defrayed out of the same fund. CHAP. rin. ON CONSUMPTION. 433 When a commodity is in great, request, the holder will not part with the possession, unless indemnified for all his advances, of which the tax he has paid is a part: he will take nothing short of a full and complete indemnity. But, if any unloolced for occurrence should happen to lower the demand for his pro- duct, he will be glad enough to take the tax upon himself, for the sake of quickening the sale. There are few things so unsteady and variable, as the ratio of the pressure of taxation upon each respective class of the community. Those writers, who have maintained, that it bears upon any one or more classes in particular, or in any fixed or certain proportion, have found their theory contradicted by experience at every turn. Furthermore, the effects I have been describing, and which are equally consonant to experience and to reason, are uniform in their operation and of equal duration with the causes in which they originate. The owner of land will never be able to saddle the consumers of its produce with any part of his land-tax; not so the manufacturer. A manufactured com- modity will invariably feel a diminution in its consumption, in consequence of the price being raised by taxation, supposing other circumstances to be stationary; and its production will be a less profitable occupation. A person, who is neither pro- ducer nor consumer of an object of luxury, will never bear any portion whatever of the tax that may be laid upon it. — What, then, must we think of a proposition, unfortunately sanctioned by the approbation of an illustrious body,* that has too much neglected this branch of science, viz: " that it is of little importance whether a tax press upon one branch of reve- nue or another, provided it be of long standing; because every tax in the end affects every class of revenue, in like manner, as bleeding in the arm reduces the circulating blood of the whole human frame." The object of comparison has no analo- gy whatever with taxation. Social wealth is not a fluid, tend- ing constantly to find a level. It rather resembles the vegeta- ble creation, which admits of the loss of a limb without the destruction of the trunk, and in which the loss is more to be lamented, if the branch be productive, than if it be barren. — But the tree will bear cutting and hacking in every part, be- fore it becomes barren all over, or necessarily falls into decay. This is a far more apposite case; but neither will do to reason upon. Comparisons are not proofs, but mere illustrations, tending to make that intelligible, which can be made out in proof without their assistance. When speaking of taxes upon products, which I have some- times called taxes upon consumption, although not paid en- tirely in all cases by the consumer, I have hitherto made no mention of the particular stage of production, at which the tax • The French Institute, which awarded the prize of merit to an Essay of M. Canard, in support of this doctrine. 62 434 ON CONSUMPTION. book hi. may be demanded, or of the consequence of this particular cir- cumstance, which deserves a little of our attention. Products increase in value progressively, as they pass through the hands of the different concurrent producers: and even the most simple undergo a variety of modifications, be- fore they arrive at a fit state for consumption. Wherefore, a tax does not take the proportion of the value of a product which it professes, unless it be levied at the precise moment, when it has arrived at the full value, and has undergone all the productive modifications. If a tax be imposed on the raw mate- rial in the outset, proportioned, not to its then value, but to the value it is about to receive, the producer, in whose hands it happens to be, is obliged to advance a tax out of proportion to the value in hand; which advance, besides being highly in- convenient to himself, is refunded with equal inconvenience by every successive producer, till it reach the hands of the last, who is in turn but partially indemnified by the consumer. And there is this further mischief in such an advance of the tax; that it prevents the class of industry, which is called up- on to make it, from being originally set in motion, without a larger capital than the nature of the business requires; and, that the additional interest of the capital, which must be paid, part by the consumers, and part by the producers, is so much additional taxation, without any addition of public revenue.* Thus, both theory and experience lead to the conclusion precisely opposite to that drawn by the sect of Economists; and show that portion of the tax, which presses upon the con- sumer's revenue, to be always the more burthensome, the earlier it is levied in the process of production. Direct and personal taxes, which operate to raise the price of necessaries, or such as fall immediately upon necessaries, are liable to this inconvenience in the highest degree: for they oblige each producer to advance the personal tax on all the producers that have preceded him: so that the same amount of capital will set in motion a smaller amount of industry; and the tax-payers pay the tax, plus a compound interest upon it, yielding no benefit to the exchequer. * The duty on the import of cotton-wool into France was, in 1812, as high as 1000 /r. per bale, one bale with another. There were several manufac- tories averaging a consumption of two bales joer da)': and, as the amount of duty was a dead outlay, during the whole interval between the purchase of the raw material and the realization of the manufactured product, which may be taken at twelve months, they must each have required an ad- ditional capital of 600, 000 /r. more than would have been requisite but for tax; the interest of which they must have charged to the consumer, or have paid out of their own profits. The whole of it was so much addition of price to the French consumer, and aggravation of the pressure of taxation, unproductive of a single additional franc to the public revenue. The heaviest of the national burthens of that period were those, that made the least figure in the annual budget of the ministry: the people suffered, in very many instances, without knowing the nature of the grievance, as in the example just cited. CHAP. vm. ON CONSUMPTION. 435 Nor is this mere theory: the neglect of these principles has occasioned many serious practical errors; like that of the Con- stituent Assembly of France, which carried to excess the sys- tem of direct taxation, especially upon land; being misled by the prevailing and fashionable doctrine of the Economists; — that land is the source of all wealth, the agriculturist the only productive labourer, and France naturally and essentially an agricultural country. It seems to me that, in the present stage of political econo- my, the principles of taxation will be more correctly laid down as follows: — Taxation is the taking a portion of the general product of the community, which never returns to the community in the channel of consumption. It takes from the community over and above the values actu- ally brought into the exchequer, the charges of collection, and the personal trouble it entails; together with all those values, of which it obstructs the creation. The privation resulting from taxation, whether voluntary or compulsory, affects the tax-payer in his quality of producer, whenever it operates to curtail his profits; that is to say, his income or revenue; and affects him in his character of con- sumer, whenever it increases his expenditure, by raising the prices of products. And, since an increase of expenditure is precisely the same thing as a diminution of revenue, whatever is taken by taxa- tion may be said to be so much deducted from the revenues of the community. In a great majority of cases, the tax-payer is affected by taxa- tion in both his characters, of producer and consumer; and,, when he can not manage to pay the public burthens out of his revenue, along with his personal consumption, he must en- croach upon his capital. When this encroachment of one per- son is not counterbalanced by the savings of another, the wealth of the community must gradually decline. The individual actually paying the tax to the tax-gatherer is not always the party really charged with it, at least, not the party charged with the whole that is paid. He frequently does no more than advance the tax, either wholly or partially; being afterwards reimbursed by the other classes of the com- munity, in a very complicated way, and perhaps after a vast variety of intermediate operations; so that a great many per- sons are paying portions of the tax, at a time when probably they least suspect it, either in the shape of the advanced price of commodities, or of personal loss, which they feel, but can not account for. The individuals, on whose revenues the tax ultimately falls, are the real tax-payers, and contribute value greatly exceeding the sum that is brought into the exchequer, even with the ad- dition of the charges of collection. Ihe misconduct of the 436 ON CONSUMPTION. book hi. government in the matter of taxation, is proportionate to this excess of the payment above the receipt. A country heavily taxed may be considered in the same light as one labouring under natural impediments to produc- tion. With a heavy charge of production, it raises a very small product. Personal exertion, capital, and the productive agency of land, are all but poorly recompensed: and more is expended in earning a less profit. It is worth while on this head to recur to the principles ex- plained in a former passage,* when describing the difference between positive and relative dearness. High price resulting from taxation is positive dearness: it indicates a smaller pro- duct raised by the efforts of a larger amount of productive agency. Besides which, taxation generally occasions a cotem- porary advance of commodities in comparison with silver; that is to say, raises their money price: and for this reason; because specie is not an annual, regenerative product, like those that are swallowed up by taxation. Government is not a consumer of specie, except when it happens to export it for the payment of its armies, or foreign subsidies: it refunds in the purchases it makes all the specie it obtains by taxation: but the value levied is never refunded, t Wherefore, since taxation paralyzes one part of the sources of production, and effects the rapid destruction of the product of the other, when its ratio is excessive, it must gradually render products more scarce in proportion to the specie, which is not varied in quan- tity by the operation. Now, whenever the commodities to be circulated become fewer in proportion to the specie that is to circulate them, their relative value to the specie must rise; the same money will purchase a smaller quantity of products. It might be supposed, that such a superabundance of gold and silver specie ought to operate in exoneration of the public: yet it can not have that effect; for, however plentiful it maybe in proportion to other commodities, still individuals can only obtain it by giving their own products in exchange; and the raising of those products has become more difficult and more costly. Besides, when money-prices grow high, and specie is con- sequently reduced in relative value, it gradually takes its de- parture, and becomes scarcer, like all other commodities: and thus a country, burthened with a taxation too heavy for its productive powers, is first drained of its commodities, and next of its specie; till it gradually reaches the extreme of penury and depopulation. The careful study of these principles will give some insight into the mode, in which the annual and really monstrous ex- * Book II. chap. 3. \ For the reason uh-ead}' stated, viz. that purchases, made with the pro- ceeds of taxation, are acts of exchange, and not of restitution. CHAP. VIII. ON CONSUMPTION. 4 37 pcnditure of national governments, in modern times, has habituated the subject to severer toil and exertion, without which it would be impossible that, after providins; for the subsistence, comfort, and pleasures of himself and family, ac- cording to the habits of the time and place, he should be able to meet the consumption of the state, and the collateral waste and destruction it occasions, the amount of which it is impos- sible to ascertain, though in the larger states it is confessedly- enormous. This ver}^ profusion, though it proves the vices and defects of the political system and organization, has been attended with one advantage at any rate; viz., that it has operated to stimulate the approximation to perfection in the art of produc- tion, by obliging mankind to turn the natural agents, to better account: in which point of view, taxation has certainly helped to develop and enlarge the human faculties: so that, when the progress of political science shall limit taxation to the supply of real public wants only, the improvements in the art of pro- duction will prove a vast accession to human happiness. But, should the abuses and complexity of the political system lead to the prevalence, extension, increase, and consolidation of op- pressive and disproportionate taxation, it is much to be fear- ed, that it may plunge again into barbarism those nations, whose productive powers are now the most astonishing: that the condition of the labouring classes, who are always the bulk of the community, may in such nations present a picture of drudgery so incessant and toilsome, as to make them cast a wistful eye upon the liberty of savage existence; which, though it offer no prospect of domestic comfort, at least pro- mises emancipation from perpetual exertion to supply the prodigalit)^ of a public expenditure, yielding to them no satis- faction, and, perhaps, even operating to their prejudice, (a) (a) This ground of apprehension is certain!}' just. It has been doubted by many pohtical theorists, whether the total remission of taxation would operate to improve tlie condition oftlie inferior productive classes: inas- much, as all, that is now paid into tlie pubhc exchequer, would quickly be appropriated by the classes, who should happen to be in possession of those sourcesand means of production, which are capable of exclusive ap- propriation; and thus the owners of mere personal agency would nowise benefit. But it should be observed, that private persons have an immedi-. ate personal interest in making the most of their property; and will, on their own account, so conduct themselves, as to promote their own advan- tage, which is the advantage of the public also, where equality of personal right prevails. Wherefore, the strongest impulse of private cupidity can never operate to retard the advance of productive power and national wealth, or to make them retrograde, but just the contrary. Thus, although the present condition of the mere labourer might notbe improved, his means of bettering his condition would be enlarged, by the growing increase of wealth, and by greater freedom of personal agency. The extortion of pri- vate cupidity, unaided by authority, must, for its own sake, regulate it- self by the ability oftlie object of it: but that of pubhc au-thority is inexora- 438 ON CONSUMPTION. book hi. SECTION III. Of Taxation in Kind. Taxation in kind is the specific and immediate appropria- tion of a portion of the gross product to the public service. It has this advantage, of calling on the producer only for what he has actually in hand, in the identical shape which it happens to be under. Belgium, after its conquest by France, found itself at times unable to pay its taxes, in spite of abun- dant crops; the war, and the prohibition of exportation, ob- structed the sale of its produce, which the government enforced by demanding paj'ment in money; whereas, the taxes might have been collected without difficulty, had the government been content to take payment in kind. It has the further advantage of making it equally the inte- rest of government and of the farmer to obtain plentiful crops, and improve the national agriculture. The levying of taxes in kind in China was probably the origin of the peculiar en- couragement, bestowed by its government upon the agricul- tural branch of production. But, why favour one branch, when all are equally entitled to protection, because all con- tribute to bear the public burthens? And, why has not govern- ment an equal interest in supporting the other branches, which it takes the trouble of extinguishing? It has likewise the advantage of excluding all exaction and injustice in the collection; the individual, when he gathers in his harvest, knows exactly what he has to pay; and the state knows what it has to receive. This tax, which might appear at first sight to be of all others the most equitable, is, nevertheless, of all others the most in- equitable; for it makes no allowance for the advances made in the course of production, but is taken upon the gross, instead of the net, product. Take two farmers in different branches of cultivation; the one farming tillage-land of moderate quali- ty; his expenses of cultivation amounting one year with ano- ther, say to SOOOyn, and the gross product of his farm, say to 12,000 /r., so as to yield him a net product of 4000 /r. only; the other farming pasturage or wood-land, yielding a gross product of precisely the same amount of 12,000yr. ; with an expense of cultivation amounting, perhaps, to but 2000 /r. ble, and is restrained by no consideration of immediate personal interest. Besides, personal suffering', occasioned by the hard-heartedness of private task-masters, is not so strong an incentive of odium against public authority, as where that authority is itself the ostensible task-master. T. CHAP. VIII. OlN CONSUMPTION. 439 leaving him a net product, one year with another, of 10,000yr. Suppose a tax in kind to be imposed in the ratio of 1-12 of the annual product of land of all descriptions indiscriminately. The former will have to pay in sheaves of corn to amount of 1000 fr.: the latter will pay, in cattle or in wood, an equal value of 1000/)'. What is the result? The one will have paid the fourth part of a net revenue of 4000 /r,; the other but the tenth part of a net revenue of 10,000 Jr. The revenue, that each person has for his own share, is the net residue only after replacing the capital he has embarked, whatever may be its amount. Is the gross amount of the sales he effects in the year the annual income of the merchant? Certainly not; all the income he gets is the surplus of his re- ceipts above his advances; on this surplus alone can he pay taxes, without ruin to his concerns. The ecclesiastical tithe levied in France under the old sys- tem was liable to this inconvenience in part only. It attached neither upon meadow, nor wood-land, nor kitchen ground, nor many other kinds of cultivation; and in some places was 1-18 in others 1-15 or 1-10 of the gross product; so that the real, was corrected by the apparent inequality. The marechal de Vauban, in his work entitled, Dixiine Roy- ale, a book replete with just views, and well worth the study of those who manage national finances, proposes a tax of 1-20 of the product of the land, which, in times of great emergen- cy, might be raised to 1-10. But this proposition was made as a substitute for a still more inequitable system: namely, the saddling of the lands of the commonalty with the whole tax, and altogether exempting the lands of the nobles and clergy. That public-spirited writer, who had occasion, in his charac- ter of engineer, to become personally acquainted with every part of France, speaks most feelingly of the hardships result- ing from the land-tax {a) of those days. And there is no doubt, that the adoption of his plan at that time would have been a vast relief to the country. But it was disregarded. Why? Because every courtier had an interest to resist it: and this fine country was left to flounder through its distresses. The consequence was, a heavier loss of population from famine, than from the sword, in the war of the Spanish succession. The difficulty and expense of collection, together with the abuses to which it is liable, are another objection to taxation in kind. The immense number of agents must open a fine field for peculation. The government may be imposed upon, in respect to the amount collected, upon the subsequent sale and disposal, in respect to the quantity damaged, as well as in the charges of storing, preservation and carriage. If the tax be farmed to contractors, the profits and expenses of number- (a) Taillc; for the explanation of this tax, vide Wealth of Nations, book c. 2. art. 2. T. 440 ON CONSUMPTION. book hi. less farmers and contractors must all fall upon the public. The prosecution of the farmers and contractors would require the active vigilance of administration. ' A gentleman of great for- tune,' says Smith, ' who lived in the capital, would be in dan- ger of suffering much by the neglect, and more by the fraud, of his factors and agents, if the rents of an estate in a distant province were to be paid to him in this manner. The loss of the sovereign, from the abuse and depredation of his tax-ga- therers, would necessarily be much greater,'* Various other objections have been urged against taxation in kind, which it would be useless and tedious to enumerate. I shall only take the liberty of remarking the violent opera- tion upon relative price, which must follow from so vast a quantity of produce being thrown upon the market by the agents of the public revenue, who are notoriously equally im- provident as buyers and as sellers. The necessity of clearing the storehouses to make room for the fresh crop, and the ever urgent demands upon the public purse, would oblige them to sell below the level, to which the price would naturally be brought by the rent of the land, the wages of labour, and the interest of the capital, engaged in agriculture; and private dealers would be unable to maintain the competition. Such taxation not only takes from the cultivator, a portion of his pro- duct, but prevents his turning the residue to good account. SECTION ly. Of the Territorial or Land-Tax of England. In the year 1692, which was four years after the happy revolution, that placed the prince of Orange upon the British throne, a general valuation was made of the income of all the land in the country; and, upon that valuation the land-tax con- tinues to be levied to this day; so that the tax of four shillings in the pound, upon the rents of land, is a fifth of its rent in 1692, and not of the actual i^ent at the present day. It may easily be conceived how much this tax must operate to encourage improvements of the land. An estate, that has been improved so as to double the rent, does not pay double the original tax; neither does it pay a less tax if it be suffered to fall into neglect and impoverishment; thus, it operates as a penalty upon negligence. To this fixation of the tax, many writers attribute the high state of the cultivation of the land in England: and doubtless it may have done much to promote improvement. But, what would be thought of a government that should say to a trades- * Wealth of Nations, book v. c. 2, art. 1. CHAP. viTi. ON CONSUMPTION. 441 man in a small way of business, " You are trading in a small way upon a small capital, and consequently pay very little in direct taxes. Borrow, and enlarge your capital, extend your dealings, and increase your profits as much as you can, and we will not charge you with any increase of taxes. Nay fur- ther, when your heirs succeed to the business, and have still further extended it, they shall be assessed at precisely the same rate, and shall continue subject to the same taxes only.' All this might be a vast encouragement to trade and manufac- ture; but would there be any equity in such a proceeding? and might they not advance without such assistance? Has not England herself presented the example of a still more rapid improvement in commercial and manufacturing industry, with- out any such unjust partiality? A land-owner, by attention, economy, and intelligence, improves his annual income to the amount, say of 5000/r.; if the state claim a fifth of this ad- vance, there will still be a bonus of 4000yr. to stimulate and reward his exertions. It would be easy to put cases, in which the tax, becoming by its fixation disproportionate to the means of the tax-payers and the condition of the soil, might be productive of as much mischief, as it has done good in other instances: where it would operate to throw out of cultivation a class of land, that, by one cause or other, had become incompetent to pay the same ratio of taxation. We have seen an example of this in Tuscany. There, a census or terrier was made in 1496, where- in the plains and vallies were rated very low, on account of the frequent floods and inundations, which prevented any re- gular and profitable cultivation: while the uplands, that were then the only cultivated spots, were rated very high. Since then, the torrents and inundations have been confined by drainage and embankment, and the plains reduced to fertility; their produce being comparatively exempt from tax, came to market cheaper than that of the uplands, which, consequently, were unable to maintain the competition, under the pressure of disproportionate taxation, and have gradually been abandon- ed and deserted.* Whereas, had the tax been adjusted to the change of circumstances, both might have been cultivated to- gether. In speaking of a tax, peculiar to a particular nation, I have used it merely in illustration of general and universal princi- ples. • Forbonnois, Principes et Observ. &,c. torn. ii. p. 247. 63 442 ON CONSUMPTION. book hi. CHAPTER IX. OF NATIONAL DEBT. SECTION I. Of the Contracting of Debt by National ,duthority, and of its general Effect. There is this grand distinction between an individual bor- rower and a borrowing government, that, in general, the for- mer borrows capital for the purpose of beneficial employment, the latter for the purpose of barren consumption and expendi- ture. A nation borrows, either to satisfy an unlooked-for de- mand, or to meet an extraordinary emergency; to which ends, the loan may prove effectual or ineffectual: but, in either case, the whole sum borrowed is so much value consumed and lost, and the public revenue remains burthened with the interest upon it. Melon maintains, that national debt is no more than a debt from the right hand to the left, which nowise enfeebles the body politic. But he is mistaken; the state is enfeebled, inas- much as the capital lent to its government, having been de- stroyed in the consumption of it by the government, can no longer yield any body the profit, or in otlier words, the inter- est, it might earn in the character of a productive means. Wherewith, then, is the government to pay the interest of its debt? Why, with a portion of the revenue arising from some other source, which it must transfer from the tax-payer to the public creditor for the purpose. Before the act of borrowing, there will have been in exist- ence two productive capitals, each of them yielding, or capa- ble of yielding, revenue; that is to say, a capital about to be lent to government, and a capital whereon the future tax-pay- ers derive that revenue, which is about to be applied in satis- faction of the interest upon the capital lent. After the act of borrowing, there will remain but one of these capitals; viz., the latter of the two, whereof the revenue is thenceforward no longer at the disposal of its former possessors, the present tax-payers, since it must be taken in some form of taxation or other by the government, for the sake of providing the pay- ment of interest to its creditors. The lender loses no part of his revenue: the only loser is the payer of taxes. CHAP. IX. ON CONSUMPTION. 443 People are apt to suppose, that, because national loans do not necessarily occasion any diminution of the national money or specie, therefore, they occasion, not a loss but merely a transfer, of national wealth. With a view to the more ready exposure of this fallacy, I have subjoined a synoptical table, showing what becomes of the sum borrowed, and whence the public creditor's interest is satisfied.* When a government borrows, it either does or does not en- gage to repay the principal. In the latter case it grants what is called, a perpetual annuity. Redeemable loans are capable of infinite variety in the terms. The principal is contracted to be repaid, sometimes gradually, and in the way of lottery; sometimes by instalments payable together with the interest, sometimes in the way of increased interest, with condition to expire on the death of the lender; as in the case of tontines and life-annuities, whereof the latter determine on the death of the individual lender; whereas, in tontines, the full interest continues to be divided amongst the survivors, until the whole of the lives have expired. Tontines and life-annuities are very improvident m.odes of borrowing; for the borrower remains throughout liable to the full rate of interest, although he annually repays a part of the principal. Besides, they savour of immorality; offering a pre- mium to egotism, and a stimulus to the dilapidation of capital, bjT^ enabling the lender to consume both principal and interest, without fear of personal beggary. The government best acquainted with the business of bor- rowing and lending have not, of late years at least, given any engagement to repay the principal of the loan. Thus, public creditors have no other way of altering the investment of their capital, except by selling their transferable security, which they can do with more or less advantage to themselves, ac- cording to the buyer's opinion of the solidity of the debtor- government, that has granted the perpetual annuity, t Des- potic governments have alwavs found a great difficulty in ne- gotiating such loans. Where the sovereign is powerful enough to violate his contracts at pleasure, or where there is a mere personal contract with the reigning monarch, with a risk of disavowal by the successor, lenders are loth to advance their money, without a near and definite period of repayment. The appointment to posts and offices, under condition of an annual payment, orof deposite for which the government en- gages to pay interest, is a mode of borrowing in perpetuity, in which the loan is compulsory. When once this paltry expedient is resorted to, it requires very little ingenuity to find plausible grounds, for converting almost every occupa- * Vide App. A. j- III the next section it will be explained liow an unredeemable debt may be extinguished by purchase at tlie market-price. 444 ON CONSUMPTION. book hi. tion, down to the dust-man and stre6t-porter, into patent and saleable offices. Another mode of borrowing is, by the anticipation of reve- nue; by which is meant, the assignment by a government of revenues not yet due, with allowance in the nature of discount, the taking up money in advance from lenders, who charge a discount proportionate to the risk they run from the instabili- ty of the government and possible deficiency of the revenue. Engagements of this kind, contracted by a government, and satisfied either out of the revenue when collected, or by the issue of fresh bills upon the public treasury, constitute what bears the uncouth English denomination of ^o«^2w^ debt: the consolidated debt being that, whereon the creditor can de- mand the interest only, and not the principal. National loans of every kind are attended with the univer- sal disadvantage, of withdrawing capital from productive em- ployment, and diverting it to the channel of barren consump- tion; and, in countries where the credit of the government is at a low ebb, with the further and particular disadvantage, of raising the interest of capital. Who can be expected to lend at 5 per cent, to the farmer, the manufacturer, or the mer- chant, while he can readily get an offer of 7 or 8 per cent, from the government? That class of revenue, which has been called, profit of capital, is thereby advanced in its ratio, at the expense of the consumer: the consumption falls off, in conse- quence of the advance in the real price of products; the pro- ductive agency of the other sources of production are less in demand, and, consequently, worse paid; and the whole com- munity is the sufferer, with the sole exception of the capi- talist. The ability to borrow affords one main advantage to the state; viz. the power of apportioning the burthen entailed by a sudden emergency among a great number of successive years. In the present state of public affairs, and on the present scale of international warfare, no country could support the enor- mous expense from its ordinary annual revenue. The larger states pay in taxation nearly as much as they are able; for economy is by no means the order of the day with them; and their ordinary expenditure seldom falls much short of the in- come. If the expenditure must be doubled to save the nation from ruin, borrowing is usually the only resource; unless it can make up its mind to violate all subsisting engagements, and be guilty of spoliation of its own subjects and foreigners too. The faculty of borrowing is a more powerful agent, than even gunpowder; but probably the gross abuse, that is made of it, will soon destroy its efficacy. Great pains have been taken, to find in the system of bor- rowing, as well as in taxation, some inherentadvantage, beyond that of supplying the public consumption. But a close examin- ation will expose the hopelessness of such an attempt. It has been maintained, for instance, that the debentures and CHAP. IX. ON CONSUMPTION. 445 securities, which form a national debt, became real and sub- stantial values existing within the community; that the capi- tal, of which they are the evidence or representative, is so much positive wealth, and must be reckoned as an item of the total substance of the nation.* But it is not so; a written con- tract or security is a mere evidence, that such or such pro- perty belongs to such an individual. But wealth consists in the property itself, and not in the parchment, by which its ownership is evidenced; therefore cl fortiori, a security is not even an evidence of wealth, where it does not represent an actual existing value, and when it operates as a mere power of attorney from the government to its creditor, enabling him to receive annually a specified portion of the revenue expect- ed to be levied upon the tax-payers at large. Supposing the security to be cancelled, as it might be by a national bank- ruptcy, would there be any the least diminution of wealth in the community? Undoubtedly not. The only difference would be, that the revenue, which before went to the public creditor, would now be at the disposal of the tax-payer, from whom it used to be taken. Those who tell us, that the annual circulation is increased by the whole amount of the annual disbursements of the go- vernment, t forget that these disbursements are made out of the annual products, and are a portion of the annual revenue, taken from the tax-payer, which would have been brought into the general circulation just the same, although no such thing as national debt had existed. The tax -payer would have spent what is now spent by the public creditor; that is all. The sale or purchase of debentures or securities is not a pro- ductive circulation, but a mere substitution of one public creditor in place of another. When these transfers degenerate into stock-jobbing, that is to say, the making of a profit by the rise and fall of their price, they are productive of much mischief; in the first place, by the unproductive employment on this object of the agent of circulation, money, which is an item of the national capital; and, in the next, by procuring a gain to one person by the loss of another; which is the charac- teristic of all gaming. The occupation of the stock-jobber yields no new or useful product; consequently, having no pro- duct of his own to give in exchange, he has no revenue to * Considerations sur les ^vantages de I'Existence d'tme Bette piiblique,-p.8. ■j-The transferable natui'e of these securities does not invest them with the properties of money, since they do not act in that capacity. But the use of convertible paper, Jis money, operates to create a posiiive addition to tlie total national capital; because, but for their agency in the transfer of value in general, it must be executed by specie, or some ec^ually substan- tial item of capital. Government debentures of stock require money to circulate them, instead of acting themselves as money. 446 ON CONSUMPTION. book hi. subsist upon, but what he contrives to make out of the unskil- fulness or ill-fortune of gamesters like himself, (a) A national debt has been said to bind the public creditors more firmly to the government, and make them its natural supporters by a sense of common interest; and so it does be- yond all doubt. But, as this common interest may attach equally to a bad or a good government, there is just as much chance of its being an injury as a benefit to the nation. If we look at England, we shall see a vast number of well-meaning persons, induced by this motive to uphold the abuses and mis- government of a wretched administration. It has been further urged, that a national debt is an index of the public opinion, respecting the degree of credit which the government deserves, and operates as a motive to its good conduct and endeavours to preserve the public opinion, of which such a debt furnishes the index. This can not be ad- mitted without some qualification. The good conduct of go- vernment, in the ej^es of the public creditors, consists in the regular payment of their own dividends; but, in the eyes of the tax-payers, it consists in spending as little as possible. The market-price of stock does, indeed, furnish a tolerable index of the former kind of good conduct, but not of the latter. Per- haps it would be no exaggeration to say, that the punctual pay- ments of the dividends, instead of being a sign of good, is in numberless instances a cloak to bad, government; and, in some countries, a boon for the toleration of frequent and glaring abuses. Another argument in favour of national debt is, that it af- fords a prompt investment to capital, which can find no ready and profitable employment, and thus must at any rate, prevent its emigration. If it do, so much the worse: it is a bait to tempt capital towards its destruction, leaving the nation bur- thened with the annual interest, which government must pro- vide. It is far better that the capital should emigrate, as it would probably return sooner or later; and then its interest for the mean time will be chargeable to foreigners. A na- tional debt of moderate amount, the capital of which should have been well and judiciously expended in useful works, might indeed be attended with the advantage of providing an investment for minute portions of capital, in the hands of per- sons incapable of turning them to account, who would pro^ia- bly keep them locked up, or spend them by driblets, but for the convenience of such an investment. This is perhaps the sole benefit of a national debt; and even this is attended with some danger; inasmuch as it enables a government to squan- der the national savings. For, unless the principal be spent (Upon objects of permanent public benefit, as on roads, canals. ((/) The distinction between tlie stock-jobber and the stock-broker ia too obvious to need an explanation. T. CHAP. IX. ON CONSUMPTION. 447 or the like, it were better for the public, that the capital should remain inactive, or concealed; since, if the public lost the use of it, at least it would not have to pay the interest. Thus, it may be expedient to borrow, when capital must be spent by a government, having nothing but the usufruct at its command; but we are not to imagine, that, by the act of boi-- rowing, the public prosperity can be advanced. The bor- rower, whether a sovereign, or an individual, incurs an annual charge upon his revenue, besides impoverishing himself to the full amount of the principal, if it be consumed; and nations never borrow but with a view to consume outright. SECTION II. Of public Credit, its Basis, and the Circumstances that endanger its Solidity. Public credit is the confidence of individuals in the engage- ments of the ruling power, or government. This credit is at the extreme point of elevation, when the public creditor gets no higher interest, than he would by lending on the best pri- vate securities; which is a clear proof, that the lenders require no premium of insurance to cover the extra risk they incur, and that in their estimation there is no such extra risk. Pub- lic credit never reaches this elevation, except where the go- vernment is so constituted, as to find great difficulty in break- ing its engagements; and where, moreover, its resources are known to be equal to its wants; for which latter reason, pub- lic credit is never very high, unless where the financial ac- counts of the nation are subject to general publicity. Where the public authority is vested in a single individual, it is next to impossible, that public credit should be very ex- tensive; for there is no security, beyond the pleasure and good faith of the monarch. When the authority resides in the peo- ple, or its representatives, there is the further security of a personal interest in the people themselves, who are creditors in their individual, and debtors in their aggregate, character; and, therefore, can not receive in the former, without paying in the latter. This circumstance alone would lead us to pre- sume, that now, when great undertakings are so costly as ta be eSected by borrowing alone, representative governments will acquire a marked preponderance in the scale of national power, simply on account of their superior financial resources, without reference to any other circumstance. In one light, the obligations of government inspire more confidence than those of individuals, that is to say, by the greater solidity of its resources. The resources of the most 448 ON CONSUMPTION. book iii. responsible individual may fail suddenly and totally, or at least to such an extent, as to disable him from performing his en- gagements. Numerous commercial failures, political or na- tural calamities, litigation, fraud or violence, may ruin him entirely; but the supplies of a government are derived from such various quarters, that the individual calamities of its sub- jects can operate but partially upon the revenue of the state. There is also another thing, that facilitates the borrowing of government even more than the credit it is fairly entitled to; and that is, the great facility of transfer presented to the stock- holder. Public creditors always reckon upon the possibility of withdrawing by the sale of their debentures, before the oc- currence of embarrassment or bankruptcy; and, even where they contemplate such a risk, generally consider some ad- vance of the rate of interest a sufficient premium of insurance against it. Moreover, it is observable, that the sentiments of lenders, and indeed of inankind upon all occasions, are more powerfully operated upon by the impressions of the moment, than by any other motive; experience of the past must be very recent, and the prospect of the future very near, to have any sensible ef- fect. The monstrous breach of faith on the part of the French government in 1721, in regard to its paper money and the Mississippi shareholders, did not prevent the ready negotia- tion of a loan of 200,000,000 liv. in 1759; nor did the bank- rupt measures of the Abbe Terrai in 1772, prevent the nego- tiation of fresh loans in 1778 and every subsequent year. In other points of view, the credit of individuals is better founded than fhatof the government. There is no compulso- ry process against the latter, for the breach of its engagements; nor do governments ever husband the national resources with nearly the care and attention of individuals. Besides, in the - event of external or internal subversion, individuals may with- draw their property from the wreck much better than govern- ' ments can. Public credit affords such facilities to public prodigality, that many political writers have regarded it as fatal to national prosperity. For, say they, when governments feel themselves strong in the ability to borrow, they are too apt to intermeddle in every political arrangement, and to conceive gigantic pro- jects, that lead sometimes to disgrace, sometimes to glory, but always to a state of financial exhaustion; to make war them- selves, and stir up others to do the like; to subsidize every mercenary agent, and deal in the blood and the consciences of mankind; making capital, which should be the fruit of indus- try and virtue, the prize of ambition, pride, and wickedness. A nation, which has the power to borrow, and yet is in a state of political feebleness, will be exposed to the requisitions of its more powerful neighbours. It must subsidize them in its defence; must purchase peace; must pay for the toleration of its independence, which it generally loses after all; or per- CHAP. IX. ON CONSUMPTION. 449 haps must lend, with the certain prospect of never being re- paid. These are by no means hypothetical cases: but the reader is left to make the application himself. By the establishment of sinking-funds, well ordered govern- ments have found means to extinguish and discharge their un- redeemable debt. The constant operation of this contrivance contributes more than any thing else to the consolidation of public credit. The mode of proceeding is simply this: Suppose that the state borrows 100 millions, at an interest of 5 per cent. : to pay that interest, it must appropriate a por- tion of the national revenue to the amount of 5 millions. For this purpose, it usually imposes a tax calculated to produce this sum annually. If the tax be made to produce somewhat more, say 5,462,400yr., and the surplus of 462,400 ^r. be thrown into a particular fund, and laid out annually, in the purchase of government debentures to that amount in the mar- ket, and if, moreover, in addition to this surplus, the interest likewise upon the debt thus extinguished, be annually employ- ed in such purchases, the whole principal debt will be extin- guished at the end of fifty years. This is the mode in which a sinking fund operates. The efficacy of this expedient de- pends upon the progressive power of compound interest; that IS to say, the gradual augmentation of the interest of capital, by the addition of interest upon the arrears of interest, reckoned from certain stated rests. It is obvious, that, by an annual instalment of not more than 10 per cent, upon its own interest, the principal of a debt bear- ing an interest of 5 per cent, may be extinguished in less than 50 years. However, the sale of the debentures being volun- tary, if the holders will not sell at par, that is to say, at 20 years' purchase, the redemption, in this way, will take some- what longer time; but this very state of the market will be a convincing proof of the high ratio of national credit. On the other hand, if the credit decline, so that the same sum will pur- chase a larger amount of debentures, the extinction of the debt will be effected in a shorter period. So that the lower public credit falls, the more powerful is the operation of a sinking- fund to revive it; and that fund grows less efficient, exactly in proportion as it becomes less requisite. To the establishment of such a fund, has the long continued public credit of Great Britain been attributed, and her ability still to go on borrowing, in spite of a present debt of more than 19 milliards of our money.* And doubtless this it is, * Vansittart, the chancellor of the exchequer in Eng-land, in a speech delivered in parliament, in the month of February, 1815, states it at 650 millions sterling only, which is but from 15 to 16 milliards: but this estimate is taken at the loan, and not at the redemption price. Vide de. V Mnglflfrre, et des Jlnglais, par J . B. Say, Paris, 1816. 3d edit. p. 13. 64 450 ON CONSUMPTION. book hi. that has made Smith declare sinking-funds, which were con- trived expressly to reduce national debt, the main instruments of their increase. Had not governments the happy knack of abusing resources of every kind, they would soon grow too rich and powerful. A sinkmg-fund is a complete delusion, whenever a govern- ment continues borrowing on one hand, as much as it redeems on the other; and, d, fortiori, when it borrows more than it re- deems, as England has constantly done, since the year 1793 to the present time. Whencesoever the amount of the sinking- fund be derived, whether it be merely the product of a fresh tax, or that product, augmented by the interest on the extin- guished debt, if the government borrow a million for every million of debt that it pays off, it creates an annual charge of precisely the same amount as that extinguished: it is precisely the same thing, as lending to itself the million devoted to the purpose of redemption. Indeed, the latter course would save the expense of the operation. This position has been fully es- tablished in an excellent work, by professor Hamilton,* which is quite conclusive upon the subject. The enormous burthens of the people of England, the scandalous abuse its government has made of the power of borrowing, and her substitution of paper-money in place of specie, will have produced some be- nefit at least; inasmuch as they have assisted the solution of many problems, highly interesting to the happiness of nations, and given warning to all future generations, to beware of the like excesses. It must be evident, that the grand requisite to the efficiency of a sinking-fund is, the punctual and inviolable application of the sums appropriated to the purpose of redemption. Yet this has never been rigidly adhered to, even in England, where consistency and good faith to the creditors are a point of ho- nour with the government. So that English writers put no faith in the extinction of the debt by the operation of the sink- ing-fund: nay, Smith makes no scruple of declaring, that na- tional debts have never been extinguished except by national bankruptcy. It has been sometimes a matter of speculation, to inquire into the effect of a national bankruptcy upon the relative con- dition of individuals, and the internal economy of the nation. In ordinary cases, when a government commits an act of bank- ruptcy, it adds to the revenues of the tax-payers the whole amount that it discontinues paying to the public creditors.— Nay, it goes somewhat further: for it remits likewise the charges of collection and management of the revenue and the debt. A nation burthened with 100 millions of annual interest on its debt, whereon the charges above mentioned should * On the National Debt of Great Britain. 8vo. Edinburgh. 1813. CHAP. IX. ON CONSUMPTION. 451 amount to 30 per cent* more, might by a bankruptcy remit to the tax -payers 130 millions, while it stript its creditors of 100 millions only. In England, the effect would be more complicated; because she does not pay the dividends on her debt wholly out of the annual proceeds of taxation; at least, not at the moment of my waiting; but annually borrows a sum nearly equal to the in- terest of her debit Were she to commit an act of bankrupt- cy, the annual loans of 40 millions sterling, more or less, would be withdrawn from unproductive consumption by the public creditors, and be applicable to the purposes of reproductive consumption: for it may fairly be supposed, that the capital- ists who accumulate and lend to the state, would look out for some profitable investment. In this point of view, the opera- tion would tend vastly to the increase of the national capital and revenue: but the execution would be attended with very disastrous immediate consequences: for this annual amount of 40 millions would be withdrawn from a class of consumers, who have no other means of subsistence, and would be utterly unable to make good their losses in any other way, for want both of personal industry, and of the command of capital. A bankruptcy would probably obviate the necessity of fresh loans: but would not release an atom of the former taxation, where the interest of the debt is habitually paid, not with the proceeds of taxation, but with new loans. Thus, the burthens of the people would not be alleviated,:}^ nor the charges of pro- duction reduced: consequently, there would be no sensible reduction in the price of commodities; nor would British pro- ducts find a readier market either at home or abroad. The classes liable to taxation would be diminished in nu- merical strength by the whole of the suppressed stockholders; and taxation less productive, although not lowered in the ratio. The 40 millions of revenue, withdrawn from the public credi- tors, would pay taxes only upon the annual profit or revenue, they might yield in the character of productive capital. («) * In England and the United States they are not nearly so high in pro- portion: but the ratio is even higher in some states that shall be nameless. ■\ Colquhoun, Wealth, Power, and Resources of the British Empire, 4to. London, 1814. Stokes, Revenue and Expenditure of Great Britain, Lon- don, 1815. Should a continuance of peace enable her to square her in- come with her annual expenditure, inclusive of the interest on her debt, it would still afford no relief, but merely arrest the further progress of the evil. \ Economy in the national expenditure is the only thing that can miti- gate the pressure of taxation upon the British nation; yet, were economy enforced, how is that system of corruption to be upheld, through which the interest of the minister of the day regularly prevails over that of the na- tion? («) That is to say, upon nearly the wliole amount; for the whole must either be cousunicd unjjroductivfly by the ci-devant lenders, or embarked 452 ON CONSUMPTION. book hi. The ruin of the public creditors would be attended with abun- dance of collateral distress; with private failures and insolven- cy, without end; with the loss of employment to all their trades- men and servants, and the utter destitution of all their de- pendents. On the other hand, if she persevere in borrowing to pay the interests of former loans, that interest, and with it taxation also, must go on increasing to infinity. It is impossible to avoid a precipice, when one follows a road that leads nowhere else, (a) The potentates of Asia, and all sovereigns, who have no hopes of establishing a credit, have recourse to the accumula- tion of treasure. Treasure is the reserve of past, whereas a loan is the anticipation of future, revenue. They are both serviceable expedients in case of emergency. A treasure does not always contribute to the political secu- rity of its possessors. It rather invites attack, and very sel- dom is faithfully applied to the purpose for which it was des- tined. The accumulation of charles V. of France fell into the hands of his brother, the duke of Anjou; those which pope Paul II. destined to oppose the Turkish arms, and drive them out of Europe, supplied the extravagancies of Sixtus IV., and in productive enterprises; in whicli latter case, it will go almost wholly towards the revenue of human agency, in all those countries, where the appropriable natural agents are already wholly appropriated. Thus, in a financial point of view it is of little immediate consequence, whether the sum be borrowed and expended by the state or by its creditors; for it is sure to go almost wholly to the formation of private and taxable revenue. Nay, its payment to the creditors is probably the destination, that will, of all others, least expose it to indirect taxation; for stock-holders are com- monly amongst the most frugal of the members of a community; and it is notoriously to them that the government looks for a very considerable part of the loans it may have occasion to negotiate; and herein theory is confound^ ed by experience. The cessation of loans in Great Britain, consequent up- on tlie reduction of 40 millions of expenditure, has made little reduction in the proceeds of indirect taxation. But the remote consequence will be widely different. If the sum be unproductively expended, it will nowise expand the national productive power, yet leave that power burthened with its future interest; if expended productively, it well expand produc- tive power, and entail no additional pressure upon its elasticity. T. (a) The momentous question of national bankruptcy is treated by our author with much less attention than it deserves. He has told us neither in what cases it is just, nor in what cases it is necessary, nor by what means it can be effected, with the smallest degree of individual hardship, and nation- al confusion and embarrassment. It must be obvious, that it maj' be either par- tial or total, sudden or gradual; and that there are a variety of ways of effecting it, whereof some must be far less objectionable than others; as for instance, by extinction of principal, or by the sponge, as it is termed; b}'^ extinction or reduction of interest only; by lowering the weight or quality of a national metallic-money; by depreciating a national paper-money by its excessive issue; by taxation of principal or of interest of tlie debt, &,c. 8cc. : all which ex- pedients it would be impossible to canvass in the narrow limits of a note. T. CMAP. IX. ON CONSUMPTION. 453 li'is nephews. The treasures amassed by Henry IV., for the humiliation of the house of Austria, were lavished upon the lavourites of the queen-mother; and, at a later period, we have seen the political power of Prussia brought into imminent ha- zard by those very savings, which were destined by Frederic 11. to its consolidation. The command of a large sum is a dangerous temptation to a national administration. Though accumulated at their ex- ])ense, the people rarely, if ever, profit by it: yet in point of fact, all value, and consequently, all wealth, originates with the people. 454 X l-H CO So ft? •;ounx3 i|a;niosqB Suiaq ■]! uonaod S3nu3A3.ijo OA\i mq ppiX suoi:>Jod aaaqi ssaq^ consumable by the proprie- tor himself. C 5 t-l transferred to, and consum- able by, the lenders of Portion 11. O 4J ""^ o c > nothing; be- ing- lent to, and consu- med by the state. c > ^1 60 c ba c b3 1) •2 t; c -^ o 4) O O U fc S C -J > P- C ?J rt -J „ 4J &£i p O lu ei I— ■ -H <" J2 '-' OS -^ lU -- ?3 ^ 6 ^ o c ^ ^ ^ u^ w ^ P. 2 !^ " O c +-■ :5 ,** 4^ a 1«5 be c4 3 O n bp .2 m a C7' 05 p. 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