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INQUIRY
INTO THE
VARIOUS SYSTEMS
OF
the
POLITICAL ECONOMY
THEIR
ADVANTAGES AND DISADVANTAGES;
AND
THE THEORY MOST FAVOURABLE TO THE INCREASE
OF
NATIONAL WEALTH.
BY CHARLES GANILH, ADVOCATE.
TRANSLATED FROM THE FRENCH
BY D. BOILEAU,
Author of “ An Introduction to the Study of Political Economy," &c.
Hanc veniam damus, petimusque vicissim. HORACE.
LONDON:
PRINTED FOR HENRY COLBURN,
ENGLISH AND FOREIGN PUBLIC LIBRARY, CONDUIT STREET;
ANDERSON, EDINBURGH; AND CUMMING, DUBLIN.
1812.
2.

HE
163
G197
1812
VIOURS, Printer, 3, Princes Street,
Leicester Square, London.`·
J
ADVERTISEMENT.
No study can be more attractive to a bene-
volent mind than that which investigates the
means of providing a plentiful national income,
and insuring the happiness of the individual
members of the community, by enabling them
to obtain the supply of their wants through the
exertions of their industry. That commerce is
one of the most powerful of those means has
long been acknowledged in this country but
that this truth should find an able advocate in
France, at a time when her ruler is bent upon
destroying commerce, is a circumstance, as
extraordinary as it is honourable, to the author
of the Inquiry into the various Systems of Political
Economy. The impartiality and the soundness
of the views which he displays in his work give
it a particular claim to the attention of the
English nation; and it is with the view to
render its circulation more general, that I have
attempted a translation, in which I have chiefly
aimed at fidelity and perspicuity.
Brompton Road,
March 6th, 1812.
D. B.
1772
70
AN
INQUIRY INTO THE VARIOUS SYSTEMS
OF
POLITICAL ECONOMY.
PLAN OF THE WORK.
EVER since modern countries have reached a degree
of opulence unknown to the nations of antiquity and
the middle age, and particularly since Wealth has been
discovered to be altogether the basis and measure of
the relative and absolute power of states; the sources
whence Wealth is produced, the measures which
accelerate its growth, the laws by which it is distri-
buted and circulated, and the means of regulating its
employment, increasing its abundance, and insuring
its constant progress, have frequently been inves-
tigated.
This subject, known at present by the name of
Political Economy, (no doubt, because it embraces
individual efforts and national regulations, and blends
them in one point of view,) has been amply dis-
cussed in all its bearings and applications. Several
works published in England, Italy, and France,
B
ON THE VARIOUS SYSTEMS
mostly of great merit, and all of them more or less
useful, have thrown considerable light upon this
department of human knowledge; and, by disclosing
its importance, have at length placed Political Economy
in the first rank of political sciences.
But, as if the inability of ascending to general
causes were the inevitable lot of man, the sources
of Wealth have hitherto escaped the most laborious
research. The solitary and combined efforts of the
most distinguished writers among the most celebrated
nations of Europe, have alike been unable to dispel
the clouds in which these sources are enveloped.
Opinions, arguments, and controversies, have been
heaped together, which by their variety and multi-
tude embarrass and fatigue the mind. The difficulty
of choosing among them disheartens the student, and
leaves him in doubt and uncertainty.
If he should wish to know wherein national wealth
consists; how great will be his surprise at meeting
with so many different and even contrary opinions in
the most esteemed authors!
Some state the wealth of a nation to consist in the
totality of the private property of its individuals *
others, in the abundance of its commodities.
4
Some distinguishing public from private wealth,
assign to the former a value in use, but no value in
exchange; and to the latter, an exchangeable value,
* Sir William Petty's Treatise on Taxes and Contributions;
1667. Gregory King's Calculation, published by Davenant.
Adam Smith's Wealth of Nations, B. iv. c. 1. Dr. Beeke's
Observations on the Produce of the Income-Tax.
+ Dixme royale du Maréchal de Vauban.
OF POLITICAL ECONOMY.
3
but no value in use; and make public wealth to con-
sist in the exchangeable value of the net produce.*
Others state wealth to consist of all the material
commodities which man may use to supply a want, or
to procure an enjoyment either to his sensuality, his
fancy, or his vanity.†
One writer considers wealth as being the posses-
sion of a thing more desired by those who have it not,
than by those who possess it.‡
Another defines
wealth, whatever is superfluous.
A modern French writer calls wealth the accumu-
lation of superfluous labour and a noble English
author, who, like the French economists, distinguishes
individual riches from public wealth, submits that
"the latter may be accurately defined to consist of all
"that man desires as useful or delightful to him;
"and the former to consist of all that man desires
as useful or delightful to him, which exists in a
degree of scarcity."¶
65
66
* Physiocratie, p. 118.
Philosophie rurale, ou Economie
générale et politique de l'Agriculture, p. 60.
+ Essai sur la nature du Commerce, par Cantillon.—Abrégé des
Principes d'Economie Politique, par Mr. le Sénateur Germain
Garnier; Paris, 1796.
‡ Richezza è il possesso d'alcuna cosa che sia più desiderata
dal altri, che dal possessore.
Galiani della Moneta.
§ Il superfluo costituisce la richezza. Palmieri publica Felicità,
p. 155.
vol. i.
1801.
Principes d'Economie Politique, par B.F.F. Cunard. Paris,
An Inquiry into the Nature and Origin of public Wealth, by
the Earl of Lauderdale. Edinb. 1804. ch. ii. p. 56, 57. But
the French author, by saying, " qui distingue la richesse particu-
B 2
ON THE VARIOUS SYSTEMS
The same uncertainty, the existence of which we
deplore concerning the nature of wealth*, prevails
with regard to the means of contributing to its pro-
gress and increase.
Those who first wrote upon this important subject,
being misled by appearances, assigned the precious
metals obtained in return for the raw and manufac-
tured produce exported, as the cause of the wealth of
nations.
“lière de la richesse générale, définit la première tout ce que
“l'homme désire comme utile ou agréable, et la seconde tout ce
66 que l'homme désire comme utile ou agréable, mais qui n'existe
que dans un certain degré de rareté," states the very reverse
of what His Lordship has asserted.—T.
66
* According to one German writer, National Wealth is the
sum total of productive powers actually exerted in a nation.
C.D. Voss, Staatswirthschaftslehre. Erste abtheilung. Zweyter
Abschnitt. Leipz. 1798. According to another, it is the aggregate of
all the property belonging to a nation, and to every one of its
individual members. L. II. Jakob. Grundsætze der National
Oekonomic; Halle, 1805. See also page 6, of Boileau's Intro-
duction to the Study of Political Economy. The definition of
public wealth, as "the surplus of the national income above the
"actual expenditure of a nation," given in the second page of that
work, appears equally correct, since it is out of this surplus that
whatever constitutes public or private property, is obtained.-T.
!
+ In England, Raleigh in his Essay on Commerce; 1595,
Edward Misselden on Commerce; 1623. Lewis Roberts, the
Treasure of Traffic; 1641. Thomas Mun's England's Treasure
by Foreign Trade; 1661. Fortrey's Interests and Improvements
of England; 1664. Davenant's Works relating to the Trade
and Revenue of England; 1696. M. Martin, Inspector-General
of the Customs. King's British Merchant, or Commerce Pre-
served; 1713.
Lu Holland, Jean de Witt Memoires; 1669.
OF POLITICAL ECONOMY.
Others ascribed the origin of wealth to the lower-
ing of the legal rate of interest.*
Deluded by a fascinating and captious theory, the
French economists greatly extolled the Agricultural
system.
Adam Smith gave the preference to "Labour im-
"proved by subdivision, which fixes and realizes
"itself in some particular object or vendible com-
modity, which lasts for some time, at least, after
"that labour is past."
t
(C
Lord Lauderdale, in the work which we have
quoted before, and which is remarkable for the saga-
city of its views, states that, man owes his wealth
66 to the
power of directing his labour to the increasing
"of the quantity or the meliorating of the quality of
In Italy, Serra Breve Trattato delle Cose che possono far
abondare li Regni d'Oro; 1613. Genovesi, Lezioni di Econom.
Civile; 1764. Muratori, Felicit. publ. cap. 16. sul principio.
Lorniani, Reflez. sul le Monete.
In France, the Cardinal de Richelieu, and Colbert, Ordonnances.
et Réglemens pendant leur Administration.
* Thomas Culpeper's useful Remarks on the Mischief of an
high National Interest; 1641. Sir Josiah Child's Brief Obser-
vations concerning Trade and Interest of Money; 1651. Samuel
Lamb on Banks; 1657. William Paterson, author of the Pro-
ject of the London Bank; 1694. Barnard's Discourses on the
lowering of the Interest of Moncy; 1714,
+ Physiocratie.
‡ Adam Smith's Wealth of Nations, Eleventh Edition, 1805,
vol. ii. b. ii. c. 3. p. 2. David Hume has probably suggested
the idea of this theory to Adam Smith. He expressly says:
Every thing in the world is purchased by labour." Hume's
Essays, Edinb. 1804, Svo. vol. i. Essay on Commerce, p. 277.
6
ON THE VARIOUS SYSTEms
"the productions of nature, and to the
CC
power of sup-
planting and performing labour by capital."*
The same variety of opinions prevails respecting the
action or influence of the causes of wealth, their
immediate or distant effects, their apparent or actual
results. Some systems agree on a few points, and are
at variance upon others; and generally they disagree
in so many respects, that they cannot possibly be
reconciled, reduced to common tenets, or condensed
into a general theory.
Hence that variety of systems among authors, of
methods among governments, of opinions among the
learned; hence the discouragement of those who are
desirous of studying the science, and the indifference
of those whom a sense of duty should prompt to
acquire the knowledge of it; hence also the little
consideration which Political Economy enjoys in the
world, and its total exclusion from the official routine
of practical statesmen.
Some, in other respects well-informed men, doubt
the existence of the science; others are even tempted
to consider it as an occult one, the mysteries of which
are revealed only to a few initiated individuals: thus
ignorance, in this as in many other instances, begets
alike incredulity and superstition.
When, in the course of private life, certain indivi-
duals get rich while others grow poor, the generality
* An Inquiry into the Nature and Origin of Public Wealth,
and into the Means and Causes of its Increase; by the Earl of
Lauderdale. Edinb. 1804. p. 363.
OF POLITICAL ECONOMY.
7
of mankind, ignorant whence this wealth or poverty
arises, boldly ascribe it to good or bad fortune. By
a singular conformity, when governments, notwith-
standing the efforts and promises of ignorant and
visionary projectors, find themselves reduced to dis-
tress, they are often inclined to attribute it to occult
causes, the influence of which is to be remedied by
specifics and secrets unknown to the learned. They
eagerly search after, and even flatter themselves they
have hit upon financial plans capable of relieving the
distress of the state, without either impairing the for-
tune of individuals, or accelerating the decay of public
wealth. As well might they seek for means to enable
men to exist without food, to have their wants supplied
without labour, and to grow rich by prodigality.
And can this credulity be wondered at? Does not
the sect of the Economists, who cannot be accused of
being deficient in knowledge or candour, seriously
assert that governments ought to leave industry to its
natural course; and that they have done every thing,
when in fact they have done nothing ?* A paradox,
this, extremely convenient for ignorance, intrigue, and
ambition, and particularly agreeable to those who
are entrusted with the management of national
affairs.
In a certain point of view, this paradox undoubtedly
contains a very profound meaning, and conveys a les-
son highly useful in many respects. Individuals gene-
rally display more sagacity in the management of their
own concerns, than governments in the regulations,
* Physiocratic.
8
ON THE VARIOUS SYSTEMS
statutes, privileges, prohibitions, premiums, and boun-
ties, with which they think to provide for the greater
prosperity of individuals and nations. Did govern-
ments suffer private individuals to act as they think
proper, without attempting to regulate their affairs;
their conduct certainly would be more conducive to
wealth in such instances, the maxim of the Econo-
mists is indeed an enlightened censure, and cannot
be regarded as paradoxical.
•
But it ought not to be supposed that a government
intimately acquainted with the interests of a country,
and attentive to follow the progress and direction of
private industry, should be utterly unable to invigorate
the impulse of this industry when it happens to be
beneficial, to prevent its aberrations when they might
prove hurtful, or to lead it into more enlarged, more
extensive, and more profitable channels. Elizabeth
in England, Richelieu, and above all Colbert in France,
are for ever entitled to the gratitude of their country
and the veneration of all enlightened ages.*
66
It is admitted by the Economists themselves, "that
a great empire ought not to quit the plough for the
"carrying trade; and that, at the example of a cele-
"brated minister of state, wealth ought not to be
* "The more simple ideas of order and equity are sufficient to
"guide a legislator in every thing that regards the internal admi-
"nistration of justice: but the principles of commerce are much
- more complicated, and require long experience and deep reflec-
❝tion to be well understood in any state. The real consequonce
"of a law or practice is there often contrary to first appearances.'
Hume's History of England. London, 1802. vol. iii. Henry
VII. p. 397.
of POLITICAL ECONOMYS
9
"derived from manual dexterity to the prejudice of
"the primary source of wealth."* Would they then
be sorry
if governments should apply all the means in
their power to favour agriculture in preference to
industry and commerce, and to derive public wealth
from an increased net produce?
Adam Smith is not more consistent than the Eco-
nomists. He laughs at a statesman who should
attempt to direct the employment of the capital of the
nation; and yet he points out the conduct govern-
ment ought to pursue, to encourage manufactures
necessary for the defence of a country, to facilitate
the exportation of the manufatured produce, and to
favour the importation of the raw produce to which
the manufacturer superadds his labour.
Let us therefore conclude, that, though it be the
duty of governments to give the utmost latitude to
private industry, it is yet of serious importance to
nations, that their statesmen be intimately acquainted
* Physiocratie.
"What is the species of domestic industry which his capital
66 can employ, and of which the produce is likely to be of the
greatest valuc, every individual, it is evident, can, in his local
"situation, judge much better than any statesman or lawgiver
(6
66
66
can do for him. The statesman who should attempt to direct
"private people in what manner they ought to employ their capi
"tals, would not only load himself with a most unnecessary con-
corn, but assume an authority which could neither be safely
"trusted to any single person, nor to any council or senate what-
ever, and which would no-where be so dangerous as in the hands
"of a man who had the folly and presumption to fancy himself
"fit to exercise it." Adam Smith's Wealth of Nations. Ele
venth Edit. London, 1805. vol. ii. B. iv. c. 2. p. 190,
66
10
ON THE VARIOUS SYSTEMS
with a science that teaches the means of deriving the
greatest benefits from industry and capital, and of
directing both into the most profitable channels. It
is only when a government is deficient in knowledge
that its absolute inactivity is desirable.
The salutary influence of political economy is not
confined to governments; it is still more sensibly felt
in legislation. Its principles, tenets, and theory, are
closely allied and identified with the principles, tenets,
and theory of legislation; they act upon each other
with an incalculable and assuredly unexpected force.
In every system of political economy, wealth is the
work of men. It owes its existence to their passions,
and its preservation to their moral dispositions. Hence
wealth is necessarily modified by their political exist-
ence, just as their political existence is necessarily
modified by the system that regulates wealth.
A political system which reduces the largest portion
of the people to servitude, must have upon wealth an
effect very
different from one that insures the liberty
of all the individual members of a nation, and admits
them all to share in the benefits of the social compact,
in proportion to their knowledge, talents, industry,
and activity.
But even though the political system does not in-
fringe upon the liberty of the subject; if the law does
not cause all kinds of property to be respected; if it
restrains the disposal and circulation of any property
whatever; if wealth is suffered to flow exclusively
into the lap of certain classes or individuals, to the
prejudice of all the other classes or individuals of the
community, it is again evident that the law in this
OF POLITICAL ECONOMY.
11
case must have upon wealth an influence different
from that which it exercises when it watches alike
over the safety of persons and the security of property;
when it protects every kind of labour and industry;
and when it leaves individuals at liberty to contract
for and dispose of whatever is their own.
How greatly do they err, who suppose political eco-
nomy a stranger to politics, legislation, and govern-
ment, and judge it possible to have good laws with
a bad system of political economy, or a good system
of political economy together with bad laws! Wealth
depends as much on politics, legislation, and govern-
ment, as on political economy: these sciences are con-
nected by indissoluble chains; they support or oppose,
and ultimately uphold or destroy each other.
Inattention to combine the elements of those different
sciences in the constitution, laws and government of a
country, gives birth to that clashing of public and pri-
vate interests, that absence of character and phisiogno-
my in modern nations, those false measures and oscilla-
tions of governments, and that want of public spirit;
the necessary results of the conformity of individual
passions with public ambition.
This opposition of views and interests, of theory and
practice, of principles and conduct, is sure to disappear
in proportion as political economy is improved; as its
study is rendered less difficult and more general; as
the ways of acquiring wealth are better known; and
as the necessity of combining the political, civil and
administrative systems with the system of political
economy, is more sensibly felt.
Durst I even venture freely to deliver my senti-
12
ON THE VARIOUS SYSTEMS
!
The
ments, I would assert that the progress of national
prosperity, the consolidation of public order, and a
higher degree of civilization, are closely connected with
the study of political economy. Methods to acquire
riches are necessarily methods of wisdom and good
conduct. If dissolute individuals rarely grow rich,
the mal-administration of governments must necessa-
rily impoverish the people. Were the consequences
of their faults as evident as those of individual errors;
could the effects of public mal-adininistration be as
accurately ascertained as those of private misconduct ;
there is every reason to suppose that public calamities
would be more unfrequent and less disastrous.
depositaries of the fortune of nations would no longer
sacrifice it to the delusions of vanity, to the deceitful
promises of ambition, to the captivating splendour
of a frivolous and transitory grandeur: or if they
should happen to be misled by the violence of passion,
their errors would be of short duration. Like Louis
XII, and Francis I. of France, who, by the parsimony
of the latter part of their reign, atoned for the prodiga-
lity and profusion of their younger years; princes,
ever so little ambitious of true glory and desirous of
the love of their people, would stop at a considerable
distance from the precipice which threatens to engulph
them together with public wealth,
Under the impression that I may perhaps accelerate
that fortunate period by exhibiting, comparing, and
contrasting the various systems of which the science
of political economy is at present composed; I shall
discuss their respective advantages and inconveniencies,
and adopt that theory which, in a moral, political,
OF POLITICAL ECONOMY.
13
civil, and economical respect, appears entitled to the
preference. The task, I know, is not easy, and little
flattering to self-love. The merit of originality will
rarely be mine. It would indeed be difficult to say
any thing on this subject which has not been said
already but my satisfaction will be great, if I should
remove the innumerable difficulties which I encoun-
tered when inclination led me to a science to which my
previous studies and ordinary occupations had kept me
a stranger.
Above all, I shall deem myself happy if I have
avoided the inconvenience into which all the writers
on this subject appear to have fallen. Their plans are
generally defective. None has chosen one in which he
could treat of every branch of the science in its natural
order. None has used the analytical method which
connects the different parts of a science, and combines
them into a whole. I hope I shall at least approxi-
mate that desired perfection, by investigating succes-
sively, in as many separate books, the various systems
concerning,
I. The sources of wealth, and
II. Their divers ramifications, such as labour,
capitals, the circulation of commodities or commerce,
and the revenue or consumption; and particularly by
stating in distinct chapters the various theories or opi-
nions, and the controversies to which they have given
birth, in every branch of the science.
This division appears to embrace the science in its
general bearings, in its principal parts, and in its most
minute details. It commands attention without fati-
guing the mind; allows every separate portion to be
14
ON THE VARIOUS SYSTEMS
examined without losing sight of the whole; and forms
a picture which a person of the least discernment
may readily contemplate in its full extent without being
bewildered by the multitude of the details.
But is wealth of sufficient importance, utility, or
benefit, to individuals, or nations, to become the object
of a science, to engage the attention of enlightened
minds, and to require particular rules of conduct for
public and private management? Is not that rather
true, which Plato said, that "gold and virtue are two
"opposite weights in a balance, one of which cannot
"rise unless the other sinks *?" Does not wealth de-
serve the stigma which so many moralists, politicians,
and religious sectaries, have affixed to it? And would
it not be better to teach men the precious advantage of
an honourable mediocrity, than to entice them to the
fatal and deplorable road to riches?
Though sufficiently resolved by both the eagerness
with which all nations press forward on the road to
wealth, and the important part which wealth performs
in all public and private transactions, this superannuated
problem appears yet entitled to a serious inquiry. I
have discussed it in the Introduction to my work.
work. A
science ought indeed to be proved to be useful, before
it is taught; and it is only because the utility of politi-
cal economy seemed evident to me, both in a moral and
political point of view, that I have investigated what-
ever I thought worthy to be considered as pertaining to
the science, and calculated to simplify its study, to
accelerate its improvement, and to insure its success.
* Travels of Anacharsis. Engl. tran sl. vol. iv, c. 55. p. 263.
OF POLITICAL ECONOMY.
15
:
ON THE VARIOUS SYSTEMS
OF
POLITICAL ECONOMY.
INTRODUCTION.
On the Nature of Wealth.
POLITICAL Sciences afford few subjects of medita-
tion more extensive, more complicated, more in-
structive, and more productive of important conse-
quences, than the problem of the moral and politi-
cal advantages and inconveniences of Wealth; a sub-
ject which has been so frequently discussed, and so
variously resolved in every treatise on morals and
politics.
When we consider how little, in this respect, men
have been anxious to make their opinions agree with
their practice, their principles with their conduct, and
their morality with their actions; the solution of the
problem becomes still more difficult: men appear
to have prescribed duties for themselves merely for
the purpose of transgressing them, or, at least, to
have imagined that to transgress them was allowable
as often as it might prove useful. Let it not be sup-
posed, however, that this inconsistency is peculiar to
16
ON THE VARIOUS SYSTEMS
some individuals, some classes, or corporations, cer-
tain times and certain countries; it is common to all
men, to all nations, and all times. Though despised
by the wise, condemned by religious tencts, accused
by moralists and publicists of the perversity of indi-
viduals, the depravity of manners, the decline of
nations, and the fall of empires, Wealth is yet every
where the object of the ambition of individuals and
nations; the cause of their quarrels and contentions,
and but too often the reward of violence, of fraud and
injustice, and of the infraction of all laws human and
divine. Every where poverty, though praised, com-
mended, and ranked among the virtues most honour-
able to humanity, is regarded as a misfortune, some-
times as a disgrace, and almost always as a symptom
of vice, or of an inferiority of either physical or intel-
lectual faculties.
To reconcile this singular contradiction, to develope
its causes, and decide between the passions and the
instructors of mankind, is certainly no easy task.
It ought, however, to be less difficult, now that poli-
tical economy indicates pure and salutary sources of
wealth, the abundance of which may be increased by
means conformable to reason, justice, and morality;
equally beneficial to the rich and poor, and as lawful
as honourable in their application. Yet, by a strange
fatality, this precious discovery has not cured public
opinion of its prejudice against riches; and to write
in behalf of wealth, is still as rash, as it is rare to
see poverty honoured in a drawing-room.
If political economy has hitherto been unable to
make men relinquish their erroneous notions concern-
OF POLITICAL ECONOMY.
17
ing wealth, or to convince them of its being morally
and politically beneficial, it is to be feared that the
same fatal prejudice will be extended to the theory of
Wealth, and that mankind will not feel greatly dis-
posed to patronize a science, the object of which is
little valued. There is, at least, no hope that it will
be diligently studied, successfully cultivated, and
eagerly diffused among the enlightened classes of the
community, on whose patronage alone the progress
of science depends, and without whose co-operation
the solitary efforts of a few courageous partisans, who
have to struggle against the torrent of general indif-
ference, must always prove unavailing.
It is, therefore, of the utmost importance for the
success of Political Economy, that the mysterious
veil, which has hitherto concealed the true nature of
wealth, should be removed. The origin of a pre-
judice so ancient against riches, and the source of the
charms which wealth, in despite of this prejudice,
constantly possesses in the eyes of individuals and
nations, must be investigated. It must be known
whether the disastrous effects of which wealth is
accused, spring from its nature or from extraneous
causes. It must, in fine, be ascertained whether
wealth has been the parent of more virtues than vices;
whether it deteriorates more than it improves the
condition of nations; and whether it has been nore
prejudicial to the duration and safety of empires, than
favourable to their elevation and grandeur.
Wealth is now performing so great a part in all
domestic, national, and foreign concerns, and in every
public and private transaction, that it is a matter of
C
18
ON THE VARIOUS SYSTEMS
much importance not to mistake its essence, its origin,
its effects, and the universal application of which it is
susceptible. The indifference which has proved so
fatal to the theory of wealth, cannot be persevered in
without endangering the social bonds of modern na-
tions. At a time when Europe, shaken in her very
foundations, is about to be re-established on a new
basis, and when it is at length acknowledged that
true politics ought no longer to separate the power of
governments from the welfare of the people, it parti-
cularly behoves us to form correct notions of wealth,
and to be acquainted both with the benefits which we
are to expect from it, and the calamities which fol-
low in its train. If wealth be useful, its advantages
will be the greater for being more justly appreciated;
if prejudicial, its disastrous effects will be better
avoided or prevented by being known. Though truth be
not always certain to please, it is yet sure of a favour-
able reception whenever it is beneficial to mankind.
Wealth, in the simplest and most general accep-
tation of the term, consists in the surplus of produce
above consumption, or of income above expenditure.
The extent both of public and private wealth depends
on the accumulation of this surplus, and on the man-
ner in which it is managed and applied.*
The passion for wealth is general, universal, and,
* When individuals, hordes, tribes, and nations, have not
enough to supply their wants, they are poor: when their means
are adequate to their wants, they are equally removed from poverty
and wealth when they have a surplus left after having supplied all
their wants, this surplus constitutes their wealth.
OF POLITICAL ECONOMY.
19
as it were, inhererent in mankind. The history of
man and civil society shows it always active and enter-
prising. It is the spring of every private action, the
principle and end of all public resolutions. In every
country, in every nation, among the Scythian or
Tartar hordes, among the tribes of Arabia or the
savages of America, among the ancients and moderns,
at all times and under all governments, the desire of
riches exercises the same influence; whether man-
kind live insulated or collected in societies, whether
they be governed by instinct or obedient to reason, this
desire never varies but in its direction and its means.
The passion for wealth is not peculiar to mankind
exclusively vestiges of it are even found among some
species of the brute creation. Several animals reserve
the surplus of their provisions for future wants. By
this reservation, they indicate the instinct of riches;
and it is extremely remarkable, that these economical
and provident classes of creatures happen also to be
the most laborious of the animal kind.
But, in the brute creation, this propensity is
limited; in men, it is without bounds. It has not
influenced animals to proceed a step beyond the
instinct for their own preservation; while, in men,
it has been the principle and promoter of intellectual
faculties, of liberal and mechanical talents, of inge-
nious and active industry: it has afforded mankind
ample means and vast resources; secured them against
want, procured them conveniencies, comforts, and
enjoyments the most exquisite; and extended, as it
were, the domain which nature destined for man, so
that the distance which separates mankind from the
C 2
20
ON THE VARIOUS SYSTEMS
animal creation, might be measured by the distance of
the most refined enjoyments from the most ordinary
wants, or, in other words, by the distance of wealth
from poverty.
Unfortunately, this passion for riches, which nature
designed for such useful and beneficial purposes, has
long been a constant source of disorder, violence, and
calamities, among individuals and nations. Ancient
history, and the records of the middle age, continually
exhibit the passion for wealth to the philosophical
observer as an obstacle to the safety, liberty, and hap-
piness of individuals, to the independence and pros-
perity of nations, and to the increase and welfare of
mankind: it is always arming men against men,
cities against cities, and people against people. Du-
ring those two periods, it seemed as if one man could
not possess more than he stood in need of, without
depriving another of the necessaries of life; as if
cities could not be rich but at the expence of the
country, and as if a nation could not be wealthy
but by impoverishing other nations. Every-where
wealth is wrested from poverty, and opulence amassed
out of the wrecks of indigence. Ages had rolled
along before men perceived, or even before they sus-
pected a more productive, a more abundant source of
wealth, than the misery of their fellow-creatures.
Communities, or individuals, all fancied they could
not be rich but by seizing the property of others;
and all attempted to secure a surplus by depriving
others of their absolute necessary.
With this intent were framed the constitutions of
the ancients, and of the people of the middle age;
OF POLITICAL ECONOMY.
21
in this spirit were their laws conceived, digested, and
executed: such was the peculiar character of their
institutions, governments, and public and private
manners; such the end of their social compact.
The servitude of the most numerous part of the
people was the first consequence of this
of this system. We
find slavery established in the most remote times; and
this circumstance has betrayed some writers (in other
respects estimable) into the supposition that servitude
is a law of nature.
Independently of the greatest part of the people
being enslaved, we find another considerable portion
plunged into a depth of misery little preferable to
slavery, and opulence reserved for a few privileged
beings, whose number bears no proportion to the
multitude bending under the load of social calamities.
To what cause ought we to ascribe a distinction so
degrading to humanity? Not to human nature: it
makes neither masters nor slaves, neither rich nor
poor. The inequality of strength, courage, and acti-
vity, may have produced the inequality of riches;
but it could not be the immediate cause of servitude
and misery. The individual who is least favoured
by nature, may much more easily do without the
assistance of his fellow-creatures, in the social state,
than in the state of nature and surely it was not for
the greater benefit of the weak man, that he was
reduced to slavery by the strong one; nor was it from
a motive of humanity, or by way of kindness, that
the rich rendered the misery of the poor subservient
to the increase of their riches.
This distinction of masters and slaves, of rich and
22
ON THE VARIOUS SYSTEMS
poor, was, in ancient times and in the middle age, the
unavoidable consequence of their civil associations.
being founded upon a system which stripped the weak
for the benefit of the strong; or, rather, upon the
wrong direction given to the inexhaustible passion for
wealth. Aware that they could not grow rich with-
out their assistance, men used every means in their
power to subdue their fellow-creatures, and to impose.
upon them the yoke of their caprices and vices, and
the care of supplying their wants and providing for
their enjoyments. Man became the property of man,
and in this respect J. J. Rousseau was right when he
asserted, that he who laid the first foundation of pro-
perty, was guilty of treason against humanity, and
deserved the curses of mankind.
Fatal as this attempt of the passion for riches
proved, every where, to the most numerous part of
the people, it was yet repeated with the same ardour,
and, at first, with the same success, by nations against
each other. They were all anxious to appropriate to
themselves the wealth of other states, and to submit
them to their domination. Hostilities became perma-
nent, and in this general struggle, a few proving vic-
torious, subdued the others and stripped them of their
riches. But punishment followed close upon the
crime. The predominating states were no sooner
arrived at the summit of power, than they fell with
the same rapidity, and, to use the more correct than
elegant comparison of Fergusson*, they disappeared
all at once, and "the conflagration, which had filled
* Fergusson's History of Civil Society.
OF POLITICAL ECONOMY.
23
"the world with its flames, subsided like a wax-taper
"under an extinguisher."
The causes and effects of this political phenomenon
are established beyond contradiction, by the annals of
all the distinguished nations of antiquity.
The Persians, who appear first on the theatre of
history, were wretchedly poor when Cyrus led them
on to the conquest of the rich provinces of Asia. The
hope of emerging from misery was their only motive
for war. They became conquerors for the sole pur-
pose of enriching themselves; which they accom-
plished by stripping the vanquished of their wealth.
The treasures of the conquered kings were distributed
by the conquerors among the army, the generals and
grandees, and all who, by their services, had deserved
well of the country. Thus the wealth acquired by
conquest contributed, at first, to the grandeur of the
monarch, and the splendour of the empire: but it
soon devolved to a few favourites, courtiers, and
slaves; to all, in short, who, under absolute govern-
ments, feed upon the depravity and vices of their mas-
ters. From that instant the power of the Persians
declined, until it vanished before an army of thirty-
five thousand men, who issued from the barren moun-
tains of Macedonia, or enlisted from among the Pro-
letarians of Greece*.
* The Proletarians (Proletarii à prole creanda) were those
citizens among the Romans who, being possessed of no more than
fifteen hundred sesterces, had nothing to contribute to the exigences
of the state but their children. Asperis reipublicæ temporibus
cum juventutis inopia esset, Proletarii in militiam tumultuariam
legebantur. Aul. Gell. xvi. 10.-T.
24
ON THE VARIOUS SYSTEMS
their wants.
The Spartans, not less celebrated for their contempt
of riches than for their astonishing exploits, appear
little entitled to the praises with which they have been
honoured by posterity. They reduced the Helotes,
or inhabitants of Laconia, to servitude, for the pur-
pose of imposing upon them the task of supplying
The laws of Lycurgus, which had
grounded the happiness of the Spartans upon disin-
terestedness, and obtained the approbation of the
gods, could not guard them against the dangerous
seduction of riches. Scarcely had their illustrious
Lawgiver ended his days, than, regardless of both his
laws and the gods, who had, as it were, declared them-
selves the patrons of those laws, the Spartans con-
quered Messene, and exterminated, banished, or
enslaved its inhabitants: and it is this very period of
oppression and robbery which marks the beginning of
their importance and consideration among the nations
of Greece. The Spartans did not shew themselves
more rigid observers of the laws of Lycurgus against
riches at any other period of their history: the ran-
som of the prisoners of war, and the booty of Platæa,
were eagerly heaped up in their public exchequer ;
and, as Plutarch justly observes, "private individuals
"took care not to despise the wealth which the public
"held in estimation; and the law which watched
at the gate of their houses to keep them shut
against gold, proved less powerful than the exam-
ple of the people, who opened their hearts to
cupidity." Their best generals, and even the chiefs
of the state, were bribed by the gold of the great
፡፡
66
66
OF POLITICAL ECONOMY.
25
king, and the owls of Athens * crept under the roof of
the covetous Spartan.
But the wealth which the Spartans so anxiously
coveted, could only be obtained by reducing other na-
tions to poverty and wretchedness; and when, in spite
of the laws of Lycurgus, riches had been accumulated
in the hands of a few citizens, Sparta had no longer
any virtue, glory, or power, left †.
Attica, a dreary and barren country, could never
have emerged from the state of indigence to which it
was condemned by nature, had not the road to wealth
and the career of ambition been opened to it, by its shar-
ing in the booty of Platea, and in the plunder of the
cities of Asia Minor, which had declared for Xerxes.
This first favour of fortune proved a powerful stimulus
to fresh usurpations.
The Athenians seized the
chest containing the contributions which the confede-
rate cities of Grecce levied among themselves to repel
the attacks of the great king. They arbitrarily raised
the rate of contribution, subdued several towns and
islands of Greece, stripped them of their riches, and
exacted exorbitant tributes. Thus the Athenians grew
*The money of Athens bore the impression of an owl.
It has been remarked by historians, that when, after the
battles of Leuctrum and Mantinea, the power of Sparta declined,
the Lacedemonians were more attached to their gold than to their
country; and though their laws condemned the passion for riches,
their avarice was carried so far, that of the nine thousand families
who in the time of Lycurgus shared the whole wealth of the state,
there remained not above seven-hundred in the reign of Agis, of
which perhaps one-hundred had estates in lands. Plutarch's Lives.
London. 1805. Vol. iv. Agis, p. 385.
26
ON THE VARIOUS SYSTEMS
A
rich by plundering, oppressing, and impoverishing
other nations; and as their wealth got into the hands
of a few citizens, it caused the ruin of the state *.
A few huts, built by strangers and fugitives on the
sea-shore, were the slender foundations on which arose
the magnificent towers of proud Carthage. Though
at first indebted for her wealth to commerce, it was the
plunder of the small nations by which she was surround-
ed, and the conquest and spoliation of the principal
islands of the Mediterranean and of a large portion of
Africa, which gave Carthage so considerable a mass of
riches, that many of her private citizens were said to
have been as wealthy as monarchs.
the
The history of Carthage does not inform us what
became of her riches, and whether they fell exclusively
into the hands of a few citizens, as they did among
other nations of antiquity: but it positively acquaints
us with the inordinate passion of the Carthagenians for
wealth. The citizens were obliged to pay for whatever
the state might or ought to have given them, and were
paid for every service rendered to the state. This
mutual avarice of the citizens and of the state caused
the misfortunes and ruin of Carthage, and produced
precisely the same effects which wealth, exclusively
possessed by a small portion of the people, had pro-
duced in other countries.
There were citizens at Athens, whose landed estates were three
miles in extent; while others had not suflicient to pay for their
burial. De Paw, sur les Grecs.
+ Montesquieu, Grandeur et Décadence des Romains, c. 4.
Ibid.
OF POLITICAL ECONOMY.
27
It was the fear of having their treasures diminished
by extraordinary expences, which, in the first Punic
war, induced that celebrated people to submit to the
laws of the conqueror.
During the second Punic war, the interested policy
of Carthage confined her attention to the preservation
of her wealth. She did not extend her views to futu-
rity, nor did she appreciate the genius of Hannibal.
The Carthaginians were alarmed at the expences to
which they were driven by the illustrious exploits of
that great man; while they ought to have sacrificed
the whole of their riches to his glory. And it
asserted of this extraordinary people, that if the passion
for riches was the principal cause of their greatness
and power, it was the dread of poverty which occasioned
their decline and ruin.
And it may be
Rome, founded by robbers and fugitive slaves who
were seeking an asylum against the justice of the laws,
had for a long time nothing to subsist upon but what
the Romans seized from the harvest of their neighbours.
"Romulus was almost constantly at war to procure
citizens, women, or lands.
66
"The Romans used to return loaded with the
"spoils of the vanquished, which consisted in sheaves
"of corn and droves of cattle. This proved the occa-
❝sion of great rejoicings.
"Rome being without commerce, and almost with-
"out arts, pillage was the only road to wealth. There
66
was, nevertheless, a kind of order and regularity
"observed in plundering. The booty was collected
"into one heap, and distributed amongst the soldiers,
"The citizens, who had been left at home, shared
23
ON THE VARIOUS SYSTEMS
66
likewise in the fruits of victory.
Part of the
conquered lands was confiscated and divided into
two lots; one was sold for the benefit of the pub-
lic, and the other given to the poor citizens, at an
annual rent paid to the state.
"As the glory of a general rose in proportion to
the quantity of gold and silver that graced his
"triumph, none was left to the vanquished.
Rome continued enriching herself, and every
"successive war enabled her to undertake a new one.
"Her allies, or friends, ruined themselves by the
astonishing quantity of presents which they rade
to obtain a greater degree of favour, or to secure
that which they enjoyed: half of the suns sent to
"Rome for the purpose, would have been sufficient
for her overthrow.
46
ፍር
LC
"Masters of the world, the Romans arrogated to
"themselves all its treasures. Their rapacity as
conquerors was less unjust, than as legislators.
Having heard of the immense wealth of Ptolemy,
king of Egypt, they passed a law by which they
"constituted themselves heirs of a living monarch,
"and confiscated the dominions of an ally.*
46
"The cupidity of private individuals was not
"backward in seizing whatever had escaped public
"avarice. Magistrates and governors made a traffic
"of their injustice to princes. Competitors vied in
rushing to their ruin to purchase a doubtful
26
* Montesquicu. Grandeur et Décadence des Romains, c. 6.
The example has not been lost. The conduct of France towards
Spain is the exact copy.-T.
OF POLITICAL ECONOMY.
20
[6
66
"protection against a rival whose means were not
yet completely exhausted; and the grandees of
"Rome shewed themselves devoid of that kind of
probity which even robbers observe in their crimes.
"No right, in short, lawful or usurped, could be
kept safe but by means of bribes. To obtain
money, princes robbed the temples of their gods,
"and confiscated the property of their richest sub-
jects: they perpetrated a thousand crimes, to throw
"all the money of the world into the lap of the
"Romans."*
<<
This eloquent sketch of the passion for wealtlı
among the Romans, sufficiently explains the motive
of their wars and the cause of their victories, con-
quests, domination, and power; and it is with as
much justice as truth that the immortal Montesquieu
has ranked their passion for wealth among the causes
of their grandeur.
The riches accumulated at Rome by the pillage of
Italy, Gaul, Spain, Africa, and the opulent countries
of Asia, became the exclusive patrimony of the
Patricians, and caused those perpetual complaints of
the Plebeians against them. They gave birth to the
dissentions which convulsed the republic, and repeat-
edly threatened its dissolution. They furnished
* The nations by which the empire was surrounded in Europe,
absorbed, by degrees, the wealth of the Romans; and as they had
grown powerful because the neighbouring monarchs had sent them
their gold and silver, they grew weak, because their treasures
were carried to other nations. Montesquieu, Grandeur et Deca-
dence des Romains.
30
ON THE VARIOUS SYSTEMS
Julius Cæsar with the means of destroying public
liberty, and enslaving his country. It was the pro-
digious wealth which the proscriptions of the richest
citizens of Rome had placed at his disposal, that
enabled Octavius to raise the Roman empire on the
wrecks of the republic. It was, also, merely by lavish-
ing upon the legions, Prætorian bands, and Barbarians,
(by whose seditions and continual incursions their
power was constantly menaced,) the produce of the
proscriptions, murder and spoliation of the richest.
individuals of Rome and the empire, that his suc-
cessors maintained themselves on the imperial throne.
As long as mere private persons, whom their riches
assimilated to kings, were smarting under the extor-
tion of the emperors, the people felt no abhorrence for
their execrable crimes: but as soon as the increasing
load of taxes began to fall heavy upon themselves,
the nation revolted against their oppressors; and from
that instant the empire rapidly declined, and shortly
became the prey of the Barbarians.*
Lastly, it was with the sole view to possess them-
selves of the wealth of which the Romans had stripped
the then known world, that the barbarous nations
which surrounded the empire from the north to the
east, commenced their harassing incursions, and con-
tended for its wrecks.
Thus wealth, among the nations of antiquity, was
alike the object of individual and public ambition,
and the principal cause of the elevation and grandeur,
and of the decline and utter ruin of states.
* See the preceding note.
OF POLITICAL ECONOMY.
31
The people of the middle age exhibited the same
spectacle, and experienced the same fate.
"The country of the Scythians being almost un-
"cultivated," says Montesquieu, "its inhabitants
"were subject to frequent famines they partly sub-
"sisted upon their trade with the Romans, who used
"to bring them provisions from the provinces bor-
dering on the Danube: the Barbarians gave them
"in return the commodities they had gained by pil-
lage, the prisoners they had made, and the gold
"and silver they had been paid to keep the peace:
"but when the Romans became unable to grant them
tributes sufficient for their maintenance, the Scy-
thians were forced to seek for settlements."*
(6
Wherever they settled, they possessed themselves
of a more or less considerable portion of land, of
slaves, and moveable wealth; and although these
riches must have appeared immense comparatively to
their former poverty, they yet failed to produce upon
them any of the effects which they had produced
upon the nations of antiquity. The Barbarians.
underwent none of the vicissitudes which those nations
had experienced. They preserved their spirit, their
manners, their character, and their propensity to rob-
bery and devastation. "To have no one to rob was to
"them a state of slavery."+
When they had no more enemies to fight, no more
booty to share, no more wealth to wrest by conquest
* Montesquieu, Grandeur et Decadence des Romains.
+ Etenim hoc illis servitus est nullos habere quos depræduntur.
Libanius.
32
ON THE VARIOUS SYSTEMS
from strangers, they warred with themselves to strip
each other; and hurried along by their insatiable
cupidity, they paid no respect either to the identity
of origin, to the ties of blood, to political connections,
or even to social and domestic relations. Fathers,
children, and brothers, kings and barons, lords and
vassals, all fought against each other to increase their
riches by the misery and poverty of their enemies :
but their culpable expectations were deceived. Their
general and continued hostilities, instead of enriching
them, created every where wretchedness and indi-
gence; harbingers of the revolution which caused the
destruction of the feudal government.
:
The barrenness of the soil introduced, among the
Arabs, a maxim in which they have confided, and
which they have practised ever since the most remote
times they suppose that, by the division of the
earth, the rich and fertile climates have been assigned
to other branches of the human race; and that the
posterity of the proscribed Ismaël, from whom they
are descended, may recover, by fraud or violence, that
portion of his inheritance of which he has been
unjustly deprived. According to Pliny, the Arabs
are equally addicted to theft and commerce; the
caravans which journey across the desert, must either
ransom themselves, or submit to be pillaged: and
ever since the remote times of Job and Sesostris,
their neighbours have been the victims of their rapa-
city.*
Mahomet took advantage of this rapacious dispo-
* Diodorus Siculus, vol. i. Book 1.
OF POLITICAL ECONOMY.
33
sition, and, by methodizing it, united all the Arabs
under the banners of religion and plunder. He set apart
the fifth of the gold and silver, prisoners, cattle, and
moveables, for pious uses; the rest was divided in
equal portions among the soldiers who had contributed
to the victory and those who were left to guard the
camp. The share of those who had fallen in battle,
was given to their widows and orphans.
The first caliphs who succeeded Mahomet, took no
more from the public revenue than was requisite to
supply their wants, which were extremely moderate;
the remainder was scrupulously applied to the
salutary work of spiritual and temporal conquests.
The Abassides impoverished themselves by the
multitude of their wants, and their neglect of economy.
Instead of taking ambition for their guide, as the first
caliphs had done, their leisure, their affections, and
the faculties of their minds, were solely engrossed with
the pomp of feasts and pleasures. The rewards due
to valour were dissipated by women and eunuchs; and
the royal camp was incumbered with the luxury of the
palace. The same vices spread among their subjects;
and from that instant their tottering empire, dismem-
bered and disunited, left nothing in their impoverished
hands but the barren deposit of the laws and religion of
Mahomet.
This hasty sketch of the passion for wealth among
the nations of antiquity and the middle age, of the
course it followed, and the share it had in their eleva-
tion and decline, leaves no doubt respecting the power
and empire which it exercised over them. Notwith-
standing the high colouring employed by historians.
D
34
ON THE VARIOUS SYSTEMS
1
misled or prepossessed by their splendid exploits, to
disguise it under the veil of their love of country, glory,
or religion, truth pierces every where; the insatiable
thirst for riches betrays itself in all their private actions
and public concerns; and the illusions of the historian,
and the fascinating powers of the orator, are both dis-
pelled by the torch of history.
Modern nations are not less addicted to the passion
for wealth, than the nations of antiquity and the
middle age: but they have been more enlightened, or
more fortunate in the direction which they have given
to that passion; and their wisdom or good fortune has
not only guarded them against the perils and cala-
mities attached to riches, but has also made them
sensible of the unforeseen, incalculable, and unbounded
benefit, which wealth is capable of affording *.
Venice, Genoa, Pisa, and Florence, which first
1
í
* I fear, the moderns are little entitled to this compliment.
Neither nations nor individuals are content to grow rich by
labour and industry, until they are precluded from becoming so by
plunder and violence. This is sufficiently proved by the behaviour
of all European nations to the natives of the East and West Indies,
and by the revival of slavery in its most edious form, wherever
the inferiority of one race rendered it safe for the other to exercise
such an unjust dominion. The secret partisans of the Slave-trade
are still too numerous, even in the country whose laws have acknow-
ledged its barbarity, and pronounced it felony, to allow any shouts
of triumph on account of the improved dispositions of mankind
with regard to their desire of riches. The immutability of human
nature, in this respect, is unfortunately too strongly confirmed by
the conduct of the two most enlightened nations of Europe in our
times: the English, some years ago in the East Indies, and the
French all over the continent, and at this very hour, in Spain.-T.
OF POLITICAL ECONOMY.
35
attract our attention in modern history, turned their
passion for wealth to labour, industry, and commerce.
Though they sometimes fought for the advantages of
an exclusive commerce, yet their wars had less ten-
dency to enrich them with the spoils of their enemies,
than to remove competitors and rivals, and to enjoy a
monopoly, of which the ignorance of the times mag-
nified the benefits, and kept the vices and inconve-
niencies out of sight.
It was only in labour, manufactures, and com-
merce, that the Hanseatic towns and the cities of Spain,
France, and Germany, when they escaped from feudal
depredations, sought for means to enrich themselves;
the object of their league was merely a system of
defence contrived for the interest of the confederates,
and inoffensive in every other respect. History
accuses them neither of violence nor of usurpation.
Though the Portuguese and Spaniards, who first
sailed beyond the Cape of Good Hope, and found a
new world, shewed themselves on the outset as con-
querors in the countries which they discovered; though
they carried thither the spirit of rapine and conquest
which was still predominant in Europe, and stripped
the vanquished of their manufactured and agricultural
produce; the impossibility of turning this produce to
advantage, without exchanging it for other commo-
dities, subjected them to the law of competition,
which, as it excludes every idea of force and violence,
is intimately allied to notions of justice and equality,
and connects all men by the need in which they stand
of each other.
This barter, exchange, or commerce, which was
D 2
36
ON THE VARIOUS SYSTEMS
become the basis of the connection of the European
nations with each other, exercised also a favourable
influence over their relations with the nations of Hin-
dostan and America. In vain do force and violence
still attempt to keep them in subjection, and to main-
tain an odious monopoly in those two portions of the
globe. Modern nations have no solid and durable
means to enrich themselves, but by labour, by the
developement and improvement of their faculties,
by the economy and rapid circulation of their pro-
duce, and by its wise application, distribution, and
consumption. From Kamtschatka to the Pillars of
Hercules, from the Elbe to the Ionian Sea, labour is
the power which distributes wealth, and whose favours
all nations implore; and it is particularly worthy of
remark, that this wealth, far from occasioning the
destruction or decline of opulent nations, has proved
the firmest support of their prosperity, power, and
grandeur. Whenever particular causes have dried up
or diminished the source and abundance of this
wealth, nations have declined in consideration, gran-
deur, and power, in the ratio of their impoverishment.
Venice, Genoa, Florence, the Hanseatic Towns, and
even Holland, lost their preponderance, or political
influence, only when their commerce, the principal
source of their riches, declined, and, taking a differ-
ent road, went to enrich nations possessed of a more
extensive territory and a larger population.
Thus the nations of antiquity, as well as those of
the middle age and modern times, have all been ruled
by the passion for riches: they only differ in the
means employed to satisfy that passion. This differ-
OF POLITICAL ECONOMY.
37
ence satisfactorily explains the various effects which
wealth has had upon these different nations, and
throws a brilliant light upon its true nature.
The ancients and the people of the middle age knew
and practised but one way to grow rich, and to
increase and keep their riches: they placed their hope
and confidence in the right of the strongest, to which
they made their institutions, their laws, their man-
ners, and their customs, subservient. Their only
object was to render their population numerous, brave,
skilled in arms, and always ready to sacrifice them-
selves for the purpose of subduing other nations and
seizing their wealth.
But, by a singular fatality, it happened that, in
proportion as these nations improved in military
science, as their arms were successful and their wealth
augmented by victories, their domination lost its
stability, they became less able to defend themselves,
their grandeur shortly declined, and they were soon
subdued.
Both moralists and publicists have observed this
phenomenon, and have thence inferred that wealth
caused the fall of the great empires of antiquity: and
it must be confessed, that their opinion appears
indeed an immediate consequence of the most certain
and best authenticated facts.
But have they not gone too far, when they
magnified this consequence into a principle, and
pronounced the wealth and safety of nations, and the
opulence and preservation of empires, to be absolutely
incompatible?
Had they inquired without prejudice into the causes
38
ON THE VARIOUS SYSTEMS
which rendered riches fatal to the Persians, to the
Greeks, to the Carthaginians, to the Romans, and
to the nations of the middle age, they would have
perceived that these causes did not arise from a vice
particularly inherent in wealth, but from the system
of violence by which these nations acquired their
riches; from the nature of their military government,
which concentrated wealth in the least numerous class,
and, as it enslaved or impoverished the other classes,
rendered wealth equally fatal to the rich and to the
poor, to individuals and to the state.
Among the Persians, the Greeks, and the Romans,
the people were divided into two classes. Cue, com-
posed of slaves, formed three-fourths, two-thirds, or
at least half of the population. The other, composed
of freemen, formed the state, the nation, the coeutry,
Although all the individuals of this class had an equal
right to the benefits of the social compact, they yet ·
did not share these benefits in equal portions.
Independently of the inequality of individual facul-
ties which in every community opposes the equal
distribution of wealth, an essentially military govern-
ment favoured this inequality, and aggravated its pres-
sure and misery.
At the origin of empires, the vices of this concen-
tration were not felt, because the military force con-
sisted of all the citizens, and all had more or less share
in the booty and riches conquered upon the enemy.
The desire of wealth was at that period the surest
pledge of victory, and the most powerful cause of the
elevation and grandeur of the state. But when the
whole body of the citizens was no longer wanted
OF POLITICAL ECONOMY.
39
either for defence or for attack, when one part of the
forces of the state sufficed for its views and projects,
the military government became concentrated, and
wealth, following the laws of this concentration,
passed almost exclusively into the hands of those who
were invested with power.
In vain did the classes, deprived of their share in the
general riches, murmur and revolt at the voice of a tri-
bune, a demagogue, an ephorus, or a popular orator;
their cries were stifled or appeased, but the wrongs of
which they complained were not repaired, and wealth
always followed the bias of concentration. Matters
went so far, that the greatest number of freemen had no
means of subsistence, but what they derived from the ge-
nerosity of their patrons, the liberality of candidates,
and the distributions made by the public exchequer.
Such a distribution of wealth must inevitably prove
fatal. It gave every thing to a small number of indi-
viduals, and denied every thing to the general mass of
citizens. It created at once extreme poverty and
extreme wealth; it placed want on one side, and on
the other the arbitrary power of prolonging or ending
its misery. It inevitably occasioned every disorder
attendant on general depravity, perverted institutions,
laws, and manners, corrupted the morals of the people,
and subverted justice and humanity.
Slaves, over whom their masters generally had the
right of life and death, were and must necessarily
have been the passive instruments of their caprices
and vices.
The freemen who were poor, and dependent for
40
ON THE VARIOUS SYSTEMS
their subsistence on the liberality and munificence of
the wealthy, had not, and could not have, any other
conduct, morality, or virtue, than that of their patrons,
magistrates, and benefactors.
The rich themselves, while they enjoyed their
immense riches, had nothing to fear, nothing to
hope, nothing to wish for. What virtues must they
have been possessed of, not to be absolutely vicious!
What notions could they have of domestic duties, of
the relations of masters and slaves, magistrates and
citizens, nations and individuals! The power of
satisfying every desire vitiates them all, and renders
virtue too difficult, not to say, impossible.
This distribution of wealth smothered every private
and public virtue in the bud, and nurtured only the
vices destructive of social order,
Both the slaves who were submissive to the will of
their masters, and the freemen who depended on the
kindness of their patrons, were indifferent to the fate
of their country, and took no interest either in its
safety or in its glory.
The rich, as sale possessors of wealth and exclu-
sively invested with public offices, shared, or contended
for, the supreme power, made war or peace, main-
tained public order or fomented civil discords, and
acted right or wrong, at their convenience or pleasure,
This concentration of wealth and power among the
rich had so reduced the number of individuals inte-
rested in the safety of the state, that every page of
ancient history records the difficulty of finding defend-
ers for the country, and of levying and recruiting
OF POLITICAL ECONOMY.
41
armies. We see the number of combatants decreasing
every where in proportion to the increased wealth of
the state and its concentration in one single class.
When the law of the Ephorus Epitadeus allowed
the Spartans to sell their landed property and to dis-
pose of it by will, and when the estates which had
been distributed by Lycurgus among nine thousand
citizens, were possessed by one hundred individuals,
Sparta had no longer any soldiers, army, or power.
When Athens contained within her walls indivi-
duals possessed of three miles of land, while others
had not wherewith to get buried, Demosthenes vainly
proposed to raise an army of two thousand foot and
five hundred horse; a third only of which was to
consist of citizens; no one was ready to defend a
country which was become the property of a few
families.
At Carthage, the wealth produced by commerce
and conquest did not follow the law of concentration
of military governments: her political constitution did
not accumulate it exclusively in the lap of one class
of the people. Hence her citizens were not infected
with any of the vices that occasioned the ruin of the
other ancient nations, and though Carthage perished
like them, it was neither from the same causes nor
by the fatal influence of wealth.
But her riches did not prove of great utility for her
defence; perhaps they were even rather unfavourablę
to those civil and political virtues which are so essen-
tial to the prosperity and preservation of states: the
reason of this may again be found in the polluted
source from which her riches sprang. As the fruits of
42
ON THE VARIOUS SYSTEMS
commerce and conquest, the wealth of Carthage, par-
took of the vices of both: the parsimony of the
merchant tarnished the warlike virtues of the soldier,
and the avidity of the soldier impaired the social
virtues of the merchant; both were less occupied with
the state than with their private interests, and less
anxious for their country than for their wealth.
But in this instance, these vices were not the offspring
of wealth, they proceeded chiefly from the conquests
to which the Carthaginians owed the greatest part of
their riches. The influence of the commercial spirit
could not prevail over the spirit of conquest; they
mutually perverted each other, and became equally
incapable of saving and defending the country.
Lastly; Rome, which during the second Punic war
counted two hundred and fifty thousand men under arms,
beheld, when she was become mistress of the world,
her liberty decided at Pharsale by sixty-three thousand
combatants, forty-one thousand of whom were in the
army of Pompey, and twenty-two thousand in that of
Cæsar; and the world submitted to the decision of
that famous battle *.
What more striking proof can there be required of
the fatal effects of the concentration of riches? And
is it possible to ascribe to any other cause the number-
* The lands of Italy, which had been originally distributed to
poor but free families, were insensibly purchased or usurped by
the avarice of the nobles, and in the century which preceded the
fall of the republic, there were scarcely two thousand citizens pos-
sessed of an independent fortune sufficient for their maintenance.
Gibbon's Decline and Fall of the Roman Empire.
OF POLITICAL ECONOMY,
43
less calamities which hurled all the empires of anti-
quity from the summit of grandeur and power?
The Barbarians, who invaded the Roman empire
in the middle age, left to the vanquished a part of
their riches, and shared in the other part: this par-
tition divided wealth among two classes of men, but
in proportions so unequal, that, if it did not occasion
a concentration similar to that which existed at Sparta,
Athens, and Rome, it caused at least so great a dis-
parity, that the people were again divided in three
classes; one composed of slaves and bondinen, the
second of small proprietors, and the third of the
owners of large estates.
The bondmen, like the slaves of the ancients,
were condemned to labour for their masters, and had
no more rank in the state than the slaves of Athens
and Rome and the Helotes of Sparta. The class
doomed to this servitude, composed the major part of
the people.
The small proprietors, much more numerous than
the great land-owners, were indebted to the latter for
their safety and part of their means of subsistence;
and in both respects resembled the Proletarians and
the poorer citizens of Rome and other ancient states.
The great land-owners, as they disposed of the
bondmen and small proprietors, whom they attached
to their fortune or rendered dependent, defied public
power, warred with each other, and regarded themselves
as so many independent sovereigns. This anarchy,
again, had evidently its source in the concentration
of wealth; a concentration, the strength of which
44
ON THE VARIOUS SYSTEMS
increased as the public power was enfeebled; its excess
occasioned that general misery which every where
provoked resistance, and finally delivered Europe from
feudal oppression.
Again, therefore, does the history of this period
impute the calamities of the times to the concentra-
tion of riches, and absolve wealth itself of the
reproaches with which many philosophers have judged
themselves authorized to load it.
But its moral and political effects, as soon as it cir-
culated, with comparatively less obstacles, in every
class and among all individuals, ought, in my opinion,
to remove every doubt respecting the nature of wealth
and the estimation in which it is to be held.
From that period, which separates modern times
from the middle age, wealth has been as productive
of public and private prosperity, as it had been before
of general and individual distress.
Produced by labour, it rendered men particularly
attentive to the means of augmenting the productive-
ness of labour. They soon perceived, that the free
labourer who works for his profit, multiplies the
produce he consumes during his labour; while the
slave or bondman scarcely replaces what he consumes.
In proportion as this truth was diffused by experience,
the passion for wealth broke the fetters with which it
had held mankind enslaved.
On the other hand, the free but poor class that till
then had lived dependent on the great land-owners,
being enriched by labour, shook off this dependence,
afforded to the public power a force formerly devoted
OF POLITICAL ECONOMY.
45
to the private power of the great land-owners, confer-
red upon civil society a greater stability and extent,
and gave it a stronger and more secure direction.
By being rendered more general, the interests of the
community were aggrandized, the commonwealth
ceased to be a private concern, and actually became
common. The interest of the hitherto oppressive and
domineering rich was no longer an obstacle to good
laws, a protecting government, and a public power
capable of watching over and maintaining the rights
and interests of all. The ideas of morality, justice,
and humanity, which are effaced when poverty is
oppressed by wealth, resumed their force, as soon as
riches circulated in every rank of the community;
the poor had no longer to dread the oppression of the
rich, the laws guarded every private interest, and
governments directed their attention to the interests of
all.
As wealth diffused itself in every rank of the com-
munity, it consolidated for ever this beneficial revolu-
tion by affording to every class the means of knowledge,
instruction, and wisdom, formerly confined to the
rich alone. Nations, as they grew more enlightened,
became better acquainted with their own interests, and
better disposed to perform every individual, domestic,
and social duty. Knowledge exercised a re-action
upon wealth, and imparted to it a power which rules
alike individuals, associations, and empires.
The social compact, the constitution, the laws and
the institutions of every people, were gradually directed
towards the maintenance, preservation, extension,
46
ON THE VARIOUS SYSTEMS
and possession of those riches, which every one may
acquire by labour, industry, and commerce.
Even in the foreign concerns of nations, and in their
treaties with others, diplomacy had no other object in
view than the preservation and extension of their
respective riches.
Thus, that passion for wealth, which had armed the
nations of antiquity and the middle age, which had
continually excited them to battles, rapine, destruc-
tion, and conquest, and filled up the measure of social
calamities, enticed the moderns to labour, manufac-
tures and commerce, and inspired them with the love
of peace and feelings of general benevolence and
friendship. On this new road to wealth, individuals,
communities and empires have found all the pros-
perity which may reasonably be expected in civilized
society.
Wealth, produced by labour, maintains, in eighteen-
twentieths of the people, the strength, energy, and
dexterity, with which man is endowed by nature, and
developes, in the two remaining twentieths, those facul-
ties of the mind which seem beyond the sphere of hu-
manity, and bring man as it were nearer to the divine
nature. Produced by labour, wealth banishes idleness
and the vices unavoidably connected with idleness;
it renders man laborious, patient, sober, economical,
and adorns him with those precious qualities, the
sources of individual, domestic and social virtues.
It binds the natives of the same land by the most
powerful of all ties, mutual wants, reciprocal services,
and the general consideration, which they entail upon
their country.
OF POLITICAL ECONOMY.
47
It restores man to his primitive dignity, through the
sentiment of his independence, through his obedience
to laws common to all, and his sharing in the benefits
of society in proportion to his services.
It has rendered nations more powerful, because every
individual member is interested in the success of na-
tional affairs, all bear their weight, and all share in the
advantages which they procure. This community of
good and evil, to which the circulation of wealth calls
every individual of the nation, affords the greatest
strength which the social compact possibly can or ever
did produce. The conquering nations of antiquity and
the middle age, were acquainted with this stimulus, and
employed it during their conquests; it constantly
insured their success, but they neglected it after vic-
tory; they attached the rich alone to the interests of
the community, and from that instant their power
declined, and was shortly annihilated.
This stimulus is as active among industrious and com-
mercial, as among conquering nations, and its strength
and intensity can never be impaired or lost. What-
ever may be the stock of riches accumulated through
labour, it impoverishes no one; on the contrary, it
enriches every individual: it is the instrument of
general wealth, it increases the mass of labour, and the
sum of its produce, and consequently augments the
resources of the laborious and the treasures of the rich.
Modern wealth affords yet another inestimable
advantage to civil society; the more it is generally
diffused, the more it renders obedience light and easy,
government strong and powerful, and public authority
48
ON THE VARIOUS SYSTEMS
just and absolute. The rich man is every where the
most submissive, the most disposed to obey the laws
of his country, because he is sensible that to them he
owes the preservation of his wealth. The poor man,
on the contrary, obeys only by constraint and neces-
sity, and consequently lives in a continual hostility
against society. Had the science of statistics arrived
to that degree of improvement which it is desirable
that it should reach, the ratio of the security and
power of governments might, by an algebraic calcu-
lation, be determined by the ratio of wealth and
poverty; and political revolutions might be foretold
with as much certainty as astronomers foretell the
revolutions of the heavenly bodies.
Lastly, the effects of wealth, produced by labour,
are felt alike by the nations that compose the great
family of mankind, and by the individuals who com-
pose each national family.
In this system, man is no longer an obstacle to man,
nations are no longer obstacles to nations. It is the
interest of all to labour the one for the other, to inter-
change the respective produce of their labour, and to
increase the domain of general wealth. The labour,
industry, and commerce of every individual is useful
to all, whatever portion of the globe they may inha-
bit; the more extensive agriculture of one country is
beneficial to all laborious, manufacturing, and trading
nations; it increases the produce destined for general
consumption, which, in its turn, augments population;
and this augmented population affords new consumers
to the productions of the industry of every nation.
OF POLITICAL ECONOMY.
49
Thus all nations share in the prosperity of each, and
the portion of each is proportioned to its labour,
manufactures, and commerce.
In vain do nations exert, fatigue, and exhaust them-
selves in military, diplomatic, and commercial combi-
nations, to obtain, by cunning or force, a larger or
smaller share of the general wealth. Their efforts are
abortive; the distribution of wealth follows the ratio
of labour, manufactures, and commerce; and as these
obey neither force nor cunning, and only yield to
equivalents, blind ambition will, necessarily, at last
be obliged to submit to their peaceable rule.
If the combinations of force are delusive and deceit-
ful, and cannot be substituted for the toilsome and
painful efforts of labour, manufactures, and commerce,
those of monopoly are neither wiser nor more bene-
ficial. The charges of a monopoly absorb its profits;
and monopolizing nations are actually impoverishing
themselves, whenever they want to turn the prosperity
of other nations to their own particular advantage.*
In short, to prevent wealth from flowing into the
channels which labour, manufactures, and commerce,
have dug for it, is impossible; and if we deplore the
blindness of the times when military force fancied
it could extract treasures from the misery, indigence,
*As the French begin to perceive the inutility of the devices of
force to obtain wealth, it is not unreasonable to hope, that the
English will also, at length, perceive the inutility of schemes of
monopoly. England's aim at monopolizing the trade with colonial
produce, though it cannot excuse the ambitious attempts of France.
must yet be acknowledged as one of their causes. —T.
F
50
ON THE VARIOUS SYSTEMS
and calamities of the world; the moment is not far
distant, when monarchs will acknowledge that there
are no safe, legitimate, and honourable means to grow
rich but through labour, manufactures, and com-
merce.
Let us, therefore, conclude, that wealth, in all ages
and under all governments, exercised an absolute
power over individuals, nations, and empires; and
that, according as it was attempted by force, conquest,
and devastation, or by labour, and economy, its
effects have been fatal or salutary to the human race.
How greatly then have they erred, who thought they
could apply to modern wealth the results and effects
of the wealth of the nations of antiquity and the
middle age! One is no more to be compared to
the other, than the offensive and defensive weapons of
the ancients can be compared with those of the
moderns, or their tactics with ours. Their wealth
had its source in the impoverishment of nine-tenths
of the people: modern wealth is derived from the
riches of the whole population. The former enervated,
effeminated, and depraved the rich, perverted and
degraded the poor, and rendered them strangers to
the community: the latter furnishes the rich with
the means of knowledge and instruction, and ena-
bles them to direct labour, industry and commerce :
it insures to the less fortunate classes, and even to
those who are the most needy, a portion of the gene-
ral wealth, which portion is always proportioned to the
extent of that wealth. Thus the interest of the poor
is never separated from the interest of the rich; they
lend each other a mutual support.
|
OF POLITICAL ECONOMY.
51
The wealth of the ancients kept all nations in a
permanent state of hostility, devastation, and servi-
tude; and, consequently, held out a permanent obsta-
cle to the general civilization and improvement of
mankind. Modern wealth connects all nations; it
binds them by common interests, causes them to for-
ward the same ends by the sentiment of their pri-
vate interest, and associates them, in some degree, to
the progress of the civilization and amelioration of
the human race.
One is, therefore, as desirable as the other is odious;
and one ought to be as much extolled, as the other
has been justly reprobated by all enlightened writers.
Those nations which ambition is still propelling
towards domination, as well as those who possess a
sentiment of real grandeur, and know that it consists
in a noble independence, are equally interested in
studying the causes of modern wealth, and in disco-
vering and improving the methods by which it may
be increased and rendered useful in its application:
they ought, therefore, to patronize the progress of
political economy by all the means in their power.
E 2
52
ON THE VARIOUS SYSTEMS
BOOK I.
Ky
OF THE VARIOUS SYSTEMS CONCERNING THE
SOURCES OF WEALTH.
THE most ancient system concerning the sources of
Wealth derives wealth from foreign commerce; that
is to say, from that commerce in which one nation
sells more to other nations than it purchases, and
is paid for the surplus of its sales over its purchases
in precious metals. This doetrine was adopted with-
out any limitation by the authors who first wrote
upon Political Economy in England, Italy, and
France, during the sixteenth, seventeenth, and up to the
iniddle of the eighteenth century; and although it has
been strenuously combated by later writers, it has
yet prevailed and still prevails in the opinion of indi-
viduals, nations, and governments: all consider com-
merce as the true way to grow rich; and by commerce
they all understand the exchange of commodities with
foreign nations. An opinion so general, so ancient,
so lasting, can neither be ascribed to blind pre-
possession, nor to vain credulity or foolish ob-
stinacy. Time, which has destroyed so many errors,
superstitions, and inveterate habits, almost coëval
with the social state, would not have respected
OF POLITICAL ECONOMY.
53
a doctrine contrary to private and public interest.
What then has so long protected this doctrine against
the outrages of time, the progress of knowledge, and
the charm of innovations? Is it not its resting on
the authority of facts, on the experience of ages, on
every thing that is certain and evident among men?
The conjecture is not improbable.
If we ascend ever so high in the history of Wealth,
we find that wealth always followed the direction of
foreign commerce, and remained faithful to its ban-
ners and ships. During eight hundred years, the
commerce of the Phoenicians fixed wealth in the ports
of Sidon and Tyre. In these celebrated cities it long
bade defiance to the avarice of the greatest conquerors
of the East; and when the conquest and ruin of these
industrious cities forced wealth to seek for a fresh
asylum, it went over to the nations that inherited
their commerce,
The Greek and Iönian cities, Alexandria, Marseilles,
and Carthage, which gathered the wrecks of the trade
of Sidon and Tyre, were not less celebrated for their
wealth. Carthage, in particular, rose to the highest
degree of splendour and power, struggled successfully
for a length of time against the fortune of the Romans,
and delayed for more than a century the subjection of
the other nations.
When the Genius of Rome grounded on the ruins
of Carthage the conquest of the world, the sources of
wealth were dried up in Europe, in Asia, and in
Africa; because these countries had no longer any
commercial communication.
The treasures which had been accumulated at Rome
.
34
ON THE VARIOUS SYSTEMS
no
by the plunder of all nations, did not prove a source
of wealth for any country; they fertilized
lands, improved no kind of industry, and did
not extend the bounds of civilization in any one
respect. They were exhausted by purchasing the rich
productions of Asia, appeasing the seditions of the
cohorts, saving the empire from the successive depre-
dations of the Barbarians, and satisfying their insa-
tiable avidity. They vanished without leaving a
vestige behind, and Rome, her provinces, and her
tributary nations, differed only in the degree of misery
and wretchedness.
During the eight centuries which followed the
overthrow of the Western Empire, under the rapid
succession of Barbarians, who left nothing behind but
the remembrance of their ferocity, rapacity, and devas-
tations; during that long period of violence, anarchy,
and crimes, the opulence of a few individuals con-
demned the whole population to general misery.
Constantinople, it is true, was the centre of an
immense variety of political and commercial affairs:
but the great extent of the empire, the majesty of a
conquering nation surrounded by barbarous and rapa-
cious neighbours, the magnitude of the tributes,
the sums accumulated in the imperial exchequer,
stifled that emulation, that activity and energy, for
which commerce is distinguished, and through which
it yields abundant riches. It may therefore truly be
said, that, from the destruction of Carthage to au
advanced period in the middle age, that is to say, for
more than thirteen centuries, the sources of wealth
were dried up throughout the Roman empire, and
I
OF POLITICAL ECONOMY.
55
consequently throughout the whole then known
world.
It was only in the twelfth century that these sources
were again opened, and Europe was again indebted
for wealth to foreign commerce.
Venice, Genoa, Pisa, and Florence, though doomed
to poverty by the barrenness or smallness of their
territory, acquired yet great wealth by their commerce
with the produce of the East and North. Not less
powerful than Tyre, Sidon, and Carthage, they dic-
tated laws to the Greek empire, bade defiance to the
greatest monarchs, and balanced for more than three
centuries the fate of Europe. Their grandeur de-
clined with their wealth, which they imprudently
sacrificed to expensive wars, to a fatal rivalship, and
an unbounded ambition; it vanished for ever when
unforeseen events turned aside the current of their
trade, and reduced them to the resources of their
territorial riches and local industry.
The numerous factories which these cities had
established in the north of Europe, at Lubeck, Bre-
men, Hamburgh, Bruges, and Antwerp, created there
new scources of wealth and prosperity. Towns
hardly known before the introduction of foreign com-
merce, were soon distinguished for their wealth, splen-
dour, and power. Wiser than the cities of Italy, they
guarded against the dangers of rivalship, formed a con-
federacy for the protection and defence of their trade,
and laid the foundations of the Hanseatic league, that
monument of boldness and prudence in a barbarous age
and among a rude people.
Strengthened by the accession of one hundred and
56
ON THE VARIOUS SYSTEMS
sixty towns of Flanders and the Baltic, the Hanseatic
league rapidly attained a great commercial and poli-
tical prosperity: the wisdom of its conduct was equal
to the wisdom of its institution; it opposed a salu-
tary resistance to the progress of feudal anarchy,
enlightened the people concerning their true interests,
and caused the spirit of commerce, manufactures,
and labour, to prevail over the spirit of murder,
rapine, and devastation. The services which the
Hanseatic league rendered to humanity in those bar-
barous times, are invaluable, and yet they scarcely
occupy a few pages in the records of Europe; while
many volumes are filled with the history of the cru-
sades by which Europe was devastated, of the ambi-
tious pretensions of the Pontiffs of Rome, by which
she was disgraced, and of the quarrels of vassals and
lords, by which she was oppressed and kept in servi-
tude. Is it possible that the picture of public vices
should be more attractive to mankind than the spec-
tacle of public virtues? Or is there no other title to
the remembrance, consideration, and veneration of
men, than the harm which is done to them? The
Hanseatic league, that perfect paragon of a wise
political association, only ceased to exist, when its
existence was no longer necessary to the protection
and safety of its commerce, and when the towns of
which it was composed found, in the government of
the countries in which they were situated, a full
* The late professor J. Fisher, of Halle, published an excellent
history of the Hanseatic League, in German, about five-and-twenty
years ago.-T.
[
!
t
OF POLITICAL ECONOMY.
57
security of persons and property. By its generously
confiding its interests to the care of all, the Hanseatic
league left the world an honourable remembrance
consoling to humanity.
The discovery of America and of a passage to the
East Indies by the Cape of Good Hope, the abun-
dance of the precious metals which it caused to circu-
late in Europe, the general comforts, which were an
obvious consequence of this discovery, every circum-
stance of this ever-memorable event confirmed the
opinion respecting foreign commerce, and left no
doubt about its being the true source of wealth.
But how does commerce enrich a country? By
what channels does it pour its benefits? And how
is the productiveness of commerce to be increased and
its prosperity insured?
The majority of writers supposed, that foreign
commerce enriches a country by the plenty of gold
and silver which it causes to circulate *; and govern-
ments, in conformity to this doctrine, endeavoured to
retain the precious metals, or to invite them by
encouraging national manufactures, by directly or
indirectly prohibiting the produce of foreign industry,
or by procuring to the produce of national industry,
* We must do the justice to Davenant to confess, that, although
a partisan of the mercantile system, he did not limit its advantages
to the abundance of precious metals which it accumulates in a
country. This justly celebrated author, on the contrary, lays it
down as a principle, that every trade is advantageous, provided
its returns be more considerable than the goods exported, even
though the returns should consist in perishable commodities. Vol.
ii. p. 11.
58
ON THE VARIOUS SYSTEMS.
an easy and even privileged introduction into foreign
countries. Such was, and such is still, some few
modifications excepted, the system which places the
source of wealth in foreign commerce; and which,
on that account, is called the Mercantile System.
The great estimation in which a gold and silver
currency was every where held, naturally led some
philosophers to watch its progress, its distribution, its
circulation, and, above all, its influence upon private
and public concerns; and it was not long before the
inconveniencies which might be apprehended, and
the advantages which might be expected from it, were
discovered.
The Italian writers soon pointed out the vices of
the prevailing monetary system, and threw great
light upon that important part of the science.
Towards the end of the sixteenth and in the begin-
ning of the seventeenth century, Davanzati at Flo-
rence, and Turbolo at Naples, gave excellent instruc-
tions on metallic currency.
But their writings
proved unavailing against the disorders which they
wanted to stop or to prevent. When we peruse these
ancient writings, we do not know whether we ought
to be more surprised at the extensive light they throw
on the subject which they discuss, or at the small
influence they had upon their own times. It is as if
their country was to give to the rest of Europe the
example of the calamities which result from the dis-
* Lezione delle Monete di Bernardo Davanzati. Fiorentino,
1588.-Discorsi et Relazioni sulle Monete del regno di Napoli di
Gian Donato Turbolo. Napolitano, 1629.
OF POLITICAL ECONOMY.
59
ordered state of a currency, and of the theory best
adapted to avoid such a disorder. Ten very distin-
guished treatises, published in Italy since the middle
of the eighteenth century, by men of powerful under-
standings and most distinguished for the emi-
nent offices which they had held, attest, at once,
the greatness of the evil and the impotence of the
remedy.* Existing circumstances have predominated
over human combinations, and Italy has always been
remarkable for the worst currency and the best works
on money.
The English writers were also aware of the obstacles
which a vicious monetary system opposes to the pro-
gress of wealth: but the measures, pointed out by
Locke and Newton, remedied the evil in England,
and the Bank subsequently contributed to guard against
its recurrence.
It appears, that before the middle of the eighteenth
century, the French had not paid any serious atten-
tion to their monetary system. In vain did the peo-
ple complain against its defects; in vain did they sub-
mit to the greatest sacrifices: their complaints were
listened to, their sacrifices accepted, but recourse was
* Montaneri, Broggia, Galiani, Neri, Carli, Genovesi,
Beccaria, Bandini, Vasco, et Corniani.
To this praise the Bank of England, unfortunately, has no
longer any claim, since its late issue of bank tokens, worth
scarcely two shillings and sixpence, at three shillings: so that the
same quantity of silver as was formerly contained in fifty shillings,
now represents sixty.-See the Speech of Mr. Johnstone, on the
third reading of Lord Stanhope's Bill. Booker. 1811.-T,
60
ON THE VARIOUS SYSTEMS
had to mere temporary measures, which are always
impotent against urgent evils. Statesmen were even
inclined to fancy the calamity less than it was pre-
tended to be; their ignorance stifled their remorses;
and we shall presently find, that he who first wrote on
that subject in France, although a very enlightened
man in other respects,* firmly believed the evil
which was complained of, to be merely imaginary,
and to have no way impaired either public or private
wealth. Can we wonder, after this, at the slow pro-
gress of wealth in France,-in a country where it
ought to have surpassed that of all other nations, had
her inhabitants known how to avail themselves of her
natural advantages?
While, in Italy, philosophers were endeavouring to
regulate the circulating medium of gold and silver,
and in France every regulation was imprudently
derided, a more particular attention was paid in Eng-
land to the influence of the medium of exchange
upon wealth; and some English writers did not hesi-
tate to maintain that wealth depended on the lowering
of the interest of money, were it even forced,
The exaggeration of this opinion did not tend to
its discredit; it was faithfully followed in England for
nearly two centuries, and it constantly regulated the
views, determinations, and financial measures of her
legislature and government. Her bank, her sinking-
fund, her public credit, are all built upon the prin-
ciple of the utility of lowering the interest of money.
* Melon, Essai Politique sur le Commerce en 1734.
+ Thomas Culpeper, Sir Josiah Child, Locke, Paterson, and
Barnard.
OF POLITICAL ECONOMY.
61
This doctrine, which was introduced in France by
the famous Law, was as fatal to that country as it had
proved beneficial to England; and the reason of this
difference is easily perceived. When Thomas Cul-
peper in 1641, Sir Josiah Child in 1670, Paterson in
1694, Locke in 1700, and Barnard in 1714, solicited
the lowering of the rate of interest, public opinion
had already anticipated their efforts. The interest of
money had been lowered in all private transactions,
and the law did nothing but countenance the general
disposition of the people.
The case was widely different in France. When
Law proposed to lower the rate of interest by indirect
and forced means, confidence was destroyed, the dis-
credit general, and money hoarded; it could scarcely
be had even at the highest interest.
The two countries were in a totally different situa-
tion, and by an infallible consequence, the measure
which succeeded in England, failed, and must neces-
sarily have failed, in France, where it produced the
most disastrous effects, and formed one of the most
lamentable periods of the history of her wealth. May
this event be a lesson to all governments, and guard
them against absolute principles in political economy,
and, above all, against specifics which the science
disclaims, and which are an insult to reason!
Shaken in its very foundations by the doctrine of
the forced lowering of the rate of interest, and by an
excessive paper-circulation, wealth, in France, had no
longer any solid basis, fixed principle, or steady direc-
tion. Though it was still supposed to have its source
62
ON THE VARIOUS SYSTEMS
in foreign commerce, and in the abundance of gold
and silver, which are to be obtained only by com-
merce; people yet could not perceive how a good
metallic currency increases and preserves wealth.
In the midst of this general disposition of men's
minds, a writer, remarkable for his knowledge, infor-
mation, and talents, gave them a fresh impulse by
starting the most whimsical and revolting paradox.
Melon pretended "that the weight and fineness
"of money ought to be exclusively attended to,
"and not its current value, which is indifferent,
"and which, having been raised from one to above
"sixty, without injuring commerce and finances, could
"never be prejudicial to either."
This assertion was completely destructive of the
mercantile system, since it debased their gold and
silver currency, and afforded the means of increasing
it by augmenting its numeric value. Hence it excited
a lively controversy between the French and Italian
writers. Dutot in France*, and the Italian authors
quoted above, proved to demonstration that a
metallic currency facilitates exchanges merely on
account of the value of the metals of which it is com-
posed, and up to that value only; and that, whenever
this fundamental principle of circulation is lost sight.
of, considerable losses accrue to individuals and to
the state.
The result of this discussion, as generally happens
in almost all controversies, proved very different from
* Réflexions Politiques sur les Finances.
OF POLITICAL ECONOMY.
63
that which was expected. It was inferred, that gold
and silver, which, till then, had been considered as
true wealth, are only the instruments of its circula-
tion; and this view of the subject gave birth to fresh
inquiries into the nature of wealth.*
Dr. Quesnay in particular acquired great celebrity
by the new and transcendent views of his Theory of
the Sources of Wealth.
He does not place the source of wealth in com-
merce, because all its operations are limited to the
conveyance of the produce of the soil and industry
from one place to the other.
Neither can industry aspire to this eminent prero-
gative; because it only transforms the territorial pro-
duce into different shapes, without adding any thing
to its quantity; and because its productions are only
the material representatives of the produce of the soil
which the manufacturer has employed or consumed.
Land alone is the true source of wealth; because
it produces every thing that man desires for the sup-
ply of his wants, for his enjoyments, his pleasures,
and his fancies; and because it constantly re-produces
a quantity superior to what has been consumed to
effect its re-production. This excess of re-production,
this gratuitous gift of the soil, this net produce, is the
only fund that can be employed to encourage the pro-
gress of labour, to reward its success, to promote
improvements, and indefinitely to increase the sum of
public and private wealth.
* La Moneta non è Richezza, ma imagine sua ed Istrumento
di raggirarlo. · Galiani della Moneta.
64
ON THE VARIOUS SYSTEMS
Agricultural labour, by a necessary consequence,
is the only productive one; all other labours are bar-
ren and unproductive.
By another consequence not less just, the surplus
of the produce of the soil above all expences to obtain
it, being a gratuitous gift of the land, ought to belong
to the land-owners; they alone can distribute it to the
other classes of the community; which circumstance
gives them the character of paymasters, and to those
who receive it the character of mercenaries.
On this respective paying and being paid, the eco-
nomists built the relative rights of governors and
governed. They asserted, that the land-owners, as
paying, ought alone to share in the government; and
that all those who are paid, cannot take any part
in it without an evident and manifest usurpation.
And, finally, Dr. Quesnay maintained that, the net
produce being the sole disposable wealth, the public,
revenue can only be derived from part of this produce;
that the act of sharing in the net produce renders
government a co-proprietor of the soil; and that this
co-propriety constitutes its right to government; which
right is limited by its co-proprietors.
This doctrine caused a strong sensation. It pre-
sented an idea simple and easy to comprehend; flat-
tered the pride of the land-owners, that important
class entitled to so much regard and consideration; and
had a tendency to mitigate the lot of the husbandmen,
the most numerous and undoubtedly the most wretched
portion of inhabitants in every country and under all
governments; yet its success was not equal to its bril-
liant fame. With the exception of two authors who
}
OF POLITICAL ECONOMY.
65
attempted to propagate it in Italy, all those who at
that time wrote on subjects connected with political
economy in England and Italy, continued more or less
attached to the system of foreign commerce.
Sir James Steuart, in England, published, in an
extensive work, a complete theory of the mercantile
system; and as if he had wished to oppose it to the
theory of the French economists, he distinguished two
sorts of agriculture, one abusive, or useless, which
provides only for the maintenance of the husbandmen,
and is of no benefit to the community; the other
useful, which produces not only the subsistence of
the husbandmen, but also that of all other classes
of the community, and which he calls commercial
agriculture.
But it was particularly in Italy that the mercantile
system met with eloquent and celebrated panegyrists;
Genovesi, Beccaria, Carli, Ferri, made wealth depend
on the unlimited liberty of foreign commerce, and tri-
umphantly refuted the system of the French economists.
At that time the Italians infinitely surpassed the rest
of Europe in the science of political economy; they
kept this superiority until Adam Smith inquired into
the nature and causes of the wealth of nations, and
combating the mercantile and agricultural system with
weapons equally formidable, assigned other principles
*Discorso Economico dall' Archid. Bandini.
Paoletti dell' Annona.
+ Sir James Steuart's Inquiry into the Principles of Political
Economy. 1760, book i. ch. 14.
‡ In 1776.
F.
66
ON THE VARIOUS SYSTEMS
to political economy, and was, as it were, the creator
of the science. But it must be owned, that this justly
celebrated writer, by not separating the controversial
from the dogmatical part, has rendered his work rather
diffuse and obscure; and that it is sometimes difficult
to discover his precise tenets on the sources of
wealth.*
A modern English author (the Earl of Lauderdale)
has even asserted that Adam Smith had no fixed opi-
nion on that important point. The noble Lord grounds
this strange assertion
upon several passages† extracted
from the work of that celebrated writer.
66
Indeed Adam Smith in one place states, that "the
"annual labour of every nation is the fund which
originally supplies it with all the necessaries and con-
"veniencies of life, which it annually consumes, and
"which consist always either in the immediate pro-
"duce of that labour, or in what is purchased with
"that produce from other nations."
Elsewhere." Lands, mines, and fisheries," are
*The circumstance, that the valuable treatise of Adam Smith is
incumbered with highly important, but perhaps toe extensive and
rather misplaced digressive accompaniments, has led many students
of political economy to wish for a more easy access to the science,
and produced several elementary works in France and Germany. It
was also with the view to smooth the approach to the science, that I
discussed the elements of political economy in regular order and suc-
cinct language, in An Introduction to the Study of Political Eco-
nomy, published by Cadell and Davies, Strand; 1811.-T.
+ Earl of Lauderdale's Inquiry into the Nature and Origin of
Public Wealth. Edinb. 1804. p. 116.
‡ Adam Smith's Wealth of Nations, eleventh edition. London,
1805. Vol. i. page 1.
OF POLITICAL ECONOMY.
67
regarded by Adam Smith, as " replacing with profit
"not only the capitals employed on them, but all the
"other capitals employed in the community.*"
In another place, plain reason is stated by him to
dictate," that the real wealth of a country consists
"in the annual produce of its land and labour."
However, in another part of his work he teaches,
that "land and capital stock are the two original
sources of all revenue, both private and public: capi-
"tal stock pays the wages of productive labour, whe-
"ther employed in agriculture, manufactures, or
commerce.+"
66
Lastly, Adam Smith in another part of his work
asserts, that we ought to consider land, labour, and
capital, as being all three sources of wealth: for
" whoever derives his revenue from a fund that is his
own, must draw it either from his labour, his stock,
or his land.§"
(6
CC
All these passages, which it is difficult to reconcile,
appear to warrant the conclusion drawn by Lord Lau-
derdale, that "Adam Smith seems to have had no fixed
"ideas in relation to the sources of wealth." But after
having attentively studied his work, we are fully con-
vinced that he has placed the source of wealth in
"labour, which fixes and realizes itself in some parti-
"cular subject, that lasts for some time at least after
"that labour is past, whose power is augmented by
*
Wealth of Nations, vol. ii. book ii. chap. 5. page 48.
+ Ibid. vol. ii. book iv. chap. 1. page 165,
Ibid. vol. iii. book v. chap. 2. page 254.
§ Ibid. vol. i. book i. chap. 6. page 81.
F 2
68
ON THE VARIOUS SYSTEMS
6C
sub-division, which is developed by the freedom of
trade, improved by competition, and proportioned to
"the extent of the market, capitals, and wages."
This theory, admirable for the greatness of the
mind by which it was conceived, commands stil!
greater respect for the profundity of the views of its
author, the sagacity of his discoveries, and his conca-
tenation of effects with causes, and of consequences
with principles. The usefulness of each kind of
labour, of every employment of capital, of each species
of commerce, and of every sort of consumption, is
submitted to calculations that are sometimes strict,
frequently plausible, and always ingenious. Even
when we are forced to doubt their accuracy, the
very principles which the author has established serve
to guard us against their fallacy, and manifest again
the beauty of his doctrine.
If, after having earnestly meditated and mastered
the theory of that important work, we direct our
attention to one that was published nearly at the same
time by the abbé Ortes at Venice, we are not a little
surprised at the eccentricities of the human mind *.
It is difficult indeed to conceive how a subject
which drew from Adam Smith so many just observa-
tions, ingenious combinations, and important results,
could appear to the abbé Ortes nothing but a brilliant
chimæra, a delusive dream, a captivating error.
Like Plato, the Abbé fancies no advantage or benefit
can accrue to any individual or nation, but another
individual or nation must suffer an injury, and no one
* Economie Nationale, par l'Abbé Ortès.
OF POLITICAL ECONOMY.
69
can be a gainer without another being a loser. With
him, wealth, grandeur, and power, are synonymous
with pillage, robbery, and ruin: they are but ephe-
meral and precarious, as they cause an increase of
population which soon re-establishes the level of the
wants of misery and poverty; so that the unem-
ployed, the idle, and the poor, are always in ratio of
the labouring, industrious, and rich. The author
even goes farther; he considers the idleness of the
unemployed as the result of the extreme avidity
of the laborious. Were the latter less covetous, less
active, and less skilful, the unemployed would be less
idle and less poor; and there is not any poor man that
would not rather be indebted for his means of sub-
sistence to his labour than to the labour and charity
of others.
I shall not pursue any farther this monstrous and
discouraging system, which holds out the painful
prospect of unavoidable and continued misery. For-
tunately, it rests upon false notions of political eco-
nomy, and will be completely refuted in the sequel
of the work which I have undertaken. I hope, at
least, I shall make it evident to the least sagacious
and most inattentive observer, that in the theory of
wealth proceeding from the exchanged produce of
labour, there is no robbery nor injury committed
against any individual; that, on the contrary, all may
be benefited and rich.
Ever since Adam Smith established this funda-
mental truth of his system, no other theory has been
proposed; and though he may not have assigned the
limits of the science, he yet has so well determined its
70
ON THE VARIOUS SYSTEMS
principles, that it will be impossible to go astray and
mistake the true doctrine.
The Earl of Lauderdale has, it is true, criticized
some fundamental points of his doctrine: but the
criticisms of the noble Lord rather tend to subvert the
established system, than to create a new one.
This noble author derives wealth from land, labour,
and capitals: he even attempts to determine the
share of each of these sources in the formation of
public wealth.
His Lordship states, that, in the earliest stages of
society, man derives the greatest portion of his
wealth from the surface of the earth: but that this
period is of short continuance, because nature, whilst
she has implanted in him the seeds of an unbounded
variety of desires, has scattered with so sparing a hand
the means of satisfying them, that the assistance of
labour is early called in either to increase the quantity
or improve the quality of the productions of the soil:
and that he can accomplish either by means only of
capitals, which shorten his labour and enable him to
perform such as would have been above his strength.
Whether these remarks be well founded or not, is
of little consequence in this place it is sufficient to
observe, that they only tend to modify and not to
raise a new theory of the sources of wealth; and on
this account we shall not dwell upon them any longer.
Such are the various systems concerning the sources
of wealth. Though they appear at variance, or at
least offer different points of view, their difference is
however merely nominal, and of very little importance
to the science.
OF POLITICAL ECONOMY.
71
The partisans of the mercantile system, for instance,
do not think, and have never asserted, that the pre-
cious metals which commerce accumulates in a
country are not derived from the produce of land,
labour, and capitals; on the contrary, they uniformly
take it for granted that it is so.
Again, the French economists, as founders of the
agricultural system, though very positive in their doc-
trine, do not assert that the soil spontaneously yields
wealth; on the contrary, they allow that, if land be the
source of weath, it is agriculture that multiplies it: and
by agriculture they understand the labour and stock
advances of the husbandman: they even admit that the
exchangeable value of the agricultural produce is the
measure of the wealth of a nation; and that this
exchangeable value can only be obtained by the free
concurrence of the home and foreign trade: thus the
French economists themselves derive wealth from land,
labour, capitals, and commerce.
By placing the source of wealth in labour, which
fixes and realizes itself in some permanent object,
Adam Smith also admits the concurrence and co-ope-
ration of land, labour, capitals, and commerce.
Lastly; the system of Lord Lauderdale differs from
the other systems only as far as his Lordship assigns a
particular importance to capitals. In every other
respect the noble author co-incides more or less with
the agricultural system and the system of labour.
Thus, after all, it is not properly concerning the
sources of wealth that the different systems vary; they
all come pretty nearly to the same conclusion on this
important point; they all implicitly acknowledge
72
ON THE VARIOUS SYSTEMS
:
that wealth is produced by the concurrence of labour,
land, capitals, and commerce: they only differ res-
pecting the more or less important share which they
assign to each of these causes in this only consists
their contradiction, or their difference; it is herein
lies all the difficulty of the science. The only problem
which is actually to be resolved, is this:-Of those
three causes, labour, capitals, and commerce; which
is best calculated to produce public and private wealth?
This is the point which it is useful to discuss, and which
I shall attempt to settle in the following books.
OF POLITICAL ECONOMY,
73
1
BOOK II.
OF THE VARIOUS SYSTEMS CONCERNING LABOUR
CONSIDERED AS A SOURCE OF WEALTH.
IN
INTRODUCTION.
In every system of political economy, labour has
the greatest share in the formation, increase, and pre-
servation of wealth. If the labourer finds the pre-
cious seeds of wealth in the spontaneous gifts of the
soil, he fertilizes, multiplies, varies them by his
activity, his skill, and his industry; and obtains
results so new, so different, and so remote from their
nature, that one might be tempted to regard him
rather as the creator than as the co-operator of wealth;
and it is, undoubtedly, this circumstance which has
induced a modern French writer to define wealth,
an accumulation of superfluous labour.*
Is this productiveness of wealth exclusively reserved
to one, peculiar to a few, or common to all sorts of
labour? Is there, among the different kinds of
labour, any one more especially productive, and favour-
able to the progress, of wealth? Is agriculture more
* Principes d'Economie Politique, par B. F. F. Canard,
Paris ;
1801.
74.
ON THE VARIOUS SYSTEMS
conducive to wealth than manufactures and com-
merce? What are the means of rendering these
divers labours more productive and more profitable?
Which are the obstacles that oppose their progress and
impede their success?
These are the different points of view under which
labour has been considered, and concerning which
numerous controversies have arisen, which it is inte-
resting to investigate and to appreciate, for the purpose
of forming correct notions of this important part of
political economy.
CHAP. I.
Is the productiveness of Wealth exclusively reserved
to one sort of Labour?
THE French writers, known by the name of Eco-
nomists, or Physiocrats, assign, exclusively, to agri-
cultural labour the power of producing wealth, and
regard every other labour as barren and unproductive.
They, however, do not deny the usefulness of barren
and unproductive labour: they only limit its utility,
and assert that, with regard to manufactures, this utility
consists in the adaptation of the agricultural produce to
consumption; with regard to commerce, in its con-
veyance to the consumer; and with regard to sciences,
literature, and arts, in their defending, protecting,
and encouraging all kinds of labours; in multiply-
ing the enjoyments of life, and in extending and
OF POLITICAL ECONOMY.
75
improving the moral and intellectual faculties of man :
services, no doubt, of the utmost importance, but
which only modify, or transport the agricultural pro-
duce, add nothing to its quantity, and yield no new
produce whence they infer, that agricultural labour
is the only productive one, and that all other labours
are barren and unproductive.
:
1
This system made a great noise by its novelty,
but was not otherwise successful; it was not adopted
by any English or Italian writer*; not even by those
who consider agricultural labour as the most productive
of all labours. I should not, therefore, have ranked
it among those systems, the examination of which
has
any interest for the science; and the feeble sensa-
tion which it caused would have alike justified and
excused my silence.
But the apology which one of our most esteemed
writers on political economy, has lately made of this
system, the plausible arguments on which he relies, to
make it triumph over the doctrine of Adam Smith,
and over the opinion of all the writers who have
* Except the Curate Paoletti, in his work dell'Annona,
quoted before.
+ The French Senator Germain Garnier, in his notes annexed
to his Translation of Adam Smith's Wealth of Nations. And,
later still, the Economists have found, in England, with regard at
least to their principal tenet, that the soil is the grand source of
wealth, a very ingenious advocate in Mr. William Spence, of Hull,
F. L. S. See his two pamphlets, Britain independent of Com-
merce, which has passed through six or seven large editious; and
Agriculture the Source of the Wealth of Britain. Cadell and
Davies; London; 1808.-T.
76
ON THE VARIOUS SYSTEMS
opposed the French economists, would not allow me to
pass it over in silence. I shall not regret the discussion
into which this opinion betrays me, if it serve to deve-
lope the fundamental principles of political economy,
which are still too little, or not familiarly enough
known, even to the most enlightened men.
Political economy has experienced the fate of all
sciences; tenets have preceded observation, visions
have been attended to instead of facts, and systems
taken for the science itself. Instead of observing
labour, in its various relations, combinations, subdivi-
sions, and points of contact with wealth; its nume-
rous ramifications have been separated, each has been
considered as a whole endowed with properties which
belong only to labour in general. This has given
birth to mistakes, paradoxes, and systems; which
would have been avoided if a contrary conduct had
been observed, and a different road taken, from that
which has been followed.
In the present state of civilization, we know labour
only through the exchange of its produce; in this
exchange, every labourer, every family, every class
of the community, every nation, find means of sup-
plying their wants, procuring some comforts, obtain-
ing more or less enjoyments, and reaching a more or
less elevated point of prosperity, power, and happi-
ness. Though the advantages which may accrue to
every labourer from this particular and general inter-
change, are uncertain; yet, all work unremittingly,
they exert all their forces, activity, and skill, and
stop only at the point which they cannot pass. This
intensity of general labour occasions an abundant
OF POLITICAL ECONOMY.
77
produce in all its ramifications; it diffuses comforts,
and is the cause of the surplus of produce above con-
sumption, being economised, accumulated, and a stock
reserved for the increase of population, the extension
of general labour, and the formation of wealth.
Considered in this light, labour appears to contribute
to wealth merely through its produce being exchanged,
and it is by this exchange alone, that its particular and
general properties ought to have been estimated.
But it is not thus that labour has been appreciated
by the French economists; they considered it singly
in its different kinds, opposed one to the other, and
in this imaginary point of view pronounced it produc-
tive or unproductive at their pleasure.
To examine whether it be possible to separate labour
from the exchange of its produce, would be a very
interesting inquiry; but the discussion would be idle,
since it appears evident that unexchanged labour can-
not produce any wealth.
Under the supposition that labour be not exchanged,
every individual is reduced to work, to procure the
articles necessary for his food, his raiment, and his
dwelling; and whatever may be his dexterity, his
ardour, and activity, he is badly provided with what
is absolutely necessary, cannot easily attain any kind
of comfort, and cannot possibly obtain any sur-
plus; the only means of growing rich. Thousands
of ages would roll along, and the unexchanged
labour of an individual would not be able to produce
any wealth.
Nations of hunters and fishermen, assuredly, labour
A
78
ON THE VARIOUS SYSTEMS
much; their labour is even toilsome and dangerous;
and yet, far from being conducive to wealth, it always
leaves them in misery and indigence.
If the condition of nations of shepherds be less
wretched than that of hunters and fishermen; the
utmost they can do is to supply their wants; and
if, at some periods, they have ranked among rich
nations, their wealth was not the produce of labour,
but of the spoils of the wealthy nations which they
plundered. Their wealth even was not of long con-
tinuance; it disappeared as rapidly as it had been
acquired. The Tartars, several times, plundered
Asia and Europe; Genghis Kan, Tamerlan, and Attila,
transported immense riches to the deserts of Tartary,
without being able to render them productive; and
nothing remains of their power and grandeur but the
remembrance of their ferocity and rapacity. Almost
from the creation of the world, the Arabs of the
desert have continued to rob every nation, and every
individual that has the misfortune to come in their
way; and yet they never could grow rich. They will
for ever continue poor, because they live on a produce
of labour little susceptible of being exchanged, or the
exchange of which is extremely limited.
Agricultural nations, restricted to mere agricultural
labour, and destitute of the means of interchange
with other nations, have never existed: we cannot
even form an idea of such nations, without going
back to the time when they began to be known by
other nations and surely they were then very
far from being wealthy; their condition was rather
¡
OF POLITICAL ECONOMY.
79
wretched, and bordering on extreme poverty*.
It is well known, in what condition Greece,
Africa, and Italy, were found by the Egyptians and
Phoenicians, when they sent colonies to civilize these
countries. The situation of the North of Europe
was not happier when the Carthaginians, Phocoeans, and
Romans, carried thither the arts of civilized life: they
were, no doubt, less miserable than nations of shep-
herds, hunters, and fishermen ; they had more means
to supply themselves with food, raiment, and dwell-
ings but they had not got so far as to accumulate any
surplus, and had not the least idea of riches.
Whatever be the kind of labour they are employed
in, wealth cannot be acquired, increased, and pre-
served, among any people, but when commerce,
bringing foreign in exchange for the national produce,
affords greater means of subsistence, more comforts
and enjoyments, and particularly when it directs their
labour to new objects, with the utility of which they
were unacquainted, and in which they find new
* In 966, says Bishop Fleetwood in his Chronicon Preciosum,
66 a palfrey was worth 10s. ; an acre of land was purchased for 1s.;
and an hide of land, which contained 120 acres, at one hundred
"shillings." See Anderson's Historical and Chronological
Deduction of the Origin of Commerce, 2 vols. fol. London,
1764, vol. i. book iii. p. 52. At present, ten acres of land are
worth twenty good horses, and more. The cheapness of the land in
the tenth century is accounted for by the great difficulty of and
obstruction to the sale of the barons' lands until the statute of
King Henry VII. gave leave for their sale. And this circum.
stance confirms the author's theory, that it is the possibility of
exchanging it, which gives value to any produce of labour.-T.
80
ON THE VARIOUS SYSTEMS
instruments of exchange and wealth. Such has every
where been the progress of labour, civilization, and
wealth.
Although, the physical revolutions of the globe, the
political convulsions of empires, and the lapse of time,
left us but insufficient monuments to trace the pro-
gress of wealth; yet its having been the work of com-
merce and of the industrious activity of manufacturers,
cannot possibly be doubted.
It was from Egypt and Phoenicia that issued the
numerous colonies which civilized Greece *.
I shall not examine whether the Egyptians had any
commercial object in view in this colonization; this
would not agree with what has been stated of their
religious aversion to navigation; or whether they
merely wanted to get rid of a population they could not
maintain. This inquiry is foreign to my subject, and
would lead me too far from my plan.
But I think no reasonable doubt can be entertained
respecting the destination of the colonies which the
Phoenicians successively carried to Greece, to the
islands of the Archipelago and the Mediterranean, to the
shores of the Ægean Sea, of the Euxine and the Black
Sea, and into Italy, Gaul, Spain, and Africa. These
colonies were as many factories, which attracted the
wandering and savage tribes of the neighbouring
countries by the lure of new enjoyments, by the
captivating exchange of commodities with which they
were over-abundantly furnished and for which they
did not care, for those which they ardently desired ;
* Voyage d'Anacharsis,
OF POLITICAL ECONOMY.
81
ad, above all, by the prospect of a less precarious,
less toilsome, and more secure existence *. These
colonies were as many staples, which opened new
channels to the commerce of Tyre and Sidon, and
procured new consumers for the produce of their
industry. Thus the interests of commerce have been
the promoters and instruments of the civilization of
that part of the world; and what is very singular,
the account of the first historical times agrees with
that which modern history gives us of the civilization
and wealth of America. This similarity of the most
remote times with those nearer us, affords a sufficient.
proof of the progress of wealth and civilization in
times with which we are unacquainted, and authorizes
us to infer with certainty, that commercial exchange
has been for all nations the road to wealth.
It is therefore difficult to conceive that agricultural
labour should alone be productive of wealth, and that
all other labours should be barren and unproductive.
If, like all other labours, agricultural labour co-ope-
rates in the creation of wealth merely by the exchange
of its productions; if it has no value but through this
exchange, we cannot exclusively allow the productive
faculty to it, and affix to all other labours the stigma
of a shameful barrenness.
Canaan in Sam. Bocharti Geographia Sacra. See Bocharti
Opera omnia. Lugd. Bat. 1692. 3 vols. fol.
+ "On examining the labours that produce wealth, those that
circulate it, andthose that maintain the order and tranquillity es-
sential to its preservation and increase; we perceive that they are
G
e
82
ON THE VARIOUS SYSTEMS
The French apologist of the doctrine of the econo-
mists, whom I have mentioned before, observes that
"the labour of husbandmen is productive of a net
"produce; whilst the labour of artisans and manu-
"facturers is not productive of a net produce."
He gives to this observation an elucidation which it
is important to record here, notwithstanding its length;
that an accurate idea may be formed of the system
which he defends.
CC
"This distinction" (between labour productive of
a net produce and that which is not productive of a
net produce)" is built," he says, upon material
"differences pregnant with effects not only various,
"but even opposite. It is therefore unjustly that
"Adam Smith rejects this distinction, and asserts
"that there is between the effects of these two sorts
❝of labour a difference merely of more or less.
"Agricultural labourers enrich the state by the
"produce of their labour: commercial and manu-
"factural labourers, on the contrary, can only enrich
"it by what they save of their own consumption.
"Indeed, the labour of artisans and manufacturers
can add nothing to the value of the raw material
"but the value of their labour, that is to say, the
"amount of the wages and profit which that labour
"must have obtained according to the rate of wages
"and profit of stock usual in the country. Conse-
GC
« all ne´essary; and it would be difficult to say which is the most
"useful." Le Commerce et le Gouvernement, par Condillac.
Partie i. chap. 10.
ป
OF POLITICAL ECONOMY.
83
!
Į
56
quently, there are two differences to be observed
"between the labour of this class of labourers and
"that of husbandmen."
66
"The first of these differences is relative to the
"state in general. The labour of artisans and manu-
"facturers does not alter the quantum of wealth
"existing in the community; the labour of husband-
men, on the contrary, adds to the totality of exist-
"ing values. After having replaced what the
"labourers have and might have consumed during
"their labour, it has given birth to a fresh value,→
"it has produced a real increase of the general mass
"of wealth belonging to the community; in short,
"it has afforded a net produce.
"The second difference is relative to the indivi-
"duals who gather the fruits of labour: the labour of
"artisans and manufacturers re-imburses the wages
"and profits of those who have been co-operators of the
"production; it gives the labourers a reward which
CC
they have purchased with their labour;-it affords
"to the undertakers an indemnity which they have
"purchased with the service of their capital and the
"risk to which it has been exposed. But the labour
"of husbandmen, after having discharged the same
"reward and the same indemnity, yields over and
"above this a produce which is not purchased by any
"labour, service, or risk; a produce completely
"gratuitous, which will be consumed by individuals
"that have not in any way co-operated in its pro-
duction.
"These remarkable differences produce conse-
quences which merit observation.
* 2
84
ON THE VARIOUS SYSTEMS
..
66 1.
As the labour of artisans and manufacturers
"does not open any new source of wealth, it can
66
66
prove beneficial only by means of advantageous
exchanges, and has a mere relative value; a value
" which it will not obtain when there is no opportu-
"nity left to gain by the exchange, and the founda-
"dation of which is consequently uncertain and pre-
"carious. Agricultural labour, on the contrary,
opens a new source of commodities, which is lasting
"and permanent, not dependent on any external
"circumstances, and which, as it furnishes a real
66
:66
+
supply to consumption, necessarily increases at
"once population and the national power.
66
"2. As the labour of artisans and manufacturers
"cannot add any thing to the general mass of the
"wealth of the community, except the savings made
૮.
by the capitalists and paid, or mercenary labourers,
it may, it is true, tend by that means to enrich
"the community: but it has that tendency from a
66
power which is, necessarily, continually decreasing.
"In a flourishing country the continual increase of
"labourers tends to reduce profits to the lowest rate
"at which a capital may be employed; consequently,
"these two causes continually operate to render the
savings more and more difficult, and in the end
"absolutely impossible *."
<6
This apology of the exclusive productiveness of
* Recherches sur la Nature et les Causes de la Richesse des
Nations, par Adam Smith. Traduction nouvelle, avec des Notes et
Observations par Germain Garnier. 5 tomes. Paris, 180. Vol. v.
note xxix. p. 262.-T.
OF POLITICAL ECONOMY.
85
agricultural labour is built upon the supposition that
its produce has a value of its own, while the produc-
tions of all other labours have no value but what they
obtain by being exchanged: but this supposition is
evidently repugnant to the nature of things, to reason,
and to the fundamental laws of political economy.
Of the agricultural produce, one part is destined to
replace that which has been consumed by the hus-
bandman during his labour; this part has no value of
its own, real, and independent of all exchange; it is,
as it were, merely the instrument of agriculture des-
tined to supply absolute and indispensable wants; it
is not capable of a surplus, and consequently cannot
contribute to the formation of wealth.
The other part, which is over and above what has
been consumed by the husbandman, and which is
called the net produce, has no value as long as it
remains in the hands of the husbandman. The stock
of corn in the granaries of the farmer, of wine in his
cellars, of wool, silk, hemp, and flax, in his maga-
zines, is no wealth for him, if, not being able to con-
sume these commodities, he be likewise unable to find
any consumers for them, and if he have no other
prospect than to witness their destruction and annihi-
lation by all-devouring time.
It is only when this net produce above the wants of
the husbandman departs from him to be consumed by
others, that it becomes useful, obtains a value, and
forms one of the elements of wealth: but there are
only two ways of operating this transmission,-by a
free gift, or by a cession against an equivalent.
The former cannot be practised for any length of
86
ON THE VARIOUS SYSTEMS
•
time, and has never yet contributed to the wealth
of any nation. Hospitality among those who are on
the lowest steps on the scale of civilization, benevo-
lence among those more civilized, and charity among
those whose civilization is heightened by religion, have
never been of great assistance to augment the popula
tion, wealth, or power of any nation,
The second way, I mean the cession of the net
produce against an equivalent, consisting either in a
material produce or in personal services, can alone
confer a value upon agricultural labour, and renders
it equally useful and beneficial to private and public
wealth but in that case its value is relative, and,
like the value of all other labour, dependent on its
being exchanged; it does not differ from, and is
absolutely upon a par with other values. In this
general concurrence of values, the productiveness of
labour depends neither on the abundance of its pro-
duce, nor on its greater or smaller utility, nor on any
other particular consideration: it only depends on the
laws by which exchanges are regulated, which we
shall establish hereafter: these alone determine the
productiveness, or barrenness of labour; and as
scarcely any labour is undertaken unless called for by
the prospect of being exchanged, or at least as no
labour is long continued without such a prospect, we
may conclude with certainty that agricultural labour
is not exclusively productive of wealth.
OF POLITICAL ECONOMY.
87
CHAP. II.
Is Productiveness peculiar to some or common to all
kinds of Labour?
THE impression made by a paradox is not always
effaced by its being refuted: it subsists some time
after its refutation, and may yet mislead the best
understandings. Adam Smith, who triumphantly
refuted the paradox of the exclusive productiveness of
agricultural labour, completely revived it by accusing
of unproductiveness any labour which, after it is over,
does not fix and realize itself in some permanent
object. By denying the productive faculty to any
labour which does not terminate in a material and
permanent produce, and by supposing that wealth
depends on the numerical proportion between the
individuals employed in useful labour* and those who
are not usefully employed, he propagated the fallacy
which he had so victoriously overthrown.
But I have already shewn, in the preceding chapter,
that it is not by the greater or smaller quantity of the
produce of divers labours that their relative and abso-
lute productiveness can be judged of, but by the
facility with which their respective productions can
be exchanged and by the estimation in which they
* Adam Smith's Wealth of Nations. Eleventh edition, 1805:
vol. i. p. 2.
88
ON THE VARIOUS SYSTEMS
are held. The facility of being exchanged has no
regard either to the quantity, materiality, or perma-
nence of productions; it is determined by other
principles, obcy's other laws, and follows other rules,
which we shall fix hereafter.
At present, it will be sufficient to observe that a
labour, which, after it is over, does not fix and realize
itself in any permanent object, may be exchanged for
the material productions of other foreign and national
labours, just as well as these productions are exchanged
for each other.
A foreigner, who consults either an English physi-
cian about the state of his health, an English lawyer
about his affairs, or an English architect about the plan
of a mansion, and remits five guineas for their opinion,
confers upon these divers labours a productiveness equal
to any labour whose material produce, on being
exchanged with a foreigner, would have brought five
guíneas, or a commodity worth five guineas, to England.
There is in this respect no difference between these
various labours; they are all equally productive of the
five pieces of gold coin for which they have been
exchanged.
Now, whatever happens with a foreigner in the
exchange of any labour that gives no material produce,
occurs in the exchange of that labour at home.
There is no difference between the labour of the joiner
who makes a table which he exchanges for a quarter
of wheat, or a sum of money that will purchase a
quarter of wheat, and the labour of a fiddler which
gains him a quarter of wheat, or a sum of money that
will purchase a quarter of wheat. In both cases a quarter
OF POLITICAL ECONOMY.
89
of wheat is produced to pay for a table, and a quarter
of wheat is produced to pay for the pleasure given by
the fiddler.
It is true, that after the quarter of wheat has been
consumed by the joiner, there still remains a table;
and after the wheat has been consumed by the fiddler,
there remains nothing: but the case is the same with
many labours that are reputed productive. Those
productions of agricultural labour which only serve to
gratify sensuality, and which, far from contributing to
the subsistence of man, often impair his health, are
justly considered as the result of productive labour,
although there be nothing permanent left after they
are consumed. Consequently, it is not by what
remains after consumption that we may judge whether
a labour is productive or barren; it is simply by the
production obtained in exchange which it causes to be
produced. As the labour of the fiddler is as much the
cause of a quarter of wheat being produced, as the
labour of the joiner; both labours are equally pro-
ductive of a quarter of wheat, although one, when it is
over, does not fix and realize itself in any permanent
object, and the other is fixed and realized in a perma-
nent object.
It is pretty generally supposed, that exchanging
productions against labours which give no material
produce is an injury done to the productive classes of
the community, and impairs by as much their repro-
ductive faculties; in consequence of which supposition,
the French economists wish to increase the number of
husbandmen, and to reduce that of the other labouring
classes. Adam Smith also wishes to reduce the num-
90
ON THE VARIOUS SYSTEMS
ber of labourers who are not usefully occupied, to
increase that of those who are usefully employed,
But it should be considered, that if this wish were
realized, the formation of wealth would be impossible,
because consumers would be wanting for the commo-
dities produced, and the non-consumed surplus would
not be reproduced.
The productive classes do not give the produce of
their labour gratis to the classes whose labours pro-
duce no material commodities; they give it in exchange
for the convenience, pleasure, or gratification they
receive of them, and to hand them their productions
they are obliged to produce them. If the material pro-
duce of labour were not applied to pay for the labour
which produces no material commodities, it would
not find any consumers, and its reproduction would
cease. The labours productive of enjoyment contri-
bute therefore as efficaciously to production as the
labour which is reputed most productive. In this
respect, the labours exclusively devoted to luxury,
pomp, and the most frivolous expences, are productive ;
they co-operate to increase the population and wealth,
and contribute to the splendour and power of states.
Care must be had, however, not to stretch this prin-
ciple beyond its true limits; nor would it be wise to
infer thence, that by multiplying the labours destined
to gratify the passions of men, productive labours are
multiplied in the same proportions.
As long as productive labours pay freely and spon-
taneously for such frivolous labours, we need not fear
that they will exceed the bounds within which they
ought to be confined for the good of private and public
1
OF POLITICAL ECONOMY.
gr
wealth. Whatever propensity nations may feel for
pleasure, luxury, and pomp, they do not sacrifice
their means of subsistence, comforts, and fortune to
this disposition; they do not impoverish themselves
for the sake of being amused, nor ruin themselves to
lead a more agreeable life. The conveniencies, plea-
sures, or gratifications, which they require, generally
follow and rarely precede the produce which is to pay
for them; and the reason of this almost universal con-
duct is, that every individual has the consciousness of
his faculties and of the extent of his fortune.
The case is different when the labours devoted to
pleasure, luxury, and pomp, are not required by the
productive classes, and these are nevertheless forced to
pay for them, and to pinch themselves in order to
provide for their cost. It may then happen that such
a forced disbursement does not occasion any surplus of
productions, that it is an absolute burden to the produc-
tive classes, and diminishes wealth by whatever is not
reproduced. But this never occurs, except through
the fault of sovereigns or rulers of states; and since
they never can be sure that the labours of luxury and
pomp with which they incumber productive labours,
do not outrun the produce of the latter, they may
unintentionally encourage labours that are not only
barren and unproductive, but even oppressive and
destructive of productive labours.
Except this case, which deserves the attention of all
who are entrusted with the interests of nations and
concerned for their prosperity and happiness, every kind
of labour is necessarily productive, and contributes
92
ON THE VARIOUS SYSTEMS
more or less efficaciously to the formation and increase
of public wealth, because it necessarily occasions the
productions with which it is paid.
CHAP. III.
Is there any kind of Labour more or less productive,
more or less favourable to the growth of Wealth?
THE productiveness of labour in general being esta-
blished, and, as it were, demonstrated; what side are
we to take in the controversy that has arisen between
authors of all sects and all countries, concerning what
kind of labour is most productive, and most favourable
to the growth of wealth? Is there indeed any kind of
labour to which all nations ought preferably to apply
their efforts and faculties? This question is of the
utmost importance; it is the very foundation of the
science, since labour has the greatest share in the for-
mation, increase, and preservation of wealth.
It is very remarkable, that almost every writer on
this controversy has regarded the labour which is
ferred in his own country as the most productive.
pre-
Thus the English writers assign the first rank to
commerce and manufactures, which have always enjoyed
the greatest favour in England. Adam Smith is the
only one who resisted the torrent of public opinion,
and dared to place agriculture above commerce and
manufactures; he even went farther, he attempted to
OF POLITICAL ECONOMY.
93
assign different degrees of productiveness to different
labours, and, in his extremely ingenious scale, placed
agriculture at an immense distance above all other
labours. He even was so enamoured of this opinion,
that he thought he should be able to make it triumph
over the authority of facts, and the experience of
ages. He allowed, however, that manufactures and
commerce have more contributed to increase the
wealth of modern nations, than agriculture; but he
thought their superiority to be owing merely to the
peculiar favour which they have enjoyed above agri-
culture.
In France, where, agriculture has always predomi-
nated, the writers on political economy have generally
granted agriculture the precedency before commerce
and manufactures.*
In Italy, opinions have been divided; and accord-
ing as they inhabited either the interior or the mari-
time provinces, the writers on subjects connected with
political economy, have extolled agriculture, or manu-
factures and commerce.†
Amidst this struggle of contrary or various opinions,
I think no satisfactory solution can be obtained on so
* I know but two French writers who have given the prefer-
ence to manufactures and commerce before agriculture; namely,
Dangeul, in his Remarques sur les Avantages et les Désavantages
de la France et de la Grande Bretagne, 1754; and Forbonnais,
in his Elémens de Commerce.
+ The Curate Puoletti, a Milanese; Beccaria, a Milanese, and
Corniani of Brescia, rank agriculture above manufactures and
commerce; Galiani, Genovesi, and Palmieri of Naples, give the
preference to commerce and manufactures before agriculture.
94
ON THE VARIOUS SYSTEMS
important a point of the science, but by attempting
to determine whether agriculture, or commerce and
manufactures, are most conducive to the growth of
public and private wealth, to the welfare of indivi-
duals, the prosperity of nations, and their absolute
and relative power; or, in other words, by determin-
ing which of these labours obtains the greatest value
for its produce on its being exchanged; which cir-
cumstance is, at once, the promoter, regulator, and
arbitrator of wealth.
When, after having for a long time subsisted on the
produce of hunting, fishing, and their flocks, men
prefer to such precarious, uncertain, and limited
means of subsistence, the more abundant, more vari-
ous, and more certain productions of agriculture;
this direction of their labour undoubtedly opens a
road to wealth: but whither does this road lead them ?
By this new application of labour, men may suc-
ceed in procuring corn and cattle for their food, and
raw materials for their raiments and dwellings; per-
haps they may even acquire sufficient abilities to give
convenient forms and shapes to these objects of first.
necessity.
But here the progress of wealth stops; and how
it could go beyond their actual wants, or how they
should think of producing any surplus, or of saving
and accumulating any stock, it is impossible to con-
ceive.
Were even the inclination of mankind for propa-
gating a sufficient inducement to accumulate, mea-
sures of foresight would be limited to individuals;
they would not always be successful, and would fre-
OF POLITICAL ECONOMY.
95
quently prove useless to those who should take them;
whilst they might be necessary to those by whom they
had been neglected. What expedient would be
resorted to in that case? What could induce indivi-.
duals or families, that had stored a surplus which they
do not want, to cede this surplus to those to whom
idleness, improvidence, the vicissitudes of tempera-
ture, and accidents inseparable from agricultural pur-
suits, had rendered them necessary ? Would they
make them a free gift of their stores? In that case,
they would not be very eager to reproduce them.
Would they ask for an equivalent in return? But
how could any equivalent be obtained, all agricultural
productions being uniform and identic in the same
country? Under this supposition, the circulation of
any surplus, if not absolutely impossible, would be,
at least, extremely difficult; and it is very probable,
that, in this case, a population continually exposed to
wants, for which they can obtain no supplies, would
frequently be reduced to the same condition, as
brutes that never multiply beyond the average propor-
tion of the spontaneous produce of the soil.
Let us, however, admit, that the combined
pro-
gress of agriculture and population should lead to the
division of labour, and the separation of the labour-
ing classes; and let us inquire, what would be the
growth of public and private wealth under this hypo-
thesis?
As agricultural productions afford the means of
subsistence, the wages of all labour, the patrimony
of all labouring classes, they would be distributed in
proportion to the wants of the husbandmen, and the
96
ON THE VARIOUS SYSTEMS
progress of agriculture; consequently, the share of the
industrious classes would be small, and would not
allow them to extend, to prosper, or to aspire to a
free and independent condition: industry would
vegetate in a state similar to that in which it is found
in small market-towns and villages, and could never
be drawn from this confined condition by the solitary
operation of agricultural labour.
Let us advance one step farther, and connect again,
by a fresh hypothesis, a chain which is broken at
every link: let us suppose that the division of labour
multiplies population and agricultural produce to
such a degree, that the land-owners obtain their net
produce without any labour; and that this net pro-
duce is sufficiently large to procure them a comfort-
able and even affluent existence: how many obstacles
must be overcome, how many difficulties conquered,
how much time passed, before this net produce could
develope the powers of industry, multiply the indus-
trious classes, raise a great number of wealthy and
populous cities, and create all the phenomena of
genius, arts, and commerce! That such would be
the many and splendid results of agricultural labour,
may amuse the fancy of a credulous and confident
reader; but cannot stand the test of philosophical
doubts and inquiries.
I know that these observations on the slow progress
of wealth in the agricultural system, are contradicted
by the example of ancient Egypt, China, and North
America, where agriculture has raised a numerous
population, accumulated vast riches, and multiplied
the benefits of civilization. But are these examples
OF POLITICAL ECONOMY.
97
as conclusive as some philosophers have endeavoured
to believe; and may they not be accounted for by
peculiar circumstances, foreign to the agricultural
system?
The distinction of the Egyptians in casts; the divi-
sion of lands among these casts; the influence of poli-
tical, religious, and civil institutions upon each cast;
their manner of cultivating a soil rendered productive
beyond measure by the overflowing of the Nile*;
the temperance so natural to the people of the South,
and so imperiously prescribed to the inhabitants of
Egypt; and, above all, the immense extent of their
passive trade with the´nations of Africa, Hindostan,
Arabia, and Asia; all these causes, unconnected with
agriculture, explain the phenomenon of the wealth
and population of Egypt, but cannot be applied to
the people of the North, who live in a climate less-
favoured by nature, under different constitutions and
laws; who are forced, or accustomed to a great con-
sumption; and who would find but few resources in
their agriculture, were it even encouraged by the pas-
sive trade of other nations.
The Chinese, of whom we have so many various.
accounts, are yet too little known to allow us to argue
with any degree of certainty respecting their innu-
merable population, and the prodigies of their agri-
culture, their wealth, and their civilization. The
clouds in which their mysterious opulence is enveloped,
* The soil requires no other expence than the seed: some sorts
of grain, like doura and millet, give an incredibly multiplied
produce. De Paw, sur les Chinois et les Egyptiens.
H
98
ON THE VARIOUS SYSTEMS
are rendered still more impenetrable by the contra-
dictory narratives of travellers, and leave us no means
to re-ascend from effects to causes, and to obtain cer-
tain and positive results. There is no doubt that the
Chinese honour agriculture; and it is, perhaps, to
their gratitude for an art productive of food and raw
materials for commerce and industry, that the honours
which they pay to it must be ascribed. But does
this art owe its progress to its own impulse? May
not the political and civil institutions of China, the
extraordinary fertility of her climate*, the innume-
rable channels by which her vast empire is intersected
and supplied with an immense quantity of fish, the
variety of the productions of her territory, which is
equal in extent to the whole of Europe; and, lastly,
her passive trade with all the nations of the world;
may not these circumstances have as great a share, as
agriculture, in whatever travellers relate of the wealth
and population of China? The problem has not yet
been resolved, and is perhaps incapable of being
resolved in the present state of our knowledge of the
* If China contains an immense population, it is because rice
is the only food of the multitude; in several provinces it yields
annually three abundant harvests. The soil wants no rest in China,
and its produce is frequently hundredfold. Le Commerce et le
Gouvernement, par Condillac. Essai sur la Nature du Commerce
en général, par Cantillon.
+ It is even possible that the oleaginous parts of fish are more
productive of the matter which serves for generation. This cir-
cumstance would account for the immense population of Japan and
China, where fish is almost the sole food. Montesquieu, Esprit des
Lois, book xxiii. chap. 13.
OF POLITICAL ECONOMY.
99
cconomical system of the Chinese. It would there-
fore be the height of imprudence to ground upon the
Chinese system of political economy that of nations
dwelling in a temperature less prodigal of its gifts, and
in a climate which, as has been observed by one of the
most celebrated French philosophers, produces nothing
spontaneously but forests, stones, and wild fruits *.
If North America be indebted to her agriculture
for the rapid increase of her population and riches,
her agriculture owes its growth and success to the
capitals and industry of Europe; to these she owes
the sale of her produce, its abundance, and her
prosperity. Had she been confined to agriculture,
unconnected with the Old World and without any
foreign trade, she would have advanced less rapidly
on the road to wealth; and instead of being quoted
as an instance of the power of the agricultural system,
she would afford a memorable example of its incon-
siderable influence upon the grandeur and destiny of
nations.
Ancient Egypt, China, and North America, are
therefore but equivocal and suspicious evidences of
the power of agriculture and its productiveness of
wealth.
* Voltaire, Essai sur les Maurs, vol. i, page 302. Edition
of 1785.
In our North-American colonies, the plantations have
66 constantly followed either the sea-coast or the banks of the
"navigable rivers, and have scarcely any where extended them-
"selves to any considerable distance from both."-Adam Smith's
Wealth of Nations; Eleventh edition, London, 1805, vol. i.
book i. chap. 3, page 31.
}
H 2
100
ON THE VARIOUS SYSTEMS
But were it even true that the agricultural system?
could by itself raise a numerous, rich, and flourishing
population, it would not be productive of any great
moral and political virtues, of the energy, public
spirit, and eminent qualities which form great nations,
render mankind illustrious, and honour humanity.
The industrious and commercial classes being
necessarily limited to the lowest rate of wages, would
be discouraged and degraded; destitute of talents,
activity, and energy, and confined to mechanical
trades, they never could ascend to the brilliant con-
ceptions of the liberal arts; to those inspirations of
genius which open new sources to the prosperity,
opulence, and splendour of nations, mitigate human
misery, render life supportable, and produce ages of
glory and grandeur.
Possessing hereditary comforts or riches; certain of
their concomitant honours, distinctions, and consi-
derations; without rivals and competitors; and allured
by none but sensual pleasures, the agricultural classes
would be little disposed to devote themselves to the
painful and laborious toils attendant on the study of
sciences, and on the cultivation of the arts of peace
and war, or their efforts would be limited to the first
starts of genius, and they afterwards would drag along
on the same road through the duration of ages. Such
is the state of the inhabitants of China and India: it
is the unavoidable consequence of the preference
which these two countries have given to agriculture
over industry and commerce.
The views, the hopes, the ambition of every one
would be turned to agriculture, as the only lucrative,
OF POLITICAL ECONOMY.
101
honourable, and honoured profession; the people
would be divided into two classes, one domineering,
and the other servile; and the government set over
both, not finding any support in the intermediate
classes, would be forced to be the tool of the rich, and
the agent or accomplice of their tyranny.
A constitution so vicious and so opposite to the
progress of civilization, would be still more deplorable
and prejudicial with regard to its foreign relations, and
afford little or no security to the national indepen-
dence and glory.
Whence indeed could it derive its political force,
its means of resistance and attack, of power and
grandeur?
The agricultural class forming more than three-
fourths of the people, and being the only rich and
flourishing class, could not be removed even for a
moment from their agricultural labours, without this
essential branch of labour being a sufferer by their
absence; their produce would be diminished, and this
diminution would inflict a fatal blow to public wealth
and national power.
The industrious and commercial class might more
conveniently be called out for the service of the state,
because the defalcation of their produce would only
occasion the deprivation of enjoyments, which is
always easily borne. But this class would be too
inconsiderable to afford any great assistance; at the
utmost they would form a sixth of the population,
and leave but a very small number of defenders that
could never be formidable to the enemies of the
state.
102
ON THE VARIOUS SYSTEMS
{
Were a military cast formed, and endowed with a
portion of the territory, as in ancient Egypt; we
need only remember how fatal it proved to the Egyp
tians, to be convinced that it would afford little security.
"In none of the known periods of their history
were the Egyptians ever formidable; never did an
enemy enter their country, but they were subdued.
"The Scythians were the first who invaded Egypt.
"After the Scythians came Nabuchodonosor, who con-
66
66
66
66
quered Egypt without meeting with any resistance.
Cyrus achieved its conquest by merely sending one
"of his lieutenants. When the Egyptians revolted
"under Cambyses, a single campaign sufficed to sub-
"due them. Darius Ochus reduced Egypt to a
"province of his kingdom. Alexander, Cæsar, Au-
66
gustus, and the Caliph Omar, conquered Egypt
"with the same facility. The Mamelukes possessed
"themselves of that country in the time of the Cru-
"sades. Lastly, Selim the First conquered Egypt
"in a single campaign. *"
The Chinese have experienced the same fate; they
never resisted any hostile attack. Several times sub-
dued by the Tartars, they have submitted to the yoke
which it pleased the conquerors to impose upon them.
And that the calamities with which these nations
have been afflicted are no unusual attendants on the
t
vices of their system of political economy, is proved to
a certain degree by the circumstance that Africa,
Sicily, and Poland, which were essentially agricultural
countries, have experienced the same fate, and been
* Voltaire, Essai sur les Mours, vol. i. p. 117. Edit, of 1785.
OF POLITICAL ECONOMY.
103
unable to preserve their liberty and independence, and
to maintain themselves in the rank of nations.
What more striking proofs can there be required of
the vices of the agricultural system with regard to
political independence, national power, and public
wealth? These vices equally shew themselves in the
small extent of general labour, in the insulated condi-
tion of individuals, in the weakness of government, and
in national impotency and general indifference. They
ought to alarm all who might be blind enough to share
in Dr. Quesnay's predilection for the agricultural sys-
tem, and to suffer themselves to be fascinated by the
charms with which it has been invested by his nume-
rous proselytes, and against which even Adam Smith
has been unable to guard. Agriculture can no longer
be considered either as exclusively productive of
wealth, or as the most productive of all labours; much
less can it be regarded as possessing the eminent pre-
rogative of forming "the natural constitution of a
government the best adapted to the human race."
66
Do manufactures and commerce afford the advan-
tages which we have denied to agriculture?
"It is true, that men begin by tilling their lands
"before they build ships to go in search of new lands
beyond the seas: but those who are forced to devote
"themselves to maritime commerce, soon acquire
"that industry, the offspring of want, which does
"not stimulate other nations."*
This industry must particularly acquire a great
superiority, when labour is subdivided, when the
* Voltaire, Essai sur les Mours, vol. i. p. 73. Edit. of 1785.
104
ON THE VARIOUS SYSTEMS
manufacturing and trading classes, breaking the fet-
ters which kept them enchained to the agricultural
classes, labour without waiting for the demand, sub-
mit their productions to commercial exchanges, and
derive from the equivalents obtained in return, their
subsistence, their comforts, and their wealth.
Their economical notions then take a new course,
their relations become complicated; the results of their
commerce are lost in an obscurity so profound, that
they are not always clear to the most acute and best ex-
ercised understandings, and their advantages and incon-
veniences are frequently mistaken. The happy effects
of this revolution are not even yet completely demon-
strated, and its benefits have long been in existence,
though the channels through which they are poured
are not yet sufficiently known and described.-Let us
attempt to throw some light upon these abysses of
political economy.
As soon as the labouring classes, whether agricultu-
ral, or manufactural and commercial, carry to market
the surplus of their produce above their consumption,
and exchange one for the other, general industry
receives a fresh impulse, follows another direction,
and attains a higher destiny. The producer does not
wait for the produce being consumed, before he
re-produces it; neither does he limit his productions
to the local consumption, or to his present and actual
wants. Commerce meets production; it stimulates
the consumer by the presence of the produce, and the
producer by the certitude of obtaining equivalents in
return. In this system, every producer is a con-
sumer; all productions are thrown into the scales of a
OF POLITICAL ECONOMY.
105
general exchange; and commerce foments general
production by general consumption.
The labour of the husbandman is no longer confined
to obtain the produce necessary for his subsistence,
and the wages of those who assist him with their
services. He also labours to procure commodities
with which he is yet unacquainted, to have a sur-
plus, and to be enabled to purchase objects, the sight
of which in the market may inspire him with the
desire of possessing them.
The industrious classes do not wait for orders to
labour. They create, invent, perfect the means of
rendering life convenient, comfortable, and agree-
able; of multiplying enjoyments and satisfying every
desire; they do not embarrass themselves about the
sale of their productions or the return of equivalents;
they depend upon the market, which rarely disap-
points their expectations,
Lastly, the trading classes are no longer reduced
to a mercenary and not very lucrative hawking; they
collect and keep in their warehouses the surplus of
productions which have not met with any demand,
and endeavour to provide consumers for it on every
point of the globe where nature and the labour of
man yield any productions capable of exciting desire,
flattering taste, and multiplying enjoyments. In this
twofold respect, the trading classes produce, preserve,
and multiply wealth.
Riches now no longer consist in the proportion of
produce to wants, of income to expenditure, of pro-
duction to consumption; but in the accumulation of a
surplus stored up for unforeseen wants, accidents,
106
ON THE VARIOUS SYSTEMS
and enjoyments. This surplus is a resource for the
existing population against the uncertainty of the
seasons; it is a stock, a sort of patrimony, a premium
for their increase; by means of this surplus, man
soars above the animal creation; he avoids the cala-
mities to which he was doomed by nature, and insures
to himself a destiny which he had been originally
denied. Individuals are multiplied in proportion o
the surplus that is accumulated, nations prosper
the compound ratio of the mass of their snaple
the increase of their population, and public
results from the exchange of the surplus produce
general labour,
Any new object which is conveyed by commerce
to the general market, which excites fresh desires,
and which the multitude may acquire by labour, aug-
ments the emulation of the labourers, gives a new
impulse to general labour, and accelerates the progress
of opulence in an indefinite proportion.
When, after the discovery of the New World, that
effort of genius or audacity, productions till then
unknown were brought into the market of Europe,
every one redoubled his exertions, activity, and indus-
try, to procure them, and public wealth was increased
by both the productions imported from the New
World, and those produced in Europe to serve as
equivalents.
Gold and silver, which were only circulating among
the rich and prosperous classes, being, all at once,
profusely scattered among the industrious and labour-
ing classes, excited a general emulation, multiplied
individual, domestic, and social relations, and pro-
OF POLITICAL ECONOMY.
107
duced results little observed, and yet worthy of the
greatest attention, because they are immediately con-
sected with the causes of the wealth of modern
nations, the peculiar object of political economy.
I, as it must be acknowledged, property is the
spring of labour and wealth, the foundation of social
order, and the support of public and private prospe-
rity; how much must its power have been aug-
mented by the abundance of gold and silver, which
caused property to reach even the poorest classes of
the community, acquainted them with its value and
advantages, gave them the hope of comforts, and flat-
tered them with the idea of civil independence! What
peculiar charms must they not have found in pro-
perty which may be either hidden or shewn, kept or
transmitted, stored up or used at the call of their pas-
sions, propensities, and dispositions, and according to
the circumstances in which they are placed!
By diffusing the advantages of property among the
labouring classes, the precious metals united them with
the other classes of the community by the general
name of proprietors, inspired them with sentiments of
justice and mutual benevolence, and bound them
to each other by the indissoluble ties of common
interests.
Even governments must have felt the effects of this
general impulse; they must have more carefully regu-
lated and moderated their authority, when they per-
ceived that it might be prejudicial to property and
injurious to wealth, the basis of their strength and power,
I shall not examine here the numerous controversies
108
ON THE VARIOUS SYSTEMS
that have arisen about the effects of the plenty of gold
and silver with regard to circulation; that discussion
will find its place elsewhere*: but I may observe, that
the effects which necessarily result from the plenty of
the precious metals, considered merely as merchandize,
belong exclusively to manufactures and commerce, and
could never have taken place in the agricultural
system. This shews already, at what distance those
two kinds of pursuits are from each other, and how
greatly their reciprocal influence on labour and wealth
differs. How confined the action of agriculture,
which has nothing but wages to offer to manufactures
and commerce, and builds upon the portion of its
produce destined for such wages, all its hopes of
wealth! How extensive, on the contrary, the action of
manufactures and commerce, which put all the powers
of labour into motion, multiply its produce by ex-
changes, and redouble their efforts in proportion to
their success! In the agricultural system, labour is
paid for by the idle land-owner, who fancies himself
the richer for having less to pay in the mercantile
system, labour rewards labour, and even the idleness
of the wealthy; it never receives without giving, and
never gives without receiving. The universal exchange
of the produce of labour enables the nations, tribes,
and savage hordes dispersed on the globe, reciprocally
to encourage each other to fresh labour by the hope of
fresh enjoyments; immense deserts which nature bad
doomed to everlasting sterility, are peopled, cultivated,
* See hereafter book iv. chap. 5.
OF POLITICAL ECONOMY.
109
fertilized; the Hindoo renounces his indolence, and
the seas that wash the Poles are rendered productive,
and afford mankind new sources of wealth.
This superiority of manufactures and commerce
over agriculture, which is founded on the nature of
things, is also proved by the history of wealth among
all ancient and modern nations.
Sidon, Tyre, Corinth, Athens, Syracuse, and Car-
thage, in ancient times, acquired by their industry and
commerce riches of which there is no example in any
agricultural nation; and what is not less worthy of
remark, their riches raised them to a degree of power
and consideration to which their territory and their
population would not have allowed them to aspire.
Even the immense wealth of Rome, under the
republic and during the three first centuries of the
empire, cannot counterbalance the authority of these
instances; because she was not indebted for it to
agriculture, but to the power of her arms, the spolia-
tion of the vanquished, and the tributes of the subdued
nations.
In the middle age, Constantinople, by her industry
and commerce, preserved the wealth acquired by her
arms; and these riches, thus purified by labour, pro-
tected her for a long time against the attacks of the Bar-
barians; prolonged her resistance, and retarded her fall,
which was hastened by her follies, disorders, and vices.
In modern times, Venice, Genoa, Pisa, Florence,
the Hanseatic towns, Holland, and England, have
* The territory of Holland is only from eight to nine millions
of acres. Her population does not exceed two millions of indivi-
+
110
ON THE VARIOUS SYSTEMS
alternately acquired, by manufactures and commerce,
riches which have enabled them to act an important
part in the political world, and even placed some of
them in the rank of preponderating powers.
These splendid testimonies of history did not escape
the attention and profound sagacity of Adam Smith;
and he has neither denied their importance nor dis-
puted their consequences; on the contrary, he has
betrayed in several parts of his work the impressions
which they made upon his mind.
<C
In one place he states that "it is the great multi-
plication of the productions of the different arts,
" in consequence of the division of labour, which occa-
❝sions, in a well-governed society, that universal opu-
"lence which extends itself to the lowest ranks of the
" people.*"
Elsewhere he acknowledges, that "it is
upon the
sea-coast, and along the banks of navigable rivers,
"that industry of every kind naturally begins to sub-
"divide and improve itself; and it is frequently
66
not till a long time after, that those improvements
"extend themselves to the inland parts of a country."
duals and yet what a figure did she make in Europe in the seven-
teenth century! what wars she sustained! what forces she
resisted, and what power she attained! She is subject to frequent
invasions; her harbours are bad; she annually spends immense
sums, not to be swallowed up by the waves of the sea; and all
these difficulties have been overcome by her indefatigable industry.
Davenant, vol. ii. page 193.
* Adam Smith's Wealth of Nations, Edition of 1805. vol. i.
book i. chap. 1. page. 17.
+ Ibid. vol. i. book i. chap. 3. page 29.
OF POLITICAL ECONOMY.
111
66
In another place he admits, that "the revenue of
a trading and manufacturing country must, other
things being equal, always be much greater than
"that of one without trade or manufactures.*”
66
And yet, notwithstanding this homage paid to the
power of commerce and industry, he gives the pre-
ference to agriculture. I feel almost tempted to
accuse him of having contradicted himself, and to
refute him by his own statements. But although this
kind of refutation gives great advantages, it would be
ill-timed and unbecoming towards an author so illus-
trious, and to whom the science of political economy
owes its progress and consideration. I shall rather
endeavour to discover what were the motives of his
predilection for the agricultural system, and appreciate
their merits and strength.
He asserts, that if social institutions had never
deranged the order of things, the wealth and increase of
the country would have advanced with equal steps with
the improvement and cultivation of cities; and that,
if public wealth has been indebted for its progress to
the industry of the towns rather than to agriculture,
it ought to be attributed merely to the privileges and
monopolies granted to towns, to the prejudice of the
country.
Although his observations in this part of his work
are extremely acute and ingenious, and although he
must be acknowledged to have been right when he
imputed the misery of the country to the monopoly
* Wealth of Nations, vol. iii. book iv. chap. 9, pages 25. 26.
+ Ibid, the whole of the third book.
112
ON THE VARIOUS SYSTEMS
of the towns; yet it may easily be proved, that, even
if these particular calamities had not existed, com-
merce and manufactures would always have obtained
the same superiority over agriculture; because this
superiority arises from the nature of things, and cau
be neither arrested nor impeded by the combinations
of men.
Agricultural produce is common to all-countries,
and has every where to struggle against a general com-
petition; whilst commerce and manufactures are
peculiar only to some countries and some govern-
ments, and have of course no general competition to
encounter.
Agriculture does not require any great talents;
"nature performs a great part of the work *;" its
improvements are slow, and the discoveries by which
they may be hastened are soon known to all agricul-
tural nations. The case is different with manufac-
tures and commerce; they require a certain intelli-
gence, are continually improved, reach to a degree of
superiority difficult to be attained, and rarely lose the
superiority which they have once acquired.
Agriculture is subject to numerous accidents.
Bad seasons often disappoint the hopes of the hus-
bandman; wild beasts devour part of his harvest,
another part is spoiled and damaged; he is constantly
at the mercy of accidents, and his fortune is con-
tinually menaced. The risks of industry and com-
merce are less numerous, and, above all, less fatal.
If there be no demand for their productions in one
*This is a thought of Adam Smith's.
OF POLITICAL ECONOMY.
113
country, they are carried to another. If, by some
fortuitous or unforeseen cause, they be damaged or
part of them lost, that which remains is sold dearer,
and the loss is covered by the high price occasioned
by their scarcity.
Agriculture cannot extend its produce beyond
the extent of the territory and agricultural popu-
lation; neither can it accumulate or
or store up
large quantities of its productions, because they
would require immense and costly buildings, and,
above all, because they rapidly perish. Manufactures
and commerce may multiply their productions with-
out increasing the number of hands employed, and
frequently even by diminishing their number. These
productions may be stored up, at comparatively
small expences, in proper warehouses, without any
fear of their decaying before they are sold. Their
consumption finds no limits but in the numbers of
mankind and in the progress of general wealth, that.
is to say, it is unlimited.
Finally, agriculture cannot build great hopes on
the improvement of its methods. Notwithstanding
the rapid progress of general knowledge, and the
encouragements which have been bestowed upon agri-
culture by governments, and the efforts of learned
societies, it has not, among the most enlightened
nations, advanced much beyond the point at which
it remains among the most ignorant; while the
improvements of manufactures and commerce have
been uninterrupted within the last three centuries,
and promise still greater success from the advanced
state of sciences, the discoveries of the arts, and
I
L
114
ON THE VARIOUS SYSTEMS
the developement of all the productive powers of
labour.
It therefore remains undisputed, that without either
monopoly, privileges, or oppression, and by the mere
force of things, manufactures and commerce contri-
bute more efficaciously than agriculture to the progress
of wealth, and give to manufacturing and trading nations
an absolute preponderance over agricultural nations.
Adam Smith has paid a splendid homage to the
principles which we have just now established. He
expressly states, that "the revenue of a trading and
<<
66
manufacturing country must, other things being
equal, always be much greater than that of one
"without trade or manufactures. By means of
“trade and manufactures, a greater quantity of
"subsistence can be annually imported into a par-
"ticular country than what its own lands, in the
"actual state of their cultivation, could afford. The
"inhabitants of a town, though they frequently possess
66
no lands of their own, yet draw to themselves, by
"their industry, such a quantity of the rude produce
"of the lands of other people, as supplies them not
"only with the materials of their work, but with the
"fund of their subsistence. What a town always is
"with regard to the country in its neighbourhood,
66
onc independent state or country may frequently
"be with regard to other independent states or coun-
"tries. A small quantity of manufactured produce
"purchases a great quantity of rude produce. A
trading and manufacturing country, therefore, na-
turally purchases, with a small part of its manufac-
"tured produce, a great part of the rude produce of
..
66
OF POLITICAL ECONOMY.
115
other countries; while, on the contrary, a country
"without trade and manufactures is generally obliged
"to purchase, at the expence of a great part of its
"rude produce, a very small part of the manufac-
"tured produce of other countries. The one
exports what can subsist and accommodate but a
66
66
66
(6
very few, and imports the subsistence and accom-
❝modation of a great number. The other exports
"the accommodation and subsistence of a great num-
ber, and imports that of a very few only. The
inhabitants of the one must always enjoy a much
greater quantity of subsistence than what their own
lands, in the actual state of their cultivation,
"could afford. The inhabitants of the other must
always enjoy a much smaller quantity." *
(C
66
66
His French translator, whom I have mentioned
before, far from combating this part of his theory,
has strengthened it by still more forcible and decisive
considerations.
"An industrious people," says he, "enjoys such a
"superiority over many other nations with regard to
"manufactural industry and commercial operations,
"that they may draw to themselves a considerable
portion of the raw produce of other countries.—
Thus, let us suppose an article of household furni-
te
#C
(6
ture, a convenient implement, manufactured with a
"material uncommonly cheap, and almost of no value,
"the manufacture of which, by the help of machines.
"and particular methods, required only one single
06
day of labour, represented by eight or ten pounds
* Wealth of Nations, Edition of 1805. Vol. iii. b. iv. c. 9, p. 26.
I 2
116
ON THE VARIOUS SYSTEMS
"of wheat; this piece of furniture, if carried to a
66
country which enjoys none of the advantages of
"the industrious country, will naturally be valued
66
(6
by the purchasers, not according to the quantity of
"labour which it may have really cost, but accord-
ing to the quantity of labour which they would be
obliged to pay for in their own country for an article
"so convenient and so agreeable. They will there-
"fore gladly offer in exchange for this commodity a
"value representing four or five days of labour in
"their own country, or a quantity of raw produce
corresponding to this value: consequently, such au
exchange will bring to the manufacturing country,
"over and above the value of the provisions consumed
66
66
66
by the labourers who were the manufacturers and
"carriers of that commodity, double the quantity of
"those provisions at least, or what is the same,
"double their price.” *
After having so positively acknowledged the supe-
riority of manufactures and trade over agriculture,
how could Adam Smith and his French translator
assert that agricultural labour is the most productive
of labours, and contributes most efficaciously to the
progress of public and private wealth? To account
for this contradiction is impossible.
The French translator of Adam Smith observes, it
is true," that a source of wealth and power which pro-
"ceeds only from a superiority of industry is, by its
66
nature, temporary and precarious; that it can last
* French translation of the Wealth of Nations, by the Senator
Germain Garnier, Paris, 1802. Vol. v. note xxix. p. 272, 273.
:
I
OF POLITICAL ECONOMY.
117
(6
(C
only as long as other nations remain in a state of
ignorance and unskilfulness, a state from which
they will be so much the more disposed to emerge,
"the more they use the manufactured commodities
"of the industrious nations; and that, in proportion
as these other nations improve in skill, the manu-
facturing country will rapidly decline, and be
exposed to the most fatal extremities."
16
FE
.6
But is this reflection as solid and well grounded
as it is specious and captivating? Have manufac-
tures and commerce only a temporary and precarious
superiority over agriculture? Is the progress of
knowledge, sciences, and arts, calculated not only to
re-establish the equilibrium between those different
labours, but even to incline the scales in favour of
agriculture? This is a question of the utmost
importance, which deserves to be examined with the
most scrupulous attention.
An agricultural nation cannot become a trading and
manufacturing one but by the slow and uncertain
progress of time, by the growth of local wealth, and
the improvement of knowledge, sciences, and arts,
or by a concurrence of circumstances over which they
have no control, and on which they cannot rely.
If they attempt to force the natural order of things,
to create prodigies, and all at once to appropriate to
themselves the benefits of manufactures and com-
merce; they cannot accomplish this but by taking
from agriculture part of the hands and capitals which
caused it to flourish and prosper. Bereft of its usual
means, agriculture languishes, its produce decreases,
and this portion of public wealth withers and decays.
118
ON THE VARIOUS SYSTEMS
On the other hand, the unskilfulness and inexpe-
rience of new manufacturers and merchants yield for
a long time none but productions inferior to those of
manufacturing and trading nations, which cannot
stand the competition in the general and particular
market. The attempt of transforming all at once
part of an agricultural nation into manufacturers and
traders is therefore equally prejudicial to agriculture,
manufactures, and commerce, and necessarily produc
tive of the decay of national wealth.
Of all agricultural countries, France is the only
one that attempted to raise herself all at once to the
rank of manufacturing and trading countries. Col-
bert wrought this wonder during his memorable
administration, but not without injury to agriculture.
Public opinion accused him of having sacrificed agri-
culture to manufactures and commerce; and the
incalculable advantages, which have accrued to the
French from this innovation in their system of politi-
cal economy, have not yet cleared that great man of
this unavoidable and transitory wrong. Contempo-
raries rarely forgive a statesman the privations which
he imposes upon them for the purpose of ameliorating
their future condition; and posterity, which reaps
the fruit of his skilful combinations, is frequently
ungrateful to its benefactor.
The bold enterprise of Colbert, which was so suc-
cessful and yet so badly rewarded, had never been
attempted before, and has not been repeated since.
The annals of manufactures and commerce prove, in
every page, that all ancient and modern nations which
have ranked among manufacturing and trading nations,
OF POLITICAL ECONOMY.
119
have attained this rank but slowly, gradually, and as
it were imperceptibly; most of them were indebted
for their success to colonization, factories, or the
emigration of manufacturing and trading people.
From Egypt and Phoenicia issued the numerous
colonies which carried the benefits of industry and
commerce into Greece, Africa, Italy, and part of the
Gauls.
When, after eight centuries of oppression, rapine,
and destruction, trade and manufactures revived in
some cities of Italy, whence they were diffused
throughout Europe; the circumstance was owing to
the numerous factories which the Italian cities esta-
blished in the North of Europe, and which proved
as many schools that formed the creators of the manu-
factures of Flanders and of the commerce of the
Baltic.
In modern times, the tyranny of Philip the Second,
the persecutions of the Stuarts, and the blind intole-
rance of Louis XIV, carried the seeds of manufactures
and commerce to Holland, England, the North of Ger-
many, and the New World.
But the progress of manufactures and commerce,
from the most remote period until our own times,
shews, that, in all countries and among all nations, it
has always been slow, toilsome, difficult, and generally
the work of ages; and that it never proved prejudicial
to manufacturing and trading nations, and conse-
quently ought to give them no uneasiness. In pro-
portion as they are obliged to renounce certain mar-
kets, they resort to others, or open new ones among
less civilized people; and until the inhabitants of the
*
120
ON THE VARIOUS SYSTEMS
whole world are all become agriculturists, manufac
turers, and traders, (a period which is not near at hand,)
manufacturing and trading nations are not likely to
lose any of their advantages, and will always preserve
their wealth and their power.
It might even be said, and the assertion would not
appear too paradoxical, that, far from having any
thing to apprehend from the progress of manufactures
and commerce among agricultural nations, this pro-
gress would afford manufacturing and trading nations
fresh means of prosperity and wealth. The pheno-
menon is easily explained,
When an agricultural country, supplied by foreign
manufactures, establishes national manufactures to
supply herself and to share in the benefits of the
general maket, she gives to her labour and capitals a
direction more useful and more profitable than before,
and consequently becomes richer by all the profits
derived from her new manufactures and trade: but
whatever may be her efforts, she cannot concentrate
this new wealth in herself; it scatters itself abroad,
and feeds foreign industry.
If this wealth amounts to ten millions a year, these
ten millions are mostly carried to the general market
to be exchanged for the productions of the industry
of other nations: they cannot take any other direction,
because there alone they meet with commodities that
serve as equivalents. This new demand of the produce
of ancient industry necessarily raises its price, increases
the gains of the ancient producers, favours their manu-
factures and commerce, and accelerates the growth of
general wealth. Among all nations without exception
оё
121
OF FOLITICAL ECONOMY,
the increase of national wealth occasions a larger
importation of foreign productions; and these imports
are necessarily an increase of wealth to the producing
nations; these relative benefits are necessary and
indispensable. It is therefore evident, that the intro-
duction of manufactures and commerce among agri-
cultural nations, which is to them an increase of wealth,
can never be prejudicial to the wealth of manufacturing
and trading nations.
A truth so important in its consequences has
escaped the attention of the most esteemed writers.
on political economy, because they have preferred
argument to observation: and their observations
have been directed rather to particular than to ge-
neral facts they also have not perceived, that when
wealth produced by manufactures and commerce has
been introduced among recent nations, the ancient
manufacturing and trading nations have by no means
been impoverished. The fact is however notorious,
and there is not one better ascertained in modern
history.
When the cities of the North of Europe appro-
priated to themselves the commerce and manufactures
which the Italian cities had carried thither, the latter
were not injured either by the exclusion or competition,
and their wealth was not impaired; the domain of
their manufactures and commerce was extended to the
Baltic, Flanders, and Germany; the number of con-
sumers increased with the number of manufacturing
and trading towns, and the more particular markets
were multiplied, the more facilities had the Italian
cities to vend the produce of their commerce and
122
ON THE VARIOUS SYSTEMS
manufactures, and to supply themselves with the
produce of the manufactures and commerce of the
North. If their trade and manufactures have decayed,
their decline is to be attributed solely to the wars
which swallowed their capitals, overloaded their trade
with ruinous imposts, diminished their population,
and plunged them into discouragement and despair.
When Holland and England enriched themselves
with the spoils of Flanders, it was not by shutting their
harbours to the Flemish traders, nor by becoming
troublesome competitors in the general market; the
ruin of this industrious people was again the work of
a war of oppression, pillage, and destruction, which
forced their industrious inhabitants to emigrate and to
seek for an asylum in Holland, Saxony, and England.
When France, Sweden, Denmark, and Prussia,
shared in the manufactures and commerce of the world,
England and Holland lost nothing of their trade and
manufactures; and, according to the public accounts.
of the imports and exports of England, it may be
affirmed that its trade increased in extent, activity,
and productiveness.
Finally, when the United States of North America
shook off the yoke which kept them fettered to the
manufactures and commerce of the mother-country;
when they entered into competition with all trading
nations, did the manufactures and commerce of any
nation experience any restriction? None, undoubt-
edly; and it might, on the contrary, be affirmed, that
the manufactures of all became more extensive, and
more profitable than they had been before.
It therefore appears demonstrated by modern his-t
OF POLITICAL ECONOMY.
123
tory, that the progress of manufactures and commerce
among new nations, far from being prejudicial to
old trading nations, turns, on the contrary, to their
advantage.
Instead of bestowing upon these luminous facts the
attention and importance to which they are entitled,
the trade of nations with each other was regulated by
the example of the individual trade of a country;
and as it was found that the number of manufacturers
and traders of a village, borough, or town, cannot be
increased without every one of them suffering more or
less from this competition, or being even ruined, it
was inferred that the same fate awaits manufacturing
and trading nations in proportion as their number
increases in the world. But it is easy to shew, that
the two cases are essentially different, or rather that
there is not any similarity between them.
The industry and trade of a village, borough, or
town, draw all their means of getting rich from the
wealth of the place; they are kept and paid by it,
and can prosper only in proportion to this wealth, and
its increase, over which they have neither direct nor
indirect control. Confined to such a narrow sphere,
trade and industry are merely passive and destroyed
by their own efforts.
But this is not the characteristic of manufactures
and trade, nor their sole power; they act a more
important part in the formation of wealth, and, far
from being burthensome, they are its firmest support,
and perhaps its true foundation.
Wherever they
enjoy all their elasticity, they bestow productiveness
apon the existing wealth, hasten its progress, and
124
ON THE VARIOUS SYSTEMS
carry it to the highest pitch which it can attain; they
assign to labour the most beneficial direction, to capi-
tals the best employment, and to the circulation of
produce, the most rapid and most profitable activity.
When Sir Richard Arkwright invented the cotton-
spinning machine, he shortened that kind of labour
by two thirds, and rendered it twenty times more
productive than it had been before; he improved the
manufacture of cotton so as to make it an object of
luxury to the rich, and lowered its price so as to ena-
ble the less fortunate classes to wear better garments:
in short, be insured to this kind of industry a superior
value in exchange over the other productions of gene-
ral industry; and the result of his invention was less
labour and more produce; smaller expences and
greater value. This saving in labour and expence,
this increase of produce in value and quantity, is a
real increase of public and private wealth, and in
every respect assimilates the skilful mechanic to whom
it owes its birth, to the husbandman, who, by his
labour, increases agricultural produce. What is here
observed concerning Sir Richard Arkwright, applies
to all who have made any improvements in science,
manufactures, and arts, from the invention of the
plough to the spinning-machine. They all were crea-
tors of wealth in the ratio of the expence saved in
the performance of labour, or of the higher value given
to its productions.
Commerce is exactly on a par with manufactures,
and contributes in the same manner to the growth of
wealth by commerce, however, we must not, as the
French economists and many writers on political eco-
OF POLITICAL ECONOMY.
125
nomy have done, understand the simple conveyance
of the produce of agriculture and manufactures from
the spot where it is produced to the place where it is
consumed; but such commerce as creates and multi-
plies productions by conferring upon them a value
which else they would not possess.
M
Merchants, by following navigators on all coasts, and
travellers in all climates, to open commercial commu-
nications with their inhabitants, by bringing to mar-
ket the produce of unknown countries, or of savage
and barbarous nations, and, in exchange for this pro-
duce, which is of no value to those distant nations,
giving them other useful and agreeable productions,
are actually creators of both this new produce and the
equivalents which serve to pay for it, and augment
public and private wealth by the whole value of this
produce and its equivalents.
There is, therefore, a kind of industry which is
not paid for by local wealth; which draws its wages
from the wealth which it creates, and which of course
can never obstruct any kind of manufactures and
trade; which can neither be impoverished by, nor
impoverish any; all may prosper by each other's
side, lend each other a mutual support, and be so
much more beneficial to general wealth as they
are more numerous. Wrong notions have been
entertained respecting commerce and manufactures,
when it has been supposed that they are destroyed in
proportion as they make any progress among different
nations, and that manufacturing and trading nations
have every thing to apprehend from the rapidity of
such progress. The advantages of manufactures and
126
ON THE VARIOUS SYSTEMS
commerce are not precarious and transitory; they
are permanent, unlimited, and indefinite, and can
never be wrested from manufacturing and trading
nations by the competition of agricultural nations.
But it is particularly with regard to political power
and independence that the superiority of the mercan-
tile, over the agricultural system, becomes manifest.
In the mercantile system, the manufacturing and
trading classes are able to spare, for the service of the
country, a great number of young men, without any
prejudice to general labour. The diminution of hands
is repaired by more exertion, more assiduity, and a
better employment of time on the part of the other
labourers. And, should the produce be diminished,
its value is increased by its scarcity, the national
income always remains the same, and consequently is
always adequate to the wants of the individuals who
devote themselves to the service of the state; and
what is most extraordinary, commerce and manufac-
tures extend to the whole world the burthen of war-
fare which may press upon manufacturing and trading
nations.
Finally, if the interest of manufacturing and trad-
ing nations requires them to carry their means of
attack and defence to a great distance, they find in
their foreign and commercial relations, in the circu-
lation of their produce on all points of the globe, and
in their credit, facilities, and resources, from which
agricultural nations are debarred. *
66
* "The bounds of all the European kingdoms are, at present,
(1752), nearly the same they were two hundred years ago: but
*
OF POLITICAL ECONOMY.
127
Manufactures and commerce afford in every respect
means of wealth, power, and grandeur, which are
not found in agriculture; and Adam Smith was
equally right when he asserted, 1. That it is to the
labours of industry that we are indebted for that gene-
ral opulence which in a well-governed community
extends to the lowest classes of the people; and,
2. That the improvements of commerce and manu-
factures have begun in places, which enjoyed the rare
advantage of carrying their produce to the market of
the whole world.
Why has this precious and apparently involuntary
avowal, drawn from his candour, not been developed
in his excellent work? Why, after having acknow-
ledged that the agricultural system cannot alone form
a great nation, has not Adam Smith examined whe-
ther the case was the same with the mercantile system?
And, though the latter has so many advantages over the
former in his reasonings, why do his conclusions give
the preference to the agricultural, over the mercantile
system?
Shall I be allowed to declare the reason? Strong
understandings are rarely fond of innovating: the
authority of times that are past, often stops them on
the road to new truths: they are afraid of going
astray, even when they pursue the direction of the
light which they themselves profusely scattered
what a difference is there in the power and grandeur of those
"kingdoms? Which can be ascribed to nothing but the increase
of art and industry." Hume's Essays. Edinb. 1804. vol. i.
part 2, of Refinement in the Arts, page 290.
“of
128
ON THE VARIOUS SYSTEMS
abroad. When Adam Smith wrote his immortal
work, the agricultural system was predominant in the
most recent publications, and the mercantile system
preponderated in public opinion and in the cabinets
of princes. To choose between the two doctrines,
or to introduce a new one, would not perhaps have
been an easy task, and would not have insured the
success of his work. The state of the science in his
time rendered doubts allowable; and it is but justice
to acknowledge, that if he declared for the agricul-
tural system, he neglected none of the considerations
which could recommend the mercantile system and
cause it to triumph, as it were, over his own deci-
sion. He overturned with one hand the altar which
he had raised with the other, and contented himself
with refuting errors fatal to the science without daring
to proclaim truths which would have insured its pro-
gress and its success. To leave the question undecided
between the agricultural and mercantile system,
would have been neglecting his own lessons ; it
would have been stopping short of the point to which
he has carried the science, it would have been relin-
quishing the course which he himself has traced to
wealth.
ہے۔
Let us therefore conclude, that if labour has the
greatest share in the formation and progress of wealth,
this productiveness is not the exclusive lot of any
particular labour, but is common to labour in gene-
ral, and eminently connected with manufactures and
commerce.
How beautiful is this concurrence of all labours to
produce wealth without any other pre-eminence or
ן
OF POLITICAL ECONOMY,
129
distinction, than that which is obtained by the
exchange of their productions! How encouraging
to the labouring classes, incentive to nations, favour-
able to civilization, and honourable to humanity!
In this system, all follow their individual inclinations,
develope and improve their faculties, encourage each
other by a noble emulation, are every moment
reminded of their need of each other, connected by
habit and mutual interest, and bound by the ties of
the great family of the human race which the forma-
tion of separate nations had broken. Scattered all
over the globe, men are no longer strangers to each
other, they labour one for the other, and correspond
together, although separated by deep seas, severe
climates, inaccessible mountains, and unhospitable
deserts. Thanks to the genius of commerce and the
inexhaustible resources of industry, perils are braved,
difficulties vanquished, obstacles overcome, and the
produce of general labour circulated all over the
world *.
Can this generous and liberal system be compared
with that which acknowledges no wealth but what
proceeds from agriculture, allows the latter a supe-
riority over all other labours, pays them with its
produce, and impoverishes them all to grow rich by
their misery? The parallel is repugnant to every prin-
26
* “ Tutte le inrenzione le più ben meritè del genere humano,
e che hanno sviluppato l'ingegno e la facolta dell' animo nostro,
sono quelle che accostano l'uomo a l'uomo e facilitano la commu-
“nicazione delle idee, dei bisogni, dei sentimenti, e riducono il ge-
Dell Econ. Polit. del Conde Feri, §2.
nere umano a massa."
K
130
ON THE VARIOUS SYSTEMS
ciple by which the nature and effects of labour in
general are regulated; and it would be improper to
dwell any longer upon it.
The nature and effects of labour in general being
fixed and known, let us see which means the different
systems recommend to increase its force, develope its
faculties, and extend its power, and what obstacies
oppose its progress, paralyse its efforts, and impede
its success.
!
CHAP. IV.
Of the Causes which invigorate Labour, improve its
Powers, and ameliorate its Produce.
ADAM Smith, who first assigned to labour such
important functions, demonstrated its powerful influ-
ence upon wealth, and rendered it so interesting in
economical respects, is also the first who bestowed
particular attention upon the causes which invigorate
labour, improve its faculties, and augment and ame-
liorate its produce. He ascribes all its improvements
to the division of its parts, or the confiding to seve-
ral hands the different branches of the same labour,
which gives each labourer more dexterity, avoids the
loss of time occasioned by the change of labour, and
is conducive to the invention of machines which
shorten and facilitate labour, and enable one indivi-
dual to perform the labour of many.
This fruitful principle, on which Adam Smith
reared his system of political economy, to which he
OF POLITICAL ECONOMY.
131
bent his theory, and which exercises a sort of domi-
nation over the science, had hitherto been considered
as one of the facts which have most accelerated the
progress of political economy and most contributed to
the celebrity of its author.
But this title to glory has not been respected by the
Earl of Lauderdale; and it is, no doubt, interesting
to behold the efforts of the Noble Author to overturn
the main pillar of political economy.
(6
Lord Lauderdale begins by observing, " that the
idea of the effects of the division of labour is not
new; that the dexterity which man acquires in
"performing labour, by confining himself to one par-
"ticular branch, has been dwelt upon from the times
"of Xenophon to the present day; and that, on this
principle, professions in ancient times had been
"made hereditary; as was the case in Egypt, in some
parts of India, and in Peru.”
66
66
..
To this rather critical than instructive observation,
the noble Earl adds, that "the great number of dis-
"tinct operations that contribute towards the forma-
"tion of some of the most trifling manufactures,
"such as the trade of pin-making, is not derived
"from any degree of habitual dexterity, or from the
saving of time, as results of the division of labour;
66 but from the circumstance of supplanting and
performing labour by capital. Without the machi-
nery, which the faculty that man possesses of sup-
planting labour by capital introduces, no great
progress could have been made in the rapidity with
"which pins are formed; and one man, with the use
"of this machinery, though he goes through and per-
66
CC
66
66
& 2
132
ON THE VARIOUS SYSTEMS
"forms all the operations himself, must, obviously,
"manufacture more pins in an hour, than would be
"formed in a month, even in a year, by any number
of men amongst whom the labour could be divided,
"if unaided by the circumstance of part of their
"labour being supplanted and performed by capital.
"The progress made of late years in Scotland, in
"the art of distilling spirits, affords a strong illustra-
"tion and example of the vast resources of human
ingenuity in abridging labour by mechanical con-
65
"trivances."
"In the year 1785, a proposal was made to col-
lect the duty on the manufacture of spirits in
"Scotland by way of licence, to be paid annually for
every still, according to its size, at a fixed rate per
gallon, in lieu of all other duties."
66
CC
"The London distillers, men the most experienced
"in their profession, who agreed to the rate of the
"licence on the gallon, supposed to be equivalent to
"the former duties, declared themselves, from expe-
"rience, satisfied, that the time of working stills with
"benefit was limited to an extent perfectly well
known; and that whoever exceeded these limits
"would infallibly lose upon his materials and the
quality of the goods what he gained in point of
"time; and in conformity to their opinion, the duty
was in the year 1786 settled, upon the supposition
"that stills could be discharged about seven times in
a week."
❝
(6
66
66
"Two years after this, in a memorial presented to
"the Lords Commissioners of the Treasury, the same
men alleged, that the Scotch distillers had, by the
66
OF POLITICAL ECONOMY.
133
ingenuity of their contrivances, found means to
discharge their stills upwards of forty times a
"week; and we since know, from a report made to
"the Lords Commissioners of the Treasury, in the
"year 1799, that a forty-three-gallon still was
brought to such a degree of perfection, as to be
discharged at the rate of once in two minutes and
"three quarters; which is almost twenty-two times
in an hour. It appears also from this report, that
the operation of distillation was capable of being
performed in a still shorter time, and that the
quality of the spirit was no wise injured by the
rapidity of the operation."
From this fact Lord Lauderdale concludes, that it
is to the introduction of some sort of machinery, to
the effect of the application of chemistry to manu-
factures, and to the increase or command of capital
cnabling the manufacturers to reduce the price of
manufactured commodities, that we are indebted for
the wealth and comforts generally enjoyed by civilized
society.
"In the annals," adds the noble author, "of the
"transactions and negociations that have taken place
between different nations on the subject of com-
mercial arrangements, the danger of admitting a
country to a commercial competition, because the
"division of labour was there carried farther than in
66
66
any other, is a thing unheard of; whilst the con-
"stant and uniform ground of objection, urged by
men whose prejudices led them to think that com-
merce may be conducted in a manner injurious to
66
66
66
a nation, is the superiority that the one country has
134
ON THE VARIOUS SYSTEMS
66
66
over the other, derived from dexterity in sup-
planting and performing labour by capital."
"Adam Smith has vainly laboured to impress the
"belief that the introduction of machinery is origi-
nally owing to the division of labour, of which it
❝is considered as a mere consequence.”
66
But, in truth, the history of man shews us,
"that the simplest and most efficacious machines
"for supplanting labour-(instruments with which
"habit has so familiarized us, that we hardly dig-
66
nify them with the name of Lachinery)-are
"introduced, at an early period of society, when
"the division of labour is comparatively unpractised
"and unknown, for the purpose of supplanting the
"personal labour of man in the conduct of agricul
"tural industry;-an ait which. rough its re-
"eminence in the production of wealth, is acknow-
"ledged (even by those who wish to establish that
"the division of labour is the great source of the
"increased opulence of mankind), is in n veriod of
66
society distinguished by reaping bench from the
"division of labour."
"The eagerness and anxiety of the author of the
"Wealth of Nations to enforce his favourite opinion,
"has made him assert, that a great part of the
"machines employed in those manufactures in
"which labour is most subdivided, were originally
"the inventions of common workinen, who, being
"each of them employed in some very simple ope-
"ration, naturally turned their thoughts towards
finding out easier and readier methods of per-
forming it.
OF POLITICAL ECONOMY.
135
66
"The inaccuracy of the fact cannot escape any
one conversant with the history of machinery.-—
"It is certain, on the contrary, that it is to the
"characteristic faculty which man possesses, from
"the earliest period of his existence, of applying
"mechanical principles to the construction of tools
"and machines, calculated to perform and supplant
"Jabour, and to his powers of using capital for the
sane purpose, in all his commercial relations, as
"well as in every transaction which requires the
"exertion of labour, that he owes the ease and won-
"derful rapidity with which labour is executed; and
"consequently, that extended opulence which ex-
"pands itself throughout civilized society."
<<
I thought it my duty not to omit any of the nume-
rous considerations which Lord Lauderdale has sup-
posed calculated to discredit the division of labour,
that main pillar of the doctrine of Adam Smith;
because it is of essential importance not to leave any
doubts on this part of the science, and because it is
equally dangerous to abandon oneself to a blind cre-
dulity, or to shut one's eyes to certain and positive
truths.
I shall not examine whether the effects of the divi-
sion of labour were known to the nations of antiquity,
whether they occasioned the distinction of certain
people into casts, whether the invention of machinery
has been antecedent to the division of labour, and
* An Inquiry into the Nature and Origin of Public Wealth :
by the Earl of Lauderdale. Edinb. 1804. chap. 5, pages 286,
296, 297, 300, 301, 302.
+
136
ON THE VARIOUS SYSTEMS
whether the instruments of agriculture deserve the
honour of being ranked among the machines which
shorten and facilitate labour. All these inquiries are
more curious than useful, of little interest to political
economy, and can neither directly nor indirectly con-
tribute to its progress.
The question, whether machinery is more condu-
cive than the division of labour to develope the ener-
gies of the labourer, improve his faculties, increase
his produce, and ameliorate its quality, appears at
first sight of higher importance: but a little attention
soon shews this view of the matter to be erroneous
and delusive.
The division of labour imparts to the labourer, not
only greater facility, dexterity, and intelligence, to
perform the labour he has undertaken; but, what is
far more important, it distributes every part of the
labour in the manner best calculated to hasten and
improve its performance: so that if it even were true
that the labourer, as agent of the labour, receives
greater assistance from machinery than from the divi-
sion of labour, we should yet be obliged to admit that,
with regard to labour in general, the distribution of
the different parts of labour renders services superior
to those of machinery. The division of labour ap
pears in every respect entitled to be compared with
the direction of labour. It is true, that each labourer
performs more labour than the undertaker; neverthe-
less, the latter contributes more to its performance
than each of the individual labourers. Machines are
. but more diligent, more active, and less expensive
labourers: the division of labour is the undertaker
OF POLITICAL ECONOMY.
137
that directs them, regulates their movements, and
guides them to their end by the straightest line. The
division of labour relates to labour in general; it
prepares the links of that immense chain which
connects individuals with individuals, families with
families, nations with nations, and converts the
whole world into a single workshop, a general manu-
factory. To confine the effects of divided labour to
that portion of labour which it performs beyond what
undivided labour would have performed, is to be igno-
rant of its nature, advantages, and benefits.
"
It must, however, be admitted, that the effects of
the division of labour, the advantages of which are
universally acknowledged with regard to manufactures
and commerce, are not so certain with regard to agri-
culture. The point is not yet decided, whether the
division of agricultural labour is more profitable than
its concentration; or, in other words, whether small
or large farms are more advantageous to public wealth.
Both opinions have numerous and illustrious defenders.
"There is no maxim of political economy more
"true," says Dr. Price, than this: the division of
"property increases population; the concentration of
property reduces the small farmers to the condition
"of common day-labourers, and forces them to pur-
"chase in the market the corn they want for their
"subsistence. This manner of existence is more
painful, the children become more burthensome,
marriages less frequent, and population declines.
"When lands were divided among a greater num-
"ber of owners, day-labour was dearer than at pre-
sent (1772), when it is not four or five times dearer
66
CC
66
66
138
ON THE VARIOUS SYSTEMS
"than in 1514, and when food, with regard to bread,
"is seven times, and, with regard to meat, fifteen
"times dearer.
"Whence it follows, that ever since the introduc-
"tion of large farms, the maintenance of the hus-
"bandman is dearer, and his wages less; which cir-
"cumstance has, of course, diminished that impor-
"tant class of the people.*"
Mr. Arthur Young, who has combated the opinion
of Dr. Price, observes, that "it is not the number of
"people, but their wealth, which constitutes their
66
66
power; and that population ought to be subordi-
"nate to agriculture, so that the abundance of pro-
"duce should constantly precede the increase of
population." Whence he infers, that "large farms,
being more advantageous than small ones, ought to
"contribute more than small ones to the increase of
population."+
66
To hesitate between these two opinions, appears
impossible, if, as they certainly do, large farmst
* Dr. Richard Price's Observations on Reversionary Pay-
ments; 1773.
+ Arthur Young's Political Arithmetic.
A nation whose territory comprises thirty millions of acres
of land proper for agriculture, with large, middling, and small
farms, would give the following results:
Upou the plan of small farms, one million of farms, of thirty
acres each, would require two millions of regular husbandmen and
three millions of horses.
On the plan of middling farms, that country would have five
hundred forty-five thousand farms of fifty-five acres each, one
OF POLITICAL ECONOMY,
139
yield a larger quantity of produce than small ones, or,
what is the same, if they yield an equal produce at
less expence. Should this saving of costs even be
obtained at the expence of the husbandmen, and dimi-
nish their number, population would not be a suf-
ferer, and wealth would be a considerable gainer. The
husbandmen who are become useless to agriculture,
still find the same subsistence in its produce: but
being obliged to reproduce, at least, its equivalent by
other labours, general wealth is increased by the total
sum of this equivalent. There remains, therefore, no
doubt that, with regard to population and wealth, the
division of labour applied to agriculture, or the sys-
tem of small farms, is as hurtful as it is beneficial in its
application to manufactures and commerce.
But what is the actual utility of machines, which has
been so much extolled by the Earl of Lauderdale?
If it have zealous advocates, it has also numerous oppo-
nents; and the controversy which it has occasioned,
million six hundred thirty-five regular husbandmen, and
millions seven hundred twenty-five thousand horses.
twa
On the plan of large farms, that country would have three
hundred forty-one thousand farms of eighty-eight acres each, one
million three hundred sixty-four thousand regular husbandmen,
and two millions forty-six thousand horses.
And, as the produce consumed by a horse may be reckoned equal
in value to that consumed by a labourer for his food, the nation
may be considered as having, in the system of small farms, five
millions of regular husbandmen; in the system of farms of the
middle size, four millions three hundred and sixty thousand; and
in the system of large farms, three millions four hundred and ten
thousand. Discours Fondamental sur la Population; par IIer-
renschwand.
}
140
ON THE VARIOUS SYSTEMS
offers a problem which it is important and useful to
examine with attention.
'
66
66
66
"Machines to shorten labour," says Montesquieu,
are not always useful. If a piece of workmanship
"be at a low price, which price suits alike the
purchaser and the labourer who performed the
work, machines that should simplify its manufac-
ture, that is to say, that should diminish the num-
"ber of labourers, would be prejudicial; and were
"not water-mills established every where, I should
"not think then as useful as they are supposed to be;
"because they have set a great number of hands at
CC
rest, deprived many people of the use of the waters,
"and diminished the productiveness of many lands.*"
This opinion has been refuted in several equally
convincing and triumphant ways.
We ought first to distinguish between machines
that perform labours beyond the strength of man,
which of course do not deprive him of any labour,
and those that perform labours which man is capable
of performing.
With regard to the former, it has justly been
observed, that they are but profitable, and never can
be prejudicial, since they afford productions which
exceed the strength and dexterity of man, and would
not exist without their aid.
With regard to those machines which barely sup-
plant the labour of man, it has also been very justly
remarked, that they are not prejudicial to nations
whose prosperity is upon the increase, because they
* Montesquieu, Esprit des Loix, book xxiii. chap. 15.
OF POLITICAL ECONOMY.
141
2.
only supply the want of hands; but nations whose
wealth is stationary or retrograding, as they have a
sufficient or too great a number of hands, have no
occasion for this latter kind of machines. *
This restriction to the utility of machines does not
appear to rest on any solid foundation; it even excites
surprise when we come to consider, that all authors
agree that machines cost less and produce more than
man; which circumstance of course affords a larger
quantity of disposable produce. This increase of pro-
ductions, which has not and cannot find any consumers
but in the labourers whom the machines have thrown
out of employ, nor any equivalent but in the produce
of their new occupation, can neither lessen their
wages nor reduce their number. A larger produce
must not only maintain the same population and the
same labour, but also increase both.
It is true, that if machines, and large farms, which
may be assimilated to machines, were suddenly intro-
duced, and both at once in the same country, they
would occasion a supplanting of labour which might
be extremely prejudicial to the labouring classes.
But such innovations are introduced slowly and par-
tially. The husbandman, left unemployed by large
farms, is employed in other occupations by the land-
owner, whose net produce is increased; and the labourer,
who through the erection of machines is deprived of
his usual employment, likewise obtains his wages
from new manufacturers, the establishment of which
* Discours Fondamental sur la Population; par Herrens-
chwand.
}
142
ON THE VARIOUS SYSTEMS
every where follows the increase of productions and
general wealth. Thus the husbandman and the
labourer are ultimately no sufferers by the introduction
of machines, whatever may be the state of the
country, whether her prosperity be progressive, sta-
tionary, or retrograding.
Nay, more, if any thing were capable of arresting
the decline of a country, and restoring her to pros-
perity, the use of machines and the introduction of
large farms would accomplish this object in the most
efficacious and infallible way.
Why is the prosperity of a country stationary or
retrograding? Because her consumption is equal or
superior to the produce of her labour. Machines and
large farms, which would augment the produce of her
labour and diminish its cost, might therefore re-estab-
lish the equilibrium, occasion a surplus of produce
above consumption, and rapidly restore her former
prosperity.
In short, wherever an increase of produce is ob-
tained at a smaller expence, there is an increase of
wealth; and an increase of wealth is always followed
by an increase of population. This maxim appears
absolute in political economy, if there be any abso-
lute principle possible in that science.
It has however been asserted, that wealth acquired
by industry may be useless to the increase of the
industrious population, and even augment to their
prejudice the agricultural population, by which they
are supplied with the raw produce of agriculture.
"When a country, which from the narrowness of
"her territory is obliged to economize the hands she
OF POLITICAL ECONOMY.
143
employs," says the French translator of Adam
Smith's work, "has turned her efforts to the means
"which render labour more productive, and has so
"far succeeded that one day's labour proves the equi-
"valent of two or three days of another labour, this
"is accomplished merely by exchanging a manufac-
"tured against a raw produce; and as the latter can
“be increased only with the aid of a numerous popu-
lation, this exchange ultimately tends to multiply
"men and food among those nations that give their
raw produce in exchange for manufactured produc-
"tions, and must have a totally opposite effect in the
manufacturing country which simply aims at ob-
taining the largest possible quantity of raw produce
"with the smallest possible number of hands."*
66
36
f
This reasoning appears to rest upon a manifest fal-
lacy, the fatal consequences of which it is important
to prevent, and against which it is proper to guard na-
tions that might be tempted to suppose that agriculture
is able to enrich them at the expence of manufacturing
nations.
An agricultural country increases her raw produce
only as far as trading countries insure its sale. The
increase of the wealth and population of agricultural
nations depends therefore on the industry and popu-
lation of the manufacturing ones.
But in what pro-
portions does the increase of wealth and population
take place in both countries? There is no doubt
*Recherches sur la Nature et les Causes de la Richesse des
Nations; par Adam Smith. Traduction nouvelle par Germain
Garnier. Paris, 1802. Vol. i. Preface, pages 77, 78.
144
ON THE VARIOUS SYSTEMS
remaining in this respect; and the translator of Adam
Smith, whose opinion I am investigating, has himself
fixed the proportions, when he said, that one day's
labour in the manufacturing country is equivalent to
two or three days' labour in the agricultural country.
If, in the exchange of the produce of their mutual
labour, the productions of the agricultural country
are to those of the manufacturing country as one to
three; it is obvious that, while the wealth and popu-
lation of the agricultural country are increased in the
proportion of one to three, the wealth and population
of the manufacturing country augment in the propor-
tion of three to one.
But might it not be said at least, that the raw
produce of the agricultural country is better calculated
to increase population, than a manufactured produce?
By no means for the raw produce does not remain
with agricultural nations, but passes over to the
manufacturing nations. This raw produce is food for
the population; whilst the manufactured produce
serves at the utmost as raiment and household furni-
niture to the agricultural nations. In this exchange
of food and garments, the population which gets food
in a proportion triple of that which gets clothing,
must necessarily increase in a triple proportion, because
it is food and not clothing which augments population.
This result ought to teach agricultural nations the
necessity of turning their attention to manufactures
and commerce, if they do not wish their labours to
augment the wealth and power of manufacturing and
trading nations; it ought to convince them of the supe-
riority of commerce and manufactures over agriculture.
OF POLITICAL ECONOMY.
145
The means of increasing the power of labour, of
improving its faculties, augmenting its produce, and
ameliorating its quality, consists, therefore, with regard
to agriculture, in large farms, and with regard to
manufactures and commerce, in the division of labour
and the use of machinery. These means, single or
combined, must give to labour the highest degree of
utility which it is capable of attaining, particularly if
their effect be not impeded or destroyed by various
obstacles, so much the more fatal, as opinions are
yet divided concerning their influence.
These obstacles, pointed out by some as prejudicial
to the progress of labour, and considered by others as
beneficial, are, the slavery of the labourer, apprentice-
ships, corporations, and low wages.
Let us inquire into this part of the science to obtain
correct notions on these subjects.
146
ON THE VARIOUS SYSTEMS
CHAP. V.
Of the Obstacles which impede the progress of Labour.
OF SLAVERY.
THE advantages of liberty over slavery with regard to
labour are no longer a problem in political economy.
They have been demonstrated in the most convincing
and satisfactory, manner by the most esteemed writers.
And could they do otherwise than promulgate an
opinion so honourable, so consoling to humanity, and
so fully established by the political and economical
history of modern times? The liberation of the
people of Europe from slavery has been followed by
the clearing and cultivating of lands, by the trans-
formation of huts into cottages, of hamlets into
villages, of boroughs into towns, and of towns into
cities; by the establishment of manufactures and com-
merce, by public order and national power. The
nations which first made a brilliant figure on the poli-
tical stage, are precisely those that first substituted
the labour of the free man for the labour of the slave;
and it is only by following their example that others
have been enabled to rise to the same prosperity: in
short, the æra of the political and economical regene-
ration of modern Europe is the æra of the abolition of
real and personal slavery.
How could these striking facts escape the attention
of a modern writer, who, in his Treatise of Political
Economy, has professed liberal and philosophical
OF POLITICAL ECONOMY.
147
sentiments, and has shewn himself on a level with the
knowledge of an enlightened age?
How, after having asked, "what is the effect of
"slavery upon production ?" has he not been afraid of
making this declaration: "I have no doubts that the la-
"bour of the slave yields a greater surplus of production
"over consumption than the labour of the free man?"
On what does he rest a doctrine combated by the
experience of three centuries and the constantly
increasing prosperity of Europe?
“The labour of a slave," says he, "has no limits
"but the power of his faculties. His master, or
" his overseer, takes care that he performs as much
"work as he is able without declining sensibly. The
"labour of a free man is likewise limited by his facul-
"ties, but also by his will. In vain it is urged, that
"his will is always to work as much as possible in
"order to gain as much as possible. It is too well
"known that this is not the case, and that the love of
gain is frequently inferior to that of idleness and
dissipation. The free man has in general but few
"wants for the moment, and little foresight respect-
ing futurity; he does not think it necessary to
"labour beyond what this foresight and these wants
"require. The slave works to gratify the avarice of
"his master, which is unbounded; and the indolence
"and love of pleasure of the master do but aggravate
"the toils of the slave." *
66
(6
(6
* Traité d' Economie Politique, par Jean Baptiste de Say.
Paris, 1803. Vol. i. p. 216.
L 2
148
ON THE VARIOUS SYSTEMS
This theory appears far from being proved to demon-
stration. Whatever influence may be attributed to
the whip of the taskmaster upon the determinations
of the slave, it cannot be superior to the impulse
which the attractions of pleasure, vanity and ambition
give to the free labourer. Fear prevents the slave from
acting and doing such things as he is forbidden to do;
but nature has implanted in the heart of man other
motives to impel him to action and keep him in con-
stant activity. The strength of the labourer, far from
being increased, is diminished by fear; his energy is
impaired, his activity paralysed: fear is rather the
parent of idleness, negligence, and stupidity, than
of application, exertion, and intelligence. It is there-
fore as serious a mistake in political economy to prefer
the labour of the slave to that of the free man, as it
is a fundamental error in morals to suppose that man
is more readily determined by fear than by interest,
and that the anxiety to avoid pain is more powerful
than the attraction of pleasure. Man exists and pre-
serves himself merely by braving the pain with which
nature has environed pleasure. Civil associations are
formed and maintained, because the sacrifices which
they command are advantageous when compared to
the benefits which they hold out. Pain every where
precedes pleasure; and every where man braves pain,
to arrive at pleasure.
The same French author observes, that "while
"the labour of the slave is more productive than that
"of the free labourer, his expences are less. The
"maintenance of a slave is as cheap as his toils are
OF POLITICAL ECONOMY.
149
"excessive. His master little cares whether he enjoys
"life, provided he barely keeps alive.”*
I shall not start any doubts against this observation:
perhaps it is, unfortunately, too true. But how did
it escape the author, that this very observation
destroys the doctrine which he is endeavouring to
establish?
It is impossible that the free labourer should expend
more and produce less than the slave. Greater
expences suppose a larger produce; for at no time,
and in no country, can any thing be obtained for
nothing. Every expence supposes an equivalent
produced to meet that expence. If the free labourer
expends more than the slave, the produce of his labour
must be more considerable than that of the labour of
the slave.
I know it may be objected, with some truth, that
the savings of the master in the expences of his slaves
serve to enlarge his personal expences, and to procure
him greater enjoyments.
But it is more conducive to general wealth, that all
orders of the community be in easy circumstances,
than that a few individuals should enjoy excessive
affluence. The diffusion of wealth favours consump-
tion, accelerates the circulation of productions, and
causes all kinds of manufactures and trade to prosper.
The concentration of wealth maintains but few kinds
of industry and trades, and plunges the remainder of
**Economie Politique, par J. B. de Say. Vol. i. p. 216.
150
ON THE VARIOUS SYSTEMS
the people into indigence and despair. The small-
ness of the expences of a slave, which serves only to
increase the expences of his master, can no more be
considered as advantageous to the progress of public
and private wealth, than it can be supposed that the
slave labours more than the free labourer. The sen-
sation of fear cannot rise superior to the feeling of
comfort and well being, and the yoke imposed by
constraint cannot be lighter than that of personal
interest.
Let us however beware of inferring from these
general principles, that at all times, in all places, and
under all circumstances, the labour of the free man
ought to be substituted for that of the slave, and that
these principles are equally proper and applicable to
the colonial system.
Although the nature of man, whether black, cop-
per-coloured, or white, be every where the same;
although passions have the same sway over men of all
colours; although all obey alike the influence of moral
and physical causes; it yet cannot be denied, that the
habit of slavery or liberty must necessarily modify
them in such a manner, that the free man and the
slave must seem to have nothing in common but the
outward forms of humanity. Fear may possibly
Fear
* Quanto piu denaro è sparso generalmente per le mani del
"popolo, tanto piu crescono le voglie e i bisogni del popolo, per-
"chè si desidera il comodo a misura che v'è probabilita di pro-
66 curer selo; quanto piu crescono i bisogni nel popolo, tanto
"piu comprese consumazioni egli fa."-Ecou. Polit. del Conde
Verri, § 17.
OF POLITICAL ECONOMY.
151
operate more forcibly on the slave, than either private
interest or the love of pleasure on the free man; ser-
vitude may more powerfully oppose the impulse of
the original and natural faculties of man, than liberty
contributes to their improvement. The influence of
education is such, that it may impair the elas-
ticity of the spring of human actions and bend
it contrary to its original destination; it may even
pervert the ideas, inclinations, and dispositions
of man to such a degree, that it may cause the slave
to love what the free man detests, or the free man to
hate what the slave adores. Both ancient and modern
history afford many instances of this perversion.
Where is the modern people that would not look
upon the life of the Spartans as the last degree of
human wretchedness? And what Arab, accustomed
to the wandering and roaming life of his cattle, would
not fancy himself condemned to the most excruciating
pains, if he were obliged to submit to the laborious
and sedentary life of our industrious artisans?
Whenever, therefore, education has moulded man
to a certain mode of existence, it is the height of
imprudence suddenly to impose upon the free man
the ideas, sentiments, and inclinations of the slave,
and upon the slave the notions, feelings, and propen-
sities of the free man. Cast the free man into slavery,
and, to stimulate him to labour, threaten him with
the whip, or hold out the allurements of his private
interest, and you will see which of the two means
will have most power over him. But set the slave
free, and it is more than probable that when he is no
longer impelled by fear, he will be little excited to
1
152
ON THE VARIOUS SYSTEMS
labour by the sentiment of his private interest; the
repose which he wished for, will be to him the supreme
good, and the need of labouring for his subsistence
will perhaps not easily interrupt the enjoyment of
this repose. It is therefore impossible to apply to one
the maxims and principles which suit the other, or to
derive from two particular instances a general rule
applicable to all cases.
Enlightened governors, who know and respect the
original views of nature in the formation of man, who
know to what degree they have been altered or modi-
fied by education, and wish to insure to him the
enjoyment of the goods of which he is deprived, ought
to regard less what man was according to the inten-
tions of nature, than what he is in the condition in
which he has been placed by education; they ought
to proportion the happiness designed for him to his
actual faculties, and undo by degrees what had been
effected gradually by education.
In this respect it is evident, that the question of the
influence of liberty or slavery on labour, which in the
system of modern Europe offers no difficulty, may be
attended with very great difficulties in the colonial
system; and although it appears demonstrated, that
the labour of the free man is more advantageous than
that of the slave, it is perhaps equally true, that, in
the present colonial system, the labour of the slave
is more advantageous than that of the free man.
The most general rule in political economy is never
absolute, nor constantly good at all times, in all
places, and under all circumstances; both its truth
and its utility depend on the knowledge and pru-
OF POLITICAL ECONOMY.
153
dence of the governors by whom it is applied; and
they are so much the more entitled to praise and
gratitude, as they come nearer truth without doing
too great a violence to the opinions, propensities, and
habits of the people over whom they rule.
But the philosophical inquirer, who seeks in the
natural relations of men and things for the laws which
they are to obey, pays no regard either to the modi-
fications which they have undergone, to the circum-
stances by which these modifications have been com-
manded, or to the considerations which recommend
their temporary retention; he looks to nothing but the
object and intention of nature. His task is to indicate
this object, and extends no further; and the service
which he renders to mankind is merely to prevent their
losing their way on the dark road of their private inte-
rests, and to keep them as close as possible to the tract
of reason and justice.
154
ON THE VARIOUS SYSTEMB
CHAP. VI.
Of Apprenticeships and Corporations.
THE question of the liberty of labour naturally pre-
sents itself next to the question of the liberty of the
labourer; a question which has been uniformly resolved
by all writers, and differently treated by most govern-
ments. What are we to think of this clashing of
opinions and practice? On which side is reason, and
truth?
Were I to collect the arguments brought forward
by the writers of all sects and countries against the
injury done to the liberty of labour by apprenticeships
and corporations, I should compose a huge volume
which no doubt would not carry more conviction with
it than the numerous chapters of the different works
which I should have perused to compile it: but the
triumph of the science is not so much my object, as
the wish to fix its doctrine; my purpose will be
accomplished by a rapid sketch of the inconveniencies
and advantages attendant on those institutions, and
by leaving to time the care of causing either the
theory of speculative men or the practice of govern-
ments to prevail.
Apprenticeships and corporations are considered by
all English, French, and Italian writers, as an infraction
of the natural right of man to make use of his powers
and dexterity for the purpose of providing for his sub-
•
OF POLITICAL ECONOMY.
155
sistence, (a right of which civil society neither can nor
ought to deprive him,) and as an obstacle to the deve-
lopement of his individual faculties, to the progress
of labour, and to the improvement of industry.
They are of opinion, that the greater the liberty of
labour, the greater the facility of every labourer
to chuse the labour for which he thinks himself fit,
the stronger is his disposition to work, and the greater
the perfection he gives to the produce of his labour,
When, on the contrary, every labourer is restrained in
the choice of his labour by the laws of apprenticeships
and corporations, the country, instead of good labour-
ers, has but indifferent or bad ones; and instead of
an active and improved industry, but few and coarse
productions, of little benefit to the labourer and to the
state; manufactures, arts, and commerce, centre in a
small number of privileged beings; emulation vanishes,
competition ceases, talent is degraded, and mediocrity
reigns triumphant.
Finally, the incorporation of labourers gives them a
monopoly of their work, raises its price, diminishes its
home and foreign consumption, impedes reproduction,
and paralyses the progress of general wealth.
And what is a counterpoise to so many disastrous
inconveniencies?
These institutions are supposed to favour the levy
of the contributions assessed upon industry, to insure
the perfection of its produce, to warrant to the foreign
consumer the goodness of the national manufactures,
to facilitate the superintendance of the police over
this numerous portion of the people, whose tran-
156
ON THE VARIOUS SYSTEMS
quillity is of the most material importance to public
safety.
These advantages must have appeared extremely
valuable at a time when industry had made but little
progress, when civilization was not much advanced,
and public wealth inconsiderable.
But at present these considerations have lost all
their force, and if they still deceive sound under-
standings, it is less by their effective importance than
by the irresistible power of habit.
At a time when sovereigns could not easily obtain
from their subjects the contributions which the public
wants required, and when credit could not supply the
insufficiency of general contributions, corporations
may have afforded safe and easy means to borrow
and to draw indirect supplies from the people: but
at present, these resources are so feeble, so dispropor-
tioned to the public wants, and yet so expensive, that
the most limited and least enlightened monarch would
debase his authority and his dignity, discredit his
government, and enervate his power, if he allowed
himself to resort to such pitiful measures.
On the other hand, if in the infancy of industry and
arts it might have suited a manufacturing town, or
even a manufacturing country, to keep their methods
secret in order to retain the exclusive enjoyment of
their advantages, and to insure to their produce a
permanent superiority; this has long since ceased to
be of any avail. Drawing has made such extensive
progress, its practice is so general, that it is no longer
possible to keep the most complicated methods secret:
OF POLITICAL ECONOMY.
157
industry is no longer a mystery or craft for any one;
the cleverest manufacturer could not deceive the least
informed merchant, or the least experienced broker.
Lastly, if it be true that, in some respects, corpo-
rations are useful means of police and superintendance
over the numerous labouring classes, there are few
governments which, since the institution of standing
armies, are not above such assistance.
And, besides, is it not obvious that if the masters,
in obedience to the police, are able to restrain their
labourers within their duty, they may also excite
them to insurrection and sedition, when it suits their
interest or coincides with their opinions? Masters
have frequently opposed an efficacious resistance to
the views of the best intentioned and most enlightened
governments. How many seditions have owed their
origin to the seduction and corruption of the mas-
ters! Governments acquainted with their own strength
and power, ought no longer to depend on the various
and fluctuating interests of the labouring classes; the
general interest of the nation, which is constant and
immutable, affords them a more solid and efficient
support.
Thus political reasons and the interest of wealth
justify alike the doctrine of speculative men upon
apprenticeships and corporations, and ought to make
it triumph over antiquated usages and old habits.
158
ON THE VARIOUS SYSTEMS
A
CHAP. VII.
Of the Wages of Labour.
PRIOR to the days of Adam Smith, our notions on
the subject of wages of labour were vague, confused,
and incapable of leading to a reasonable and decided
opinion.
The maxim of the French economists was, that the
wages of labour are proportioned to the price of pro-
visions, and that the cheapness of provisions is not
favourable to the labouring class, because it lowers
their wages, diminishes their comforts, and reduces
the mass of labour.*
7
David Hume maintained that, men being particu-
larly prone to indolence and repose, necessity alone
can induce them to labour; that they cease to labour,
whenever the gain of a few days enables them to sup-
ply themselves with necessaries, and only resume
their labour after they have dissipated what they had
amassed.
From this observation, which is confirmed by expe-
rience, the Scotch philosopher inferred, that the
lowness of the wages of labour is advantageous.
In short, almost all writers on subjects connected
with political economy thought, that bringing the
Physiocratic, Max, 19.
:
OF POLITICAL ECONOMY.
159
wages of labour down to the lowest rate was the true
way of reducing the price of commodities, and in-
suring their sale abroad and at home.
Adam Smith has triumphantly refuted these doc-
trines, really distressing to humanity. He maintains,
that the high price of the wages of labour is equally
profitable to the state, and to general wealth.
He first shews that the cheapness or dearness of
provisions has but little influence on the rate of the
wages of labour, and that this rate is chiefly fixed by
the demand for labour. If this be progressive, wages
rise; if stationary, they decline; if retrograde, they
leave but a very small pittance to the labourers.
These general rules are modified by several parti-
cular circumstances, such as the pleasantness or un-
pleasantness of the labour, the facility or difficulty of
learning it, its being continual or interrupted, its
requiring a greater or smaller degree of trust in the
labourer, the greater or smaller probability of its
success, the greater or smaller competition occasioned
by apprenticeships, corporations, duties, and more or
less facility in circulating the productions of labour.
Finally, he shews that the amelioration of the con-
dition of the lower classes of the people is beneficial
to population, which, in civilized society, is limited
only by the scarcity of provisions among the lower
orders; that it accelerates the progress of industry,
tends to produce more work within less time and with
less trouble; and that this increased produce compen-
sates, and even exceeds the increase of wages.
This doctrine of Adam Smith concerning the
wages of labour, leaves no doubt or uncertainty in
160
ON THE VARIOUS SYSTEMS
this part of the science, and must henceforth be con-
sidered as classical.
Wages of labour are no longer to be considered
as arbitrary and depending on the high or low price
of provisions. The price of labour has its laws, its
principles, and its limits in the demand for labour ;
and this demand is constantly in proportion to the
progressive, stationary, or retrograde state of national
wealth.
A rise in the wages of labour, when it is the mere
result of these general causes, ought not to occasion
any uncasiness. It does not even raise the price of
the productions of labour, because, being better paid,
the labourer works more, and his productions are
both in greater quantity and of better quality.
Thus the price of labour is, after all, independent
of human passions and combinations; and it is ex-
tremely remarkable, that the principles by which it is
regulated are all favourable to the interests of indivi-
duals, to the prosperity of nations, and to the progress
of national wealth.
เ
OF POLITICAL ECONOMY,
161
CHAP. VIII.
Conclusion of the Second Book.
ON recapitulating the results of our inquiry into the
nature and effects of labour, and into the causes
which accelerate or impede its progress, we derive a
lively satisfaction from the consideration that those
doctrines by which labour is rendered barren, insu-
lated, and subjected to restrictive laws, and by which
its liberty is obstructed and its wages are reduced and
limited, oppose an insurmountable obstacle to the
formation and progress of wealth, to the developement
of social energy, and to the political power of nations;
whilst the theory which is favourable to the efforts of
the labourer, which improves labour by sub-dividing
it, allows complete liberty to the labourer, and liberally
rewards his toils, gives to wealth an unlimited impulse,
and is productive of great national benefits. These
happy results ought to encourage philosophical in-
quirers in their meditations, enlighten legislators in
their labours, and guide practical statesmen in the
choice of their measures.
M
162
ON THE VARIOUS SYSTEMS
BOOK III.
OF THE VARIOUS SYSTEMS ON CAPITAL.
THE
CHAP. I.
Wherein do Capitals consist?
HE theory of capitals is new, and entirely of Adam
Smith's creation. The notions afloat on this subject
prior to his time, were confused, partial, and limited.
The nature, formation, employment, and general and
particular influence of capitals, were so many problems,
or gave rise to numberless errors and misconceptions.
The first writers on political economy made capitals
consist in metallic currency, and derived them from
foreign commerce; which caused their system to be
denominated the mercantile system.
The French economists who attacked this system,
and substituted the agricultural system, acknowledged
no capitals but the advances on cultivation.
Adam Smith took a more extensive view of capitals.
He stated them to consist in the advances and prime
materials of all labours, in the improvements of the
soil, in the implements and machines of agriculture,
manufactures, and trade, which comprise both metallic
OF POLITICAL ECONOMY.
163
and paper currencies, and in commodities reserved for
general consumption.*
This enumeration of capitals is not absolutely above
criticism. It certainly is a matter of surprise, that
commodities reserved for consumption and incapable of
being accumulated, should be ranked among capitals,
which, according to Adam Smith himself, are the
produce of accumulation; but as this criticism is of no
utility to the science, I shall not dwell upon it.
Some modern French writers appear disposed to
assign the rank of capitals to lands, mines, and
fisheries, which they regard as instruments of produc-
tion, and little different from any other machine or
implement destined to produce commodities.
Lastly, a Noble English Author limits capitals to
the instruments and machines proper to shorten and
facilitate labour.t
I think I shall give a correct and comprehensive
definition of capital, by stating it to consist in the
accumulation of the produce of labour.
According to this definition, lands, mines, and
fisheries, in their original state, would not be com-
prised among capitals; but, stripped of the improve-
ments, instruments, and machines, which render them
productive, they scarcely deserve to hold a place in the
capital stock of any nation. Their spontaneous pro-
duce is but the smallest part of the general produce of
* Adam Smith's Wealth of Nations, vol. i. book ii. chap. 1.
and following.
+ De Say and Canard.
The Earl of Lauderdale.
M 2
164
ON THE VARIOUS SYSTEMS
labour, and cannot constitute any separate article in
the wealth of nations. If we deduct from agricultural
produce, the part which is due to cultivation; from
the produce of fisheries, that which is due to the
implements and tools for fishing, and particularly to
the art of salting, drying, and curing fish; and from
the produce of mines, that which is due to the aid of
machines and extraordinary labours; there remains so
little, that there is no danger of erring in ranking them
among the produce of labour, and admitting them only
as such among capitals.
Capital, then, consists in the accumulation of the
produce of labour.
In theory, capitals offer three different considera-
tions, equally interesting to the science, to its pro-
gress, and to its results, viz. their formation, their
employment, and their influence upon public and pri-
vate wealth. Each of these considerations has given
birth to various opinions, which it is important to
analyse and investigate.
OF POLITICAL ECONOMY.
165
CHAP. II.
How are Capitals formed?
DR. Quesnay derives capitals from "economy in
"the costs of agricultural labour, from the savings
"in the expences of the land-owners, as far as those.
"savings are applied to improve the soil, and from
"the increased price of commodities through foreign
"trade."
But these means being analysed and reduced to
their just value, contribute simply to form capitals by
economy in consumption.
The saving in the costs of agricultural labour is no-
wise different from economy in consumption. The
expences of agricultural labour, like those of all other
labours, consist in consumption. Consequently, the
saving of agricultural expences is an actual economy
in consumption, an economy no-wise distinct from
that of the expences of the land-owners, which Dr.
Quesnay considers as forming capitals, when they are
applied to improve the soil.*
The increased price of agricultural produce through
*The greatest part of the expences of land-owners are, at
least, unproductive expences. Those only can be excepted which
they incur to maintain and improve their estates, and to augment
the cultivation of their lands. Physiocratie, Seconde Observa.
tion sur le Tableau Economique.
166
ON THE VARIOUS SYSTEMS
foreign commerce appears, at first sight, different from
the two other means of forming capitals. But when
analysed with care, it is evident that it can contribute
to the formation of capital, only as far as it tends to
increase the means of economy in the consumption
of the land-owners.
According to Dr. Quesnay's system, the increased
price of commodities, through foreign commerce, gives
no advantage to the national over the foreign produce.
He literally states that, "in the foreign trade, there
"is but an exchange of value for equal value, without
any profit or loss on either side."*
66
:
Thus foreign commerce gives neither more nor less
commodities than what the exchanged home produce
contained it only gives different commodities: but
as it is only after its price has been fixed in money,
that the national and foreign produce is interchanged,
it follows that the increased price of the national pro-
duce, through foreign commerce, only bestows upon it
a greater value in money; that is to say, that a quarter
of wheat, which without foreign commerce would
have been worth only eighteen shillings, is worth
twenty-four through the foreign commerce.
But by whom is this increase of six shillings per
quarter paid? Not by the foreigner, since there is
no other exchange with him than of value against
equal value, without any profit or loss on either side;
it is paid by the national consumer, and consequently
the increase of price, through foreign commerce, has
no other effect than to diminish the share of the
+ Physiocratie, Obs. 4 et 5, sur le Tableau Economique.
OF POLITICAL ECONOMY.
167
labouring, or paid classes, in the national produce,
and to augment that of the land-owners or paymas-
ters; an augmentation advantageous to the formation
of capital only as far as the land-owners apply it
to improve the soil.
The increased price of agricultural produce through
foreign commerce, like economy in the costs of labour,
is therefore not distinct from economy in the expences
of the land-owners; and, consequently, it may be
affirmed that, in Dr. Quesnay's system, nothing con-
tributes to the formation of capital but the savings of
the land-owners, when they are devoted to agricultural
improvements.
That this is the Doctor's opinion, cannot be doubted,
since he positively denies to the savings of the paid
or mercenary classes the faculty of increasing the
capital stock; and the reason which he gives for it, is,
that these classes cannot have any means of saving;
and that, if they should happen to have any surplus,
it could only proceed from an error or disorder in
civil society.*
Thus, according to the system of the French eco-
nomists, nothing contributes to the formation of
capitals but the savings of the net produce, when
employed in agricultural improvements.
Adam Smith derives capitals from the greater or
smaller quantity of productive labour relatively to un-
If the unproductive class save to increase their money—their
labours and profits will be diminished in the same proportion, and
their decline, certain. Physiocratic, page 321.
168
ON THE VARIOUS SYSTEMS
productive labour, from the proportion of the productive
to the non-productive consumers, and from economy
in private consumption."
Let us investigate these different sources of capital,
and we shall again see that they simply consist in
economy in private consumption.
The proportion of productive to unproductive labour
contributes, in Adam Smith's opinion, to the forma-
tion of capitals when it is in favour of the productive
classes, when it leaves in their hands a disposable
produce to be economized and used in extending and
improving their labour. This proportion then affords
nothing but a power of saving, and cannot be viewed
in any other light.
The same may be affirmed of the proportion
between the productive consumers and those whom
Adam Smith denominates un-productive consumers.
If this proportion be in favour of the productive con-
sumers, if the latter exceed the number necessary for
the maintenance of the non-productive consumers,
they have a greater stock of disposable produce left,
which they may economize and employ in more or
less productive labours.
Thus the two first means, which, in Adam Smith's
opinion, contribute to the formation of capitals, con-
tribute to it merely by economy in consumption, and
are necessarily the same with it,
We are not afraid of mistaking his opinion in this
respect, since he positively states, that "capitals are
* Adam Smith's Wealth of Nations, vol. ii. book ii. chap. 3,
OF POLITICAL ECONOMY.
169
(
increased by parsimony, and diminished by prodi-
gality and misconduct.*"
It is deserving of remark, that Dr. Quesnay and
Adam Smith, the one faithful to his agricultural sys-
tem and the other to his system of productive labour,
regard none but the savings applied to agricultural or
productive labours as proper to form capitals. This
circumstance revives, concerning the formation of capi-
tals, the question which I have already discussed on
the nature and effects of labour, and obliges me to
examine the same question once more with particular
regard to the formation of capitals. This new inquiry,
by throwing a fresh light on the two systems, will tend
to improve the science, elucidate its tenets, and fix its
principles.
In whatever way economy may be effected, it
leaves at liberty a sum of produce which is consumed
by the idle, or by the labouring classes.
If by the latter, it serves to pay for more labour.
The farmer, the manufacturer, and all undertakers of
useful works, pay their labourers higher wages on con-
dition that they shall either perform more labour, or
perform it better; increased or improved labour gives
more or better productions, and consequently more
wealth.
Higher wages, at the same time, procure more
comforts to the labouring class; and more comforts
become the immediate and infallible cause of a greater
population in that class.
* Adam Smith's Wealth of Nations. London: 1805. vol. ii.
book ii. chap. 3. page 13.
170
ON THE VARIOUS SYSTEMS
Thus the savings consumed by the labouring classes
evidently increase both wealth and population.
When the savings are consumed by the idle classes,
they serve to employ a greater number of individuals
in labours of luxury. Suppose the annual savings
amount to one hundred quarters of wheat, and that
the idle classes employ them in taking twenty indi-
viduals more in their service, what will be the conse-
quence of the consumption of these savings?
These twenty individuals quit useful labour, to
pass over to labours of luxury. The classes which
they have quitted, repair their absence by more labour,
and obtain higher wages. This increase of wages in
a short time produces the same number of individuals
of which these classes were composed; and the twenty
individuals who left them, occasion an actual increase
of population.
Being become necessary to the opulent class, these
twenty individuals consume the one hundred quarters
of wheat economized annually, and re-produce by
their labour the capital with which they are fed. It
matters little whether the savings be made by the
idle classes, or whether they be borrowed by the latter
from the labouring class. In the first case, the
savings serve only to augment the population; in the
second, the savings of the labouring class are exchanged
for the capitals of the idle classes: and it ought to
be particularly remembered, that this exchange of
the savings of the labouring class for the capitals of
the idle classes is no-wise injurious to the national
capital; it simply effects a change of capitalists per-
OF POLITICAL ECONOMY.
171
fectly indifferent to the formation of capitals and
wealth, and no-wise prejudicial to population.
It is, therefore, evident, that Dr. Quesnay and even
Adam Smith were both mistaken, when they sup-
posed that savings cannot contribute to the forma-
tion of capitals, except they are, in the opinion of the
former, applied to agricultural, and according to the
latter, to productive labour.
They still contribute to the formation of capital,
though they be employed in labours of luxury.
This kind of labour, the least beneficial to wealth,
constantly and infallibly replaces the savings by which
it is paid, and consequently produces the population
which is maintained by these savings.
Capitals, then, are always derived from economy,
and can neither be formed nor increased otherwise
than by economy.
This system has been strenuously opposed by the
Earl of Lauderdale; and as the noble Lord is the only
author who has raised a controversy on this subject,
I hope I shall be pardoned for having rather ex-
tracted than analysed that part of his work in which
he has endeavoured to subvert the doctrine established
on this important point of political economy.
(6
"As animals," says the noble Earl," are only
multiplied by the means by which they are pro-
"duced; as vegetable substances also can only be
"increased by the means by which they are produced;
<<
as a greater quantity of metals and other productions
"from the bowels of the earth, can only be acquired
"by an increase of that labour which procures them ;
" and as a greater quantity of raw materials can only
172
ON THE VARIOUS SYSTEMS
"acquire the form that adapts them for consump-
(C
tion, by a more frequent repetition or skilful
"exertion of the labour that gives them form; so
wealth, it might be reasonably inferred, could only
"be increased through the means by which it is
produced.
<<
66
"to
"But popular prejudice, which has ever regarded
"the sum total of individual riches to be synonymous
"with public wealth, and which has conceived
every means of increasing the riches of individuals
to be a means of increasing public wealth, has
pointed out parsimony or accumulation by a man's
depriving himself of the objects of desire to which
"his fortune entitles him, (the usual means of in-
"creasing private fortune,) as the most active means
"of increasing public wealth.
66
66
"When we reflect, that this abstinence from
"expenditure, and consequent accumulation, neither
"tends to increase the produce of land, to augment
"the exertions of labour, nor to perform a portion of
"labour that must otherwise be executed by the hand
"of man, it seems that we might be warranted at
66
once to pronounce that accumulation may be a
"method of transferring wealth from A, B, and C, to
"D; but that it cannot be a method of increasing
public wealth, because wealth can only be increased
by the same means by which it is produced.
56
<<
"But when the public prejudice is confirmed by
"men most admired for talents; when we are told by
"the most esteemed authority, that every prodigal
"is a public enemy, and every frugal man a public
"benefactor; that parsimony, and not industry, in-
OF POLITICAL ECONOMY.
173
<<
65
€6
"6
66
creases capital (meaning wealth); and that, as fru-
gality increases, and prodigality diminishes, the
public capital; so the conduct of "those whose
expence just equals their revenue, neither increases
nor diminishes it; it becomes necessary to enter
"into a more minute examination of this opinion,
"and the more so, as it has given birth to an erro-
"neous system of legislation which, if persisted in,
"must infallibly ruin the country that adopts or per-
(C severes in it.
66
"If capital, in all its varieties, is neither more
"nor less than a part of the produce of the earth, or
a part of the earth itself, to which either nature or
"art has given a form that adapts it for supplanting
"or performing a portion of labour; let us consider
"whether there are not bounds to the quantity of
"its revenue, which a country can, consistently with
"its welfare, bestow in this sort of expenditure, that
"is appropriate to the execution of this duty.
"For the sake of perspicuity, we shall begin by
"considering the effects of accumulation in a simple
"state of society, where capital has not yet assumed
"all that variety of form, which man, in the progress
"of society, gives it, for the purpose of performing
"labour; though the same observations will after-
"wards be found applicable to societies such as
"modern Europe presents to our view, where capital
"floats in all the variety of channels to which ex-
"tended commerce destines it, and where even the
"natural channels, in which all property would
66
fluctuate, are deranged by overgrown financial
arrangements.
174
ON THE VARIOUS SYSTEMS
"When society exists in that state where man is
"chiefly occupied in agriculture, his property can
66
only consist in the land he possesses, in the grain.
"he produces annually, in the breeding stock
"whose produce is reared for consumption, and,
lastly, in the animals and utensils he employs to
"enable him to produce and consume his wealth with
"less labour; that is, in a more satisfactory and com-
"fortable manner to himself. In such a state, there-
fore, his property divides itself into three different
"branches.
(C
66
r 1. The land he cultivates.
2. The stock he reserves for immediate and remote
S
consumption.
"3. His capital, consisting of the animals or
"machines he employs to save labour in the cultiva-
"tion of his farm, or in the convenient consumption
"of its produce.
"That this last part of his wealth is highly bene-
"ficial to himself, as well as to the society in which
"he lives, is undoubted; it saves a portion of labour
"which must otherwise be executed by the hand of
man, and may even execute a portion of labour
66
beyond the reach of the personal exertions of man
"to accomplish. If, therefore, he is not possessed of
"a sufficiency of those animals, instruments, and
"machines, which form his capital, it will most
"clearly be commendable and in the highest degree
"advantageous to society, that he should augment
"the exertions of his industry, for the purpose of
"procuring them; and if he cannot otherwise effect
"this augmentation, it may even be prudent and
OF POLITICAL ECONOMY.
175
"beneficial that he should abridge a portion of his
❝ immediate consumption for the sake of increasing
"his capital; that is, that he should allot a part of
"the live-stock and grain he otherwise would imme-
diately consume and enjoy, to purchase what would
"enable him, at a future period, to produce and
consume more with greater ease and satisfaction to
" himself.
"s
CC
"If, however, on the other hand, he is already in
"possession of as much capital, as, in the existing
"state of his knowledge, he can use for the purpose
"of saving labour in cultivating the quantity of land
"he possesses, it can neither be advantageous for
"himself nor for the public, that he should abridge
his consumption of food, clothing, and the other
objects of his desire, for the purpose of accumu-
lating a much greater quantity of capital than can
66
(6
(C
by possibility be employed in abridging labour.
"The extension of his lands or the invention of new
"means of supplanting labour would justify a desire
for increasing his capital: but, otherwise, accumu-
"lation by deprivation of expenditure must be detri-
"mental to himself as well as to the public.
65
"To the farmer it must be disadvantageous, because
"he deprives himself and his family of what they
naturally desire, and would otherwise enjoy, for
"the purpose of acquiring either a larger quantity of
"labouring cattle than he could usefully employ, or
"of accumulating a hoard of spades, ploughs, and
"other utensils of husbandry, infinitely greater than
"he could use.
"To the public it is still more disadvantageous.
176
ON THE VARIOUS SYSTEMS
"because it diverts the channel of its industry from
$6
(6
(C
a path in which it must be useful, to a path in
which, unless there is either an acquisition of ter-
ritory, or a discovery of new means of supplanting
or performing labour by capital, it is useless to
"mankind.
(6
"But further, to display the full extent of the evil
"that must arise from indulging this baneful passion
"for accumulation, that has been falsely denominated
a virtue, it is necessary here to explain the sin-
"gular effect which the demand it creates must have
on individual riches.
(C
66
66
"It has already been made evident, that a sudden
"demand for any consumable commodity, by increa-
sing its value, encourages an augmented produc-
tion, and tends therefore to increase wealth, though
"its effect is always counteracted by the more
"important diminution of the value of other commo-
<c
<<
dities, (from which the sudden rise of the value of
any one commodity abstracts a portion of demand;)
"because the check given to production, by the
"abstraction of demand, has a more powerful effect
"in diminishing wealth, than the encouragement
arising from an extention of demand has in aug-
menting it.
46
1
"Thus a diminution of value must be produced
"not only in the articles for which parsimony
"occasions an abstraction of demand, but even in the
"article for which it creates a demand; and public
"wealth must severely feel the effects of the dis-
couragement by this means given to the production
"of both.
66
K
OF POLITICAL ECONOMY.
177
[
"The public must therefore suffer by this love of
"accumulation if pushed beyonds its due bounds;
"first, by the creation of a quantity of capital more
"than is requisite; and, secondly, by abstracting a
portion of encouragement to future reproduction."*
Is this criticism of the doctrine of the best writers
on the formation of capital sufficiently luminous and
well founded? Are not the noble Earl's notions of
wealth, capital, and economy, incorrect? and is not
the doctrine which he wishes to preach the offspring
of his misconceptions on these subjects?
.
If, as cannot reasonably be disputed, and as has
been, I hope, sufficiently shewn, wealth results from
the accumulation of the surplus of the produce of
labour over consumption; it is evident that wealth
may be increased by other means than those by which
it has actually been produced.
Suppose, for instance, that a nation accumulates
every year ten millions of produce, it is perfectly
indifferent whether these ten millions are derived from
the usual produce or from the savings in the consump-
tion of that produce: in both cases, there are ten
millions of commodities accumulated and kept in
store for unforeseen accidents, for the improvement
of the soil, for the extension of labour and increase
of population; consequently public and private wealth
is ten millions larger than it was before.
But will not these ten millions saved be detrimental
to reproduction? Whenever consumption can do
* The Earl of Lauderdale's Inquiry into the Nature and Origin
of Public Wealth. Edinb. 1804. c. iv. p. 207, and following.
N
章
​178
ON THE VARIOUS SYSTEMS
5
with ten millions less of annual produce, will not
production be annually ten millions less? And does
not the nation in that case lose in production what it
has gained by economy in consumption?
Were this argument founded, it would as well apply
to an increased annual produce of ten millions as to a
saving of ten millions. There would be in both cases
a surplus of ten millions, which, as it exceeds the
real wants of consumption, would diminish repro-
duction by as much.
Yet no person ever thought of regarding an aug-
mentation of produce as a sign of poverty and decline,
or as a diminution of wealth; on the contrary, it is
justly regarded as an infallible symptom of prosperity,
wealth, and grandeur: why then should an increase
of ten millions saved have a different effect?
The ten millions arising from an increased produce,
or from saving, are capable of the same application,
produce the same effect, and accomplish the same
end.
They either are distributed to individuals whose
situation is rendered more comfortable, and who pay
for them with more or better labour; in this case
they act as an encouragement to labour and industry,
and multiply the means of public and private wealth.
Or they are given to individuals taken from the
labouring and industrious classes, to be employed in
the service of the idle and rich in that case they
increase population by all the individuals they main-
tain.
Such is the natural effect of economy and of an
increased produce; both contribute equally and in the
OF POLITICAL ECONOMY.
179
same proportion to the progress of population and
wealth. There are no limits to this progress but in
the utmost extension and improvement of agriculture,
inanufactures, commerce, population, and civilization,
all over the world. As long as civilized countries
have not reached the highest possible perfection of
civil society; as long as barbarous nations have not
attained the highest degree of civilization; as long as
there is in any part of the globe a spot of land to be
cleared, cultivated, and improved; as long as man-
kind have not arrived at the developement and
improvement of which they are susceptible, eco-
nomy in consumption and an increased produce will
both be means equally proper to accomplish that
desirable end. Mankind therefore ought never to be
tired of increasing their produce and being economi-
cal in their consumption.
The maxim of political economy, that consump-
tion is the measure of production, is an incontestable
truth it is certain that a produce which finds no con-
sumer, is not long reproduced. But the real meaning of
this principle must not be mistaken, nor must it be
inferred that an abundant and even over-abundant
produce is not consumed. The abundance of produc-
tions is always an incitement to a greater consump-
sion; and as abundance is wealth, wealth in its turn
affords the greatest possible means of consumption.
When then does it happen that production is limited
by consumption? It is when the consumer does not
like the commodities produced, or when he is unable
to pay their price. The producer is every-where
obliged to consult the taste and faculties of the con-
N 2
180
ON THE VARIOUS SYSTEMS
sumers, and it is only when he is mistaken in these
two respects, that non-consumption is detrimental to
reproduction. He
may produce as much as he
pleases, his produce will be consumed, provided it
suits the consumers and they have the means of pay-
ing for it. Abundance and cheapness, these are the
two springs of consumption and reproduction; and
as economy necessarily produces both, it follows that
economy is not prejudicial either to consumption
or to reproduction: on the contrary, it is beneficial
to both.
Is the same Noble Author correct, when he states
capital to consist only in machines and instruments
proper to shorten or facilitate labour, and an economy
which tends to multiply capital beyond real wants, to
be injurious, because it diverts capital from an useful
path to make it flow into an useless channel?
Did the capital of a country consist in nothing but
machines and instruments proper to shorten or faci-
litate labour, it is certain that an economy which
should unnecessarily increase their quantity, would be
unprofitable and even detrimental to public prosperity.
But this kind of accumulation is not commonly that
which parsimony has in view, nor is it that which its
partisans recommend; and if a few individuals are
saving to obtain a larger number of machines, tools,
and instruments, than they have occasion for; such
cases are rare; they are eccentricities and whims
undeserving of either the attention of the statesman,
or the meditation of the philosophical inquirer.
The capital, of which the best writers recommend
the increase by parsimony, consists, as has been
OF POLITICAL ECONOMY.
181
observed before, in the advances and raw materials
necessary to all kinds of labour, in the improvements
of the soil, in the instruments and machines proper
to abridge or facilitate labour, and in the produce kept
in store for present, future, and distant consumptions.
This theory seems indeed proof against any criticism.
If economy increase the totality of advances and raw
materials wanted in all kinds of labour, the means of
labour are increased, and consequently there is more
raw and manufactured produce in existence.
If it increase the improvements of the soil, the soil
is rendered more productive.
If it multiply the machines and instruments which
abridge or facilitate labour, the productions of industry
are more abundant, of a better quality, at a lower
price, and within the reach of a greater number of
individuals.
Finally, if economy augments the totality of com-
modities, their abundance is a premium to augment
population, and a means of private and public wealth.
Thus economy, by extending and improving every
branch of capital, has the same effect as the produc-
tiveness of the soil, the progress of industry, and the
speculations of commerce. It augments public and
private wealth; and, as has been very justly observed
by Adam Smith, it is economy and not industry
which increases the capital of a nation.
182
ON THE VARIOUS SYSTEMS
CHAP. III.
How are Capitals employed?
In proportion as capital is created, it follows various
employments, which divide it into as many distinct
branches, of which Dr. Quesnay enumerates four :
The original advances, which have cleared the
ground;
The annual advances, which reward the labour of
the husbandmen, preserve the original advances, and
provide against the accidents inseparable from that
kind of labour;
The advances of the unproductive classes, which
serve to pay for the raw materials and wages of
labour;
Lastly, the advances of the merchants who defray
carriage and warehouse expences, which this author
considers as a stock distinct from the national capital.
Adam Smith took a more enlarged view of the
employment of capitals. He assigned them more
importance, and, as it were, revealed their power.
He devotes part of them to immediate consump-
tion, which he states to consist of food, clothing,
household-furniture, dwelling-houses, and all objects
of conveniency and comfort.
The second of the three portions, into which he
divides the general stock of the society, is called the
fixed capital, the characteristic of which is, that it
OF POLITICAL ECONOMY.
183
affords a revenue or profit without circulating, or
changing masters. It consists chiefly of the four fol-
lowing articles: 1st, of all useful machines and
instruments of trade which facilitate and abridge
labour; 2d, of all those profitable buildings which are
the means of procuring a revenue, not only to their
proprietor, who lets them for a rent, but to the person
who pays that rent for their use; 3d, of the improve-
ments of land; and 4th, of the acquired and useful
abilities of all the inhabitants or members of the
society.
:
The third and last of the three portions into which
the general capital stock of a community naturally
divides itself, is called by Adam Smith the circulating
capital its characteristic is, that it affords a revenue
only by circulating, or changing masters. It is com-
posed, 1st, of the money, by means of which all the
other three are circulated and distributed to their
proper consumers; 2d, of the stock of provisions, from
the sale of which a profit is expected; 3d, of the
materials, whether rude or not completely manufac-
tured; and 4th, of the work which is made up and
completed, but not yet disposed of to the proper
consumers.
This enumeration and classification of capitals appears
totally different from that of Dr. Quesnay; and yet
it is easy to perceive that they approximate to a certain
degree, and are really at no very great distance.
The capital which Adam Smith calls a fixed capital,
is partly the same with that which Dr. Quesnay calls
original advances to put the ground into a state of
cultivation.
184
ON THE VARIOUS SYSTEMS
The only difference worthy of remark between
these original advances and tie fixed capital is, that
Dr. Quesnay calls those advances only original ones
which have put the ground into a state of cultivation;
while Adam Smith gives the name of fixed capital not
only to the improvements of the land, but also to the
instruments and machines which facilitate and shorten
labour, and to the acquired and useful abilities of all
the members of the community.
This diversity of opinion is, with these two authors,
the just consequence of their different theories con-
cerning the source of wealth, which one places in
agriculture, and the other in any labour which fixes
and realizes itself in some permanent object.
The inquiry which I have made into these two
opinions in the preceding book, renders all further
discussion unnecessary.
Yet it may be useful to observe, in support of the
opinion which I have established, that Adam Smith,
by assigning to the acquired and useful abilities of all
the members of the community a place in the fixed
capital, has to a certain degree destroyed the restriction
with which he had shackled the productiveness of
labour.
If it be true, as he has taught, that productive
labour is that which fixes and realizes itselt in some
permanent object, and if it be the essential and dis-
tinctive characteristic of a fixed capital to produce a
revenue, that is to say, a fixed and permanent object,
it would be necessary that acquired and useful abilities
should produce a revenue or a fixed and permanent
object and as it is certain that the labours of moșt
OF POLITICAL ECONOMY.
185
useful and acquired abilities are not fixed and realized
in a permanent object, it is evident that they have
been improperly comprised in the fixed capital by
Adam Smith.
Or if, as I flatter myself to have made manifest,
any labour is productive of the stock that pays for it,
and ought, on that account, to be comprised in the
fixed capital; then it is evident that Adam Sinith
was mistaken when he denied productiveness to
labours which do not fix and realize themselves in any
permanent object.
The alternative is unavoidable, and helps to corro-
borate the reasons which induced me to oppose Adam
Smith's opinion on this head.
That part of capital stock, which Adam Smith
denominates the circulating capital, is nearly the
same with that which Dr. Quesnay calls annual
advances.
Both destine this part of the capital stock of a
country to provide for the divers wants of agriculture,
manufactures, and commerce; they only differ in
so far as Adam Sinith admits the metallic currency
of the country into the circulating capital, which is
not mentioned at all by Dr. Quesnay.
We ought, however, to be little surprized at this
omission, on the part of Dr. Quesnay, and the French
economists. The theory of circulation, of which a
metallic currency is the principal instrument, had
made but small progress at the time they wrote, and
its benefits could not easily be foreseen, nor its extent,
resources, and results, calculated.
But is it true, as Adam Smith has taught, that the
186
ON THE VARIOUS SYSTEMS
metallic currency of a country forms part of her cir-
culating capital, and is not only of no benefit to
wealth, but even burthensome to it as an object of
expence ?
Many writers on subjects connected with political
economy have not adopted this part of Adam Smith's
theory. On the contrary, they think that money
operates in the same manner as other machines
employed in agriculture, manufactures, and commerce;
and tends, like them, to shorten and facilitate labour,
and is, of course, productive of whatever the exchange
of commodities costs less than what it would have
cost without the assistance of money.*
But none has placed this truth in a more luminous
point of view, than the Earl of Lauderdale. Though
the demonstration of the noble Earl be rather long,
I am yet convinced the reader will thank me for tran-
scribing it entire; because it explains, in a novel and
truly ingenious manner, the operation of money in the
interchange of the produce of labour.
"In considering how that portion of the national
"capital, employed in conducting circulation, pro-
"duces a profit, it is necessary," says the Noble
Lord," clearly to distinguish what forms circulating
capital, from the goods that are circulated by
"means of capital; and this becomes the more so,
" because we are accustomed to see these two things,
"however different, almost uniformly confounded by
"those who have treated on the subject."
* Traité d'Economie Politique, par Jean Baptiste de Say,
Paris. 1803. vol. i, page 12.
1
OF POLITICAL ECONOMY.
187
"From the manner in which the circulation of
"most European countries is at present conducted,
"the circulating capital may be properly regarded as
"composed either of the coin or of the substitutes
"for coin, which banking and the modern facilities
"of conveying credit have created. To these, there-
"fore, we confine our views; conceiving them to
"form what may, with strict propriety, be denomi-
"nated the circulating capital of a country. (The
"other three articles of which the author of the
"Wealth of Nations imagined circulating capital to
"be composed are not employed in circulating, but
are actually goods to be circulated. They are, in
fact, portions of what is reserved for consumption.)
"And a little examination will suffice to shew that
gold and silver, as coin, are alone estimated by men
"for their utility in abridging labour, as well as that
"the advantage, which the public derives from the
(C
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66
<<
improved method of circulation by means of banks,
"is founded on the same principle.
66
56
66
66
Money is of use to mankind in two different
capacities; as an instrument of exchange, and as
a practical standard, by which the value of all com-
“modities is measured and expressed. To convey a
"clear idea how the portion of the national capital
employed in executing these two duties, is profitable
merely from the circumstance of its supplanting
labour, perhaps no better method can be followed,
" than to consider what would be the effect of with-
drawing from any society that part of its capital
"which is employed in conducting the circulation of
<<
66
(6
188
ON THE VARIOUS SYSTEMS
66
goods, and in forming a practical standard by
" which the value of commodities is measured and
"expressed.
"The moment this portion of the national capital
"is abstracted from any society, the exchange of
"those things which nature or art enables one man
"to produce with greater ease, or of better quality,
"for those things which similar circumstances ena-
"ble another to produce with greater advantage, must
"be conducted by barter.
"A farmer, for example, who had in his barn a
"quantity of wheat, much greater than the consump-
"tion of his family, and who destined the overplus to
"supply the other articles necessary for their clothing
"and nourishment; if he wanted a pair of shoes,
"would be obliged to proceed with a quantity of his
"wheat to a shoemaker to endeavour to negociate an
exchange but as it might probably happen that
"the first shoemaker he accosted, had already, in
"return for shoes, obtained all the wheat he meant to
66
:
consume, he would be under the necessity of
"remaining without shoes, till he could find a shoe-
"maker who wanted wheat.
"If, unfortunately, the whole profession were al-
"ready supplied with wheat; to obtain a pair of
"shoes, he would be under the necessity of endea-
CC
66
vouring to discover what was the article the shoe-
"maker wished to procure; and if, on inquiry, it
appeared that beer was the commodity with which
"the shoemaker wished to be supplied, the farmer
"must then endeavour to procure from the brewer a
OF POLITICAL ECONOMY.
189
66
"quantity of beer in exchange for his wheat, as a
preliminary for his future negociation with the
"shoemaker.
"But the brewer might also be supplied with
"wheat; which would oblige the farmer, in the first
"instance, to endeavour to exchange his wheat for
some commodity the brewer wanted, that with it
"he might purchase the beer, with which he after-
"wards meant to acquire his shoes.
66
56
66
"Tedious as this process may appear, it is one of
"the simplest cases that could be stated for the pur-
pose of pointing out and explaining the laborious
"path which every man, if the circulating capital of
a country were obstructed, would be obliged to
"tread, in endeavouring to supply his wants by part-
ing with his superfluities: for it is plain that the
course would often be infinitely more tedious and
"intricate before the goods of one man could be
repeatedly bartered, till they at length became
exchanged for the particular commodity which
"another wanted.
<<
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66
"Neither is this the sole source of the labour that
"would be imposed on man, by withdrawing the
"capital employed in the conduct of circulation.
"As there would then exist no general standard by
"which the value of commodities was usually esti-
"mated, an inquiry must of necessity take place in
"settling the terms of every particular exchange, to
"ascertain the relative value of commodities.
66
For example, if the brewer, to whom the farmer
applied, wished to have some wheat, and it so
190
ON THE VARIOUS SYSTEMS
}
1
66
happened that neither the farmer had antecedently
"exchanged wheat for beer, nor the brewer, beer for
"wheat, they would be at a loss to fix the quantity
"of wheat that should be given for a gallon of beer.
If, indeed, each had luckily procured already a leg
"of the same sheep, in exchange for the commodity
$6
66
CC
re
<<
66
they respectively possessed, they might then dis-
"cover the relative value of the wheat and the beer;
"because two things equal to one and the same thing
are equal to one another: but as it would probably
happen, that the farmer and brewer had never
exchanged wheat and beer for the same commodity,
they could not have recourse to this easy mode of
deciding the portion of wheat that ought to be
"parted with for the acquisition of a given quantity
" of beer. The course, therefore, the farmer would
"have to pursue, even after he had undergone the
"labour necessary to discover a brewer who wanted
"wheat, might be infinitely laborious, before he
"could trace out, through the medium of various
"exchanges, some one interchange, that afforded a
CC
point of comparison betwixt the value of the wheat
" and the beer.
"If this, however, could not be discovered, he
"would be obliged, as the only means of ascertaining
"the terms of the exchange, to institute an inquiry
"into the proportion betwixt the demand for and the
quantity of the beer, and also into the demand for
"and quantity of the wheat; these being the circum-
"stances on which the relative value of all commo-
"dities depends.
OF POLITICAL ECONOMY.
191
"The beer being procured, it is plain he might be
"under the necessity of repeating the same opera-
"tion in negociating the exchange for the shoes.
"Thus it is obvious, that the portion of a capital
"of a country employed in conducting circulation,
is not only profitably employed, by saving the
"labour of man, in its character of an instrument
"for conducting exchanges, but also in its capacity
"of a standard for measuring the value of com-
❝modities.
"It is not, perhaps, at first sight so apparent, that
"circulating capital is profitable to mankind from the
"circumstance of abridging labour, as it is that the
CC
profit of a machine is derived from that source: but
"there is in reality no part of the capital of a nation
"that abridges a greater portion of labour, certainly
66
none, the benefit of which in abridging labour is
"more universally enjoyed.
"The labour of the manufacturer fixes and realizes
"itself in some vendible commodity. Its existence,
66
CC
66
as productive labour, is therefore more easily dis-
"cernible, than the labour of the menial servant,
"whose services generally perish at the instant of
"performance. The labour of a manufacturing ma-
chine, in like manner, fixes itself in some vendible
commodity, which makes the origin of its profit
more apparent than that of circulating capital,
"whose services, like that of the menial servant,
"perish at the instant of their performance; but
which, like his too, remain, at all times, prepared
to abridge the necessity of another portion of
(6
CC
192
ON THE VARIOUS SYSTEMS
"labour, which the master must otherwise per-
«form.*
"Though coin, employed as circulating capital,
"has been thus eagerly sought after, not for the sake
"of the gold and silver it contains, but merely on
"account of the labour, it supersedes; like other
means of superseding labour, it requires, though an
<<
66
inferior, yet a certain portion of labour to procure
"it. To carry it about when procured, is also, from
"its bulk and weight, laborious. To save these
"remaining portions of labour in conducting the cir-
"culation of a country, various modifications of banks
"have been successively introduced, highly beneficial to
"the community in which they have been established,
"from their superseding the labour formerly per-
"formed by the sovereign of procuring coin, and that
performed by the subjects of making payments in
"it, and also from their executing with a machine of
"little value, the labour antecedently performed by a
very expensive instrument.
66
* The similarity between the labour of the menial servant and
that of circulating capital, is indeed such, that it is natural to
suppose, the same circumstances which led to the one being deemed
unproductive, would create the same impression with relation to
the other. Accordingly, the author of the Wealth of Nations,
who conceives the labour of the menial servant to be unproductive,
informs us, that the "gold and silver money which circulates in
66 any country, and by means of which, the produce of its land
"and labour is annually circulated and distributed to the proper
"consumers, is, in the same manner as the ready money of the
"dealer, all dead stock. It is a very valuable part of the capital
"of the country, which produces nothing to the country."
OF POLITICAL ECONOMY.
193
ro
CC
It is from this last circumstance, undoubtedly,
that most countries derive what has been esteemed
"the greatest benefit they enjoy from the modern
improved method of conducting the circulation of
"commodities. Yet it seems to be to the desire of
66
66
man to shorten labour, that we are indebted for
"the invention: for banks, we are told, were first
"introduced into Sweden, where, the money being
"all of copper, it was highly inconvenient, by reason
"of its weight and bulk, to carry it about in such
quantities as was necessary to conduct exchanges.
"In truth, though a country may derive much
“benefit from having a cheaper medium of exchange,
"insomuch that, if there is a scarcity of capital, it
"will by this means have more for other uses; yet
"this consideration never could form the motive of
<C any individual for preferring one medium of ex-
change to another. To the seller of a commodity,
"the value of the medium of exchange is perfectly
"indifferent, provided he is sure it is in equal estima-
"tion with those from whom he subsequently means
"to purchase. A man can alone have an interest in
"the value of what he produces and what he con-
sumes but coin, or its substitutes, are never con-
"sumed; they only pass from one to another for the
purpose of saving labour in the conduct of exchange;
"and the only immediate interest that he who
accepts a given quantity of any medium of exchange
can have is, that it should save as much labour as
66
6C
66
66
66
:
possible. It is on this principle that silver is pre-
"ferred to an equal value of copper; that gold, in
"making large payments, is preferred to both; and
ņ
194
ON THE VARIOUS SYSTEMS
"that bills of exchange supersede, with advantage,
"the use of the metals in extended commercial
" concerns.*”
This discussion on the nature and effects of money,
though rather incorrect with regard to coin itself, as I
'shall show hereafter, seems to prove, to demonstration,
that money, considered simply as a machine proper
to shorten or facilitate labour, ought to be ranked
with any other machine of that kind in the fixed
capital destined to produce a revenue. It is there-
fore unjustly that Adam Smith has considered it as
a circulating capital, which he thinks expensive and
diminishing the general income by as much as its
keeping costs.
But do bills of exchange, paper money, bank notes,
promissory notes, and public stocks, form capitals,
and are they part of the fixed or circulating capital ?
They seem entitled to be considered as capitals,
because they have all the properties and perform all
the functions of capital. Sometimes they assist the
circulation of other parts of capital, and sometimes
they afford a revenue, and, producing the same effects,
they actually appear to be similar to money.
On the other hand, it is clear that they ought not
to be considered as capitals, because they have no
value of their own, and only represent a mortgage
which itself constitutes a part of capital. Bills of
exchange and other notes represent the merchandize
which they cause to circulate. The mortgage of pri-
* The Earl of Lauderdale's Inquiry into the Nature and
\ Origin of Public Wealth. Chap. iii. § 5, page 187, and foll.
OF POLITICAL ECONOMY.
195
vate promissory notes consists in the moveable and
immoveable goods of the debtor. And public funds
or stocks have their mortgages in a particular branch
of the revenue.
This merchandize, these moveable and immoveable
goods, and this branch of public revenue, constitute
part of the fixed capital, of the circulating capital,
and of the stock reserved for immediate consumption:
it would, therefore, be assigning a double employment
to the same thing, if they were comprised in the
capital of a country; which would lead to a confu-
sion subversive of the first principles of political
●conomy.*
It is improperly that Adam Smith has placed them
on a par with metallic currency, assigned them the
same nature, and enumerated them as part of the
capital of a country. That bills of exchange, notes
and stocks belong to other branches of the science,
will be proved hereafter, when I shall inquire into
their nature, effects, and co-operation in the formation
and distribution of wealth.
Lastly, that part of capital which Adam Smith
reserves for immediate consumption, is exactly that
which Dr. Quesnay calls revenue.
66
The latter asserts, that " the totality of the revenue
must return to annual circulation, and pervade it
through all its extent; and that no pecuniary for-
*Commercial capital, let it then be understood, consists not iħa
paper, and is not augmented by the multiplication of this medium
of payment. An Inquiry into the Nature and Effects of the
Paper Credit of Great Britain; by Henry Thornton. Chap. i.
0 2
196
ON THE VARIOUS SYSTEMS
1
"tunes can be accumulated, or, at least, that there
"must be a compensation between those that are
"accumulated and those which return to circu-
"lation."*
Adam Smith has been silent on the hoarding
of money destined, not
destined, not only to distribute the
income to all classes of the community, but also
to assist the circulation of all the other parts of
capital. Are we to attribute his silence to simple
omission, or to the inutility or little importance of the
subject?
Metallic currency, as we have seen before, is a
mere instrument, proper to circulate the produce of
labour, whatever this produce may be. Abstracted
from this destination, or hoarded, it becomes like a
merchandize that is not in commerce; and which,
as long as it remains out of it, has no value or use for
any one. It is as if it did not exist, as if it were still
buried in the bowels of the earth.
When hoarding is the effect of the passion for gold
and silver, which is so violent in some individuals,
that they sacrifice to it all other interests, it is of little
importance with regard to wealth, because it never is
attempted to any great extent. All the harm that
arises from such hoarding is, that it forces the nation
* Physiocratie, Max. 7.
+ Although money constitutes no part of the capital stock
reserved for consumption or revenue, and although Dr. Quesnay
has improperly confounded it, I yet thought it my duty to discuss
here the question about the hoarding of money, to which his theory
of revenue gives rise.
}
OF POLITICAL ECONOMY.
197
to a larger purchase of precious metals, and occasions
it a little more expence.
Hoarding becomes of some importance only when
it takes place in consequence of political causes or
mal-administration, when the minds of men are
uneasy about public affairs, or when their safety and
property are threatened. In such cases, the hoarding
may be so considerable, that capitals may not be
casily or but partially circulated; that, according to
Dr. Quesnay's expression, the distribution of part of
the annual income of the nation may be paralyzed; that
the returns of the advances on cultivation, of the
wages of labour, and of the consumption of the dif
ferent classes who exercise lucrative trades, may be
impeded; and that the re-production of the revenue
and taxes may be diminished.* Instances of such
hoarding are met with wherever government respects
not persons and property, nor causes them to be
respected; and in times of political commotions.
Political economy affords no remedies against this
calamity.
To substitute a paper currency to the hoarded coin,
is impossible; because, wherever the stability of
government is threatened, and wherever government
either will not, or cannot protect persons and property,
there is no public credit.
As the interchange of the produce of labour is the
source of wealth, whatever endangers the safety of
individuals, the circulation of productions, the return
and peaceable enjoyment of equivalents, causes the
* See the preceding note.
198
ON THE VARIOUS SYSTEMS
metallic currency. to be eagerly sought for by all classes
of the community, occasions its being hoarded, and
opposes an insurmountable obstacle to that credit
which might, to a certain degree, supply its place.
To import precious metals for the purpose of con-
verting them into money, and thus replace the coin
that has disappeared from circulation, can be done
only at a great expence, and is not of material assist-
ance. The operation can only be cutrusted to mer-
chants, who cannot perform it otherwise than by the
exchange of national produce: but commerce is liable
to all the chances which occasion the hoarding of coin.
Nothing can induce merchants fearing for their pro-
perty, to import precious metals but the certain pros-
pect of a considerable benefit which is to indemnify
them for the risks to which they expose themselves,
or afford them, in fraud and corruption, a guarantee
which they find not either in the laws or in govern-
ment. To complete the misfortune; when the newly
imported precious metals are circulated in the shape
of coin, they do not remain long in circulation; the
same motives which caused the old coin to be hoarded,
cause the new coin to disappear; the penury con-
tinues the same, and the scantiness of circulation
dries
up every source of wealth.
Against these inconveniencies, the constant atten-
dants of political commotions and bad governments,
science loses its power, and all those measures, which
political economy disavows, are but juggling tricks or
miserable palliatives, which aggravate the evil and
delay its cure, or render it impracticable.
Thus capital stock, considered in its three great
OF POLITICAL ECONOMY.
199
divisions, as fixed capital, circulating capital, and
capital destined for immediate consumption, pro-
vides for the wants of labour, contributes to its pro-
gress in proportion to its own increase, and always
affords an exact measure of the progress of national
wealth.
There is a fourth employment of capital, distinct
from those which I have just examined, the nature of
which is not yet completely ascertained, neither are
its effects certain or sufficiently known; I mean its
being lent out at interest either to private individuals
or to the public. Authors are not yet agreed respect-
ing either the utility or the disadvantages of this kind
of employment of capital.
Dr. Quesnay has considered this subject both with
regard to the interest of the capitals thus employed,
and the nature of national debts; his observations on
these two points are very concise, and rather dogma-
tical than luminous.
CC
He states that, "if money is lent out at a high
rate of interest, it shews that the country has not
money enough in proportion to its income, since
"the use of it is so dearly paid for.
(૬
"On the other hand, he would have governments
"to avoid loans which pay interest, and burthen the
"state with all-devouring debts; and in case of extra-
<<
ordinary necessities, he would have them to have
recourse to the resources of the nation, and not to
"the credit of financiers."*
Adam Smith has carefully and amply discussed the
* Physiocratie.
>
200
ON THE VARIOUS SYSTEMS
subject. He begins by ascertaining the part which
metallic currency performs in the lending out of capi-
tal stock at interest; and clearly shews, that it is but
the means, the instrument by which the lender con-
veys to the borrower the material productions of
labour. "Money," says he, "is neither what the
"borrower is actually in need of, nor what the lender
"provides him with to supply his wants. The
"former only requires, and the latter but gives the
"value of the money, or rather the commodities
"which the money may purchase:" whence he
infers, that the abundance or scarcity of metallic cur-
rency has no influence whatever on the interest of
capital.
He regulates this interest by the quantity of capitals
to be lent out, by the competition between the various
owners of capital, and by the profit of capital em-
ployed in the divers hrane...s of labour in general.
He examines the effects of this kind of employ-
ment of capital upon national weahh, and is of opi-
nion that whenever the capital devoted to loans, is such
as the owner does not chuse to employ himself, no
injury arises, provided the borrower employs it in some
productive labour; but that the matter is altered when
such capitals are immediately consumed, and con-
sumed without any reproduction, which is the case
with public loans.
He admits, however, that the resource of public
loans to which modern states resort, preserves the rest
of the capitals employed in productive labour which
might have been affected by the contributions required
by the necessities of the state. But after having weighed
OF POLITICAL ECONOMY.
201
the advantages and disadvantages resulting from this
method of providing for extraordinary wants, he still
regards it as a cause of weakness or distress in every
country where it is adopted.
This rapid analysis of the opinion of these two
authors on capitals lent out at interest, plainly shews
that they agree respecting public loans, and only differ
about the causes which fix the rate of interest or profit
of the capitals lent out at interest.
If the difficulties with which this subject is involved,
concerned this single point, it would be easy to dis-
pel them, and to shew that Adam Smith was right
when he asserted that the abundance or scarcity of
coin has no influence whatever upon the rate of interest
or profit of capitals lent out.
But capital stock performs so conspicuous a part in
the political economy of modern nations, governments
pay so little regard to the tenets of philosophical
inquirers, and theory and practice are so openly at
variance, that it is important not to neglect any
means to put an end to all doubts, to dispel the clouds
in which this part of the science is still enveloped,
and to throw upon it the same light which has been
thrown upon the rest.
All capitals are derived from economy in consump-
tion. They must therefore necessarily consist in a
produce of labour susceptible of being consumed. In
the same manner as metallic currency enables capi-
tals to find three principal kinds of employment,
which Adam Smith has so properly characterized by
the denomination of fixed capital, circulating capital,
and capital stock reserved for consumption, it enables
102
ON THE VARIOUS SYSTEMS
them to be employed in loans at interest; and just as
the abundance or scarcity of metallic currency does
not fix the rate of their employment in the first three
instances, it neither fixes it in the last. I shall not
examine whether there is a general law by which
these four species of capital are regulated, or whether
each follows a particular law; this discussion would
lead me into too great a detail: I will only remark,
that as the metallic currency is not the actual capital
lent out at interest, but simply the means, the instru-
ment which conveys the borrowed capital from the
lender to the borrower; it is not by the size of the
instrument that the rate of interest can be fixed.
Whether it has required sixteen pieces of silver coin
or four of gold coin to convey a quarter of wheat from
the lender to the borrower, is perfectly indifferent;
nothing has actually been lent but a quarter of wheat;
and it is from this quarter of wheat that the interest
is due, and not from the sixteen pieces of silver or
four pieces of gold coin which helped to effect the
loan; let the number of the gold or silver pieces be
multiplied or diminished, there still is a quarter of
wheat borrowed, neither more nor less, and conse-
quently the interest which it ought to pay can neither
be increased nor diminished *.
* The abundance or scarcity of money, the facility or difficulty
of finding credit, which are the instruments of the loan of a quar-
ter of wheat, may, it is true, have some influence on the rate of
interest; but merely as accessaries, not as an efficient cause. Just
as the carriage of a quarter of wheat does not constitute its price,
so the dearness or cheapness of money or credit with which a loan
is effected, does not determine the rate of its interest.
'
OF POLITICAL ECONOMY.
203
But what is it that determines the rate of interest?
Several causes, independent of the abundance or
scarcity of money, contribute more or less powerfully
to fix that rate.
The first, and no doubt the principal.cause, is the
number of quarters of wheat ready to be lent out,
compared to the number of those that are wanted to
be borrowed. Even when the quantity is equal, the
rate of interest differs according as the number of lenders
is more or less considerable than that of borrowers,
and vice versá.
The second cause is the safety or risk of the quarter
of wheat being returned and the stipulated interest
paid; and according as the borrower has the reputation
of more or less probity, and solvency, and can be
forced to pay at the expence of more or less money
and time, the rate of interest is high or low. -
Lastly, the rate of interest is lowered or raised
in proportion to the benefit derived from a quarter
of wheat employed in paying the wages of different
labours.
These are the causes which contribute more or
less powerfully to fix the gain of capital lent out at
interest.
The uncertainty and continual fluctuation of these
causes sufficiently account for the difficulty of fixing
the interest in a steady and permanent way, and
avoiding the inconvenience of allowing it to be arbi-
trary. Hence the controversy, whether the rate of
interest is to be fixed by law?
Adam Smith saw no difficulty in the question.
He not only acknowledges, that the law may fix it,
204
ON THE VARIOUS SYSTEMS
but he also states the principle's by which the rate of
interest ought to be regulated.
He says, the rate of interest ought to be fixed
somewhat above the lowest market-rate of interest
usually paid by those who can give the greatest secu-
rity to the lenders if it it were fixed below the
lowest market-rate, it would be tantamount to a total
prohibition of interest, the creditor would not lend at
a lower rate than the current one, and the debtor
would be obliged to pay, besides the market-rate of
interest, a surplus to insure the creditor against the
risk he is exposing himself to by lending money at a
higher than the legal interest. If, on the contrary,
it is fixed precisely at the lowest market-price, it ruins,
with honest people who respect the laws of their
country, the credit of all those who cannot give the
very best security, and obliges the latter to have
recourse to exorbitant usurers *.
If the legal rate of interest were much above the
lowest market-rate, the greater part of the money
which was to be lent, would be lent to prodigals and
projectors, who alone would be willing to give such
high interest; and sober people would not find as much
money as they want for their concerns, because they
The French author has not done strict justice to the opinion
of Adam Smith by saying: "Si au contraire l' interêt étoit fixé au
"taux le plus bas du marché, ce taux seroit onéreux aux honnêtes
gens qui respectent les lois de lear pays, et ruineroit le crédit de
66
'
66
I
ceux qui, avec les meilleures suretés, ne pourroient s'en procurer
que par le moyen des usuriers et au taux le plus cxorbitant.'
have preferred Adam Smith's own words. Wealth of Nations,
vol. ii. book ii. c. 4, p. 45. Edition of 1805, 8vo,—T.
OF POLITICAL ECONOMY.
OLITICA
205
would be unwilling to pay this high interest; so that
a great part of the capital of the country would be kept
out of the hands most likely to make a profitable and
advantageous use of it, and thrown into those which
were most likely to waste and destroy it.
This doctrine, notwithstanding its wisdom, has not
been adopted by later writers; and the French trans-
lator of Adam Smith's work, whom I mentioned before,
has combated it with the energy and force proceeding
from the consciousness of defending a truth useful and
profitable to his country.
"In every case,” says that French writer," in
"which the parties concerned have themselves stipu-
"lated the interest, it is absurd or unjust in the law to
66
66
66
pretend to interfere with their agreement: to com-
petition alone it belongs to fix the rate of interest,
just as it ought to fix the rate of wages and profits,
or the price of commodities. When the parties
"concerned deviate from the market-price of interest,
they probably have been induced to it by peculiar
"circumstances which the vigilance of private interest
" is better able to appreciate than the most enlightened
magistrate."*
66
This opinion has prevailed over that of Adam
Smith; and for the last five-and-twenty years none
of the best writers on political economy have professed
any other.
* Abrégé Elémentaire de l'Economie Politique, par le Séna-
teur Germain Garnier. Paris, 1796. Chap. iv. article iv.
section 3, § 4.
106
ON THE VARIOUS SYSTEMS
*
But governments have paid little attention to the
opinions of philosophers, and seem to cling still faster
to a legal rate of interest. Whether they are afraid
of the check which this innovation might give to cir-
culation, or whether experience has taught them that
the wants of debtors would exceed the means of cre-
ditors, and made them apprehensive that, in this
struggle, the rate of interest might rise above the limits
which national prosperity allows; or whether they
suppose that the law will restrain and regulate private
interest, and change the relations established by the
nature of things, it is certain that the rate of interest
is every-where fixed by law; whence it is clear that
theory and practice are at variance.
There are, however, few absolute principles in poli-
tical economy, as I observed once before; they are
continually modified by circumstances, and all that
ean be desired from an enlightened government is, that
it should shorten the duration of modifications, and
accelerate as much as possible the return to fixed rules
and good principles.
But though he opposes a legal rate of interest, the
author just quoted thinks it ought to be fixed by law,
whenever it has not been stipulated by the contracting
parties. He says: "The rate of interest must be
"fixed by law, whenever it adjudges interest to the
"creditor by way of indemnity in cases where none
"had been stipulated by the parties. And this rate
46
being fixed to supply the stipulation of the parties,
"it follows that it ought to be according to the market-
66
rate of interest, as being the rate which the parties
OF POLITICAL ECONOMY.
207
"must be presumed to have adopted, if they had
stipulated any interest."*
This modification of the principle which deprecates
a legal rate of interest, appears neither reasonable nor
well founded. If the interest be an indemnity due to
the lender for his having deprived himself of the com-
modity which he has lent, this indemnity, when it
has not been stipulated by the parties, ought, like all
other indemnities, to be complete, and restore to the
creditor whatever he loses by being deprived of his
commodity. Should the interest be fixed by law
below the market-rate of interest; should it be legally
fixed at five per cent. when it is worth six per cént.,
it is evident that the creditor loses one per cent., and
does not receive the indemnity to which he is entitled ;
the debtor is favoured and benefited by his want of
good faith or punctuality.
In this case, as well as in the loan of any other
object than money, the care of fixing the indemnity
due to the lender, on account of his having been
deprived of his commodity, must be left to the
magistrate. It ought not to be regulated by law,
because it exceeds the functions and is without the
pale of legislation. The law ought to regulate it
only when circumstances require its interference to
remedy the deficiency of stipulations by the parties.
Except in those extraordinary cases, the law ought
no more to fix the rate of interest, when there is no
Abrégé Elémentaire de l'Economie Politique, par le Sé
nateur Germain Garnier. Paris, 1796. Chap. iv. article iv.
section 3, § 4.
.
208
ON THE VARIOUS SYSTEMS
agreement between the parties, than it ought to
restrict or limit their agreement: the principle is the
same in both cases, and ought not to be differently
applied.
But is the lending of capital at interest profitable
or detrimental to national wealth?
When a loan takes place merely because the lender
does not wish to employ his capitals himself, and the
borrower applies it to pay a labour productive of a
revenue, there is no doubt that this employment of
capital is as profitable as if the owner himself applied
it to pay a labour productive of a profit.
The difficulty is only when the loan is applied to
immediate consumption without any re-production.
In that case, we must distinguish between a loan to a
private individual and a loan to the public.
The former cannot have any very disastrous effects,
because the number of prodigals and spendthrifts is
never very extensive, and their prodigalities and dis-
sipations can have but little or no influence on the
total sum of the produce of labour.
The public loan is the only one that is of impor-
tance, because it has an essential influence on the
wealth and power of states.
Governments are induced to open public loans when-
ever the ordinary revenue is insufficient for the
extraordinary expences which imperious circum-
stances demand. Public loans must therefore be
considered as an extraordinary resource; and the only
question proper to be examined in this case is, whether
this resource is more or less prejudicial than
any other
that might be employed.
OF POLITICAL ECONOMY,
209
Nations have only three ways and means to pro-
vide for extraordinary expences to sell the national
demesnes, if there be any; to levy contributions
proportioned to the wants of government; and to have
recourse to voluntary loans.
To sell the public demesnes would at this time yield
a very feeble resource in great states, and in others it
would be precarious and afford but a slow, uncertain,
remote, and consequently inefficient assistance.
To raise the public contributions, and proportion
them to the wants of the state, is not always
practicable; they could only be levied at the expence
of capital destined to maintain labour productive of a
revenue; consequently they would cause its diminu-
tion, and perhaps interrupt this labour and occasion
incalculable losses to re-production. Extraordinary
contributions might besides experience a resistance
which would augment the expences of government,
obstruct its operations and paralyse its energy. And
should they even not encounter any resistance or
meet with any difficulty, they could not provide for
immediate wants, because they could only be levied
slowly and gradually; consequently extraordinary
contributions would afford but a slow, uncertain, and
inefficient assistance.
Public loans are free from any of these inconve-
niences; the want is supplied as soon as it is felt.
When the capitals which they procure to the state,
have no useful employment or destination, they are
no-wise injurious to labour and re-production; both
continue in the same state; and if they suffer any
injury from this way of employing capital, it is only
P
210
ON THE VARIOUS SYSTEMS
in being less extended and improved. Perhaps it
might even be asserted, that labour and re-produc-
tion do not suffer any injury at all, and that they are
extended and improved by other causes not less
powerful than the impulse of capital.
1
The interest of the loan and the fund set apart for
its re-payment, require a small increase of taxes;
which necessarily proves a stimulus to more labour
and greater economy; so that in this instance it may
truly be affirmed, that public loans, far from inju-
ring labour and re-production, contribute to the
increase of both.
On the other hand, as public loans afford an oppor-
tunity of employing even the smallest capitals, and
create as it were an income without labour, they sti-
mulate every one to economy, and contribute indirectly
to the progress of wealth.
It will no doubt be objected, and with some appear-
ance of truth, that these private savings and increased
productions being consumed fruitlessly and without
any re-production, there is not a single shilling added
to the wealth of the nation, and only a change of
consumers effected.
But on studying the results of public loans with
more attention, the futility of the objection is soon
discovered.
Were the extraordinary wants which occasion
public loans, permanent; and were no fund for the
extinguishing of such loans in a given time, pro-
vided, along with the interest; public loans would
undoubtedly consume all the productions which they
cause to be produced or economized, and matters
OF POLITICAL ECONOMY.
211
would ultimately be in the same state as if there had
been no loans.
But if the wants which such loans supply, are
merely temporary; if the productions which they
caused to be produced or economized, are sufficient to
provide for the interest and for a surplus to extin-
guish the debt; it must be acknowledged, that after
the re-payment of the capital, the contributors to the
public expences are richer by all the productions
produced to pay their contributions, the state-credi-
tors, by all the savings which they have converted
into shares in the public funds, and national wealth
increased by both the productions produced by the
contributors to the public expences, and the capitals
accumulated by the state-creditors.
These results are incontestable, when public loans
absorb only unemployed capitals and when the public
contributions provide both for the interest of the debt
and for its extinction in a given time.
The case is not exactly the same, when the capitals
absorbed by public loans are abstracted from those
which would have served to maintain labours productive
of a revenue. The application of such capitals to an
unproductive consumption must be acknowledged to be
prejudicial, perhaps even fatal to the branches of
labour which they supported: but this evil, consi-
derable as it is, cannot be compared to that occasioned
by excessive contributions to the public expences,
which impair capitals employed in labour, restrain or
paralyse its faculties, weaken the sources of re-produc-
tion, and carry desolation and despair into all labour-
ing classes. There is even this difference between the
P 2
212.
ON THE VARIOUS SYSTEMS
two evils; one is both remediless and hopeless; the
other is at least a certain resource, and affords means
to abridge its own duration.
It may however be supposed, that the capitals
absorbed by public loans are only abstracted from
labours the least productive, the least profitable, and the
loss of which is most easily borne. In the case of equal
profits, capitals are preferably employed in the most
productive labours, because their benefit is the safest
and most lasting. Hence it necessarily follows, that
public loans affect only the least valuable and least
productive capitals.
Moreover, the loss resulting from the disappearance
of these capitals may in some degree be repaired by a
greater consumption of the produce of other branches
of labour, by a greater activity, energy, and diligence,
on the part of the labourers, and a greater economy in
their consumption. The necessity of paying the tax
imposed upon them to provide for the interest and the
extinction of the public debt, must induce them to
redouble their efforts for the purpose of raising the
produce of their labour to the level of their new
burthens.
Thus every thing induces the belief that public
loans have a contrary effect to extraordinary contri-
butions; the latter necessarily tend to diminish the
produce of labour, because they deprive labour of its
means; the former tend to increase it, by invigorating
its energy consequently, the loss which results from
public loans is the least considerable and the soonest
repaired.
Adam Smith has attentively weighed most of these
OF POLITICAL ECONOMY.
213
considerations; and yet they have not obtained his
assent but it may easily be perceived, that the
motives of his hostility are but indirect attacks upon
public loans, and do not prove that there exists a
better mode of providing for the extraordinary ex-
pences of the state.
66
· 66
He asserts, that if extraordinary expences
66 were
always defrayed by a revenue raised within the
year, wars would in general be more speedily con-
"cluded and less wantonly undertaken. The people,
feeling during the continuance of war the complete
"burden of it, would soon grow weary of it."*
But this assertion is not supported by experience;
war was never and no-where subordinate to the means
of carrying it on; the passions which cause it to be
pursued, regard neither its cost nor the calamities it
inflicts. When the ordinary and extraordinary re-
sources are exhausted, war is carried on by devastating
other countries, and its calamities, far from hastening
its termination, prolong its duration. It is only since
public loans have provided for their expences, that wars
have lost something of their intensity and asperity, that
they have been shorter, and, if I may be allowed to
say so, less fatal to nations. Each additional year of
warfare renders every new loan more expensive, more
difficult, and more ruinous. The belligerents are thus
every year warned of the exhausted state of their finances;
and this periodical warning forces them, though reluc-
tantly, to think of peace, and to put an end to a war,
the expences of which are ruinous, and which almost
* Adam Smith's Wealth of Nations, London, 1805. Vol. iii.
book v.
p. 446.
214
ON THE VARIOUS SYSTEMS
•
always disappoints the hopes of those by whom it is
carried on.
Adam Smith objects also, that "it is absolutely
"chimerical to suppose that national debts could
"ever be fairly and completely paid by any savings
"of the ordinary revenue."
This objection might have had some weight in the
mind of Adam Smith, because sinking funds had
made little progress in his time; their nature had not
been thoroughly investigated, nor their effects appre-
ciated; and it was difficult to foresee the wonders
they have since acomplished. It may fairly be sup-
posed, that Adam Smith would have altered his opi-
nion, had he known that, if after providing for the
interest of a public loan, one per cent of the capital is
placed at compound interest, the debt is extinguished
in thirty-seven years.
This measure, the advantages of which I have set
forth in another work *, had just then been repre-
sented by the Earl of Lauderdale as pregnant with
the most fatal and most disastrous effects. Unac-
quainted with the noble Lord's publication, I could
neither weigh the arguments on which his opinion is
built, nor develope the motives which induced me to
adopt a contrary opinion. I must therefore now
perform the task which I could not attempt at that
time; and, if I am not mistaken, the system of sink-
ing funds will derive new lights from a controversy
* Essai Politique sur le Revenue Public des Peuples de l'An
tiquité, du Moyen Agc, et des Siècles Modernes; par Charles
Ganilh: in two volumes. Paris, 1806.
}
OF POLITICAL ECONOMY.
215
undertaken for the interest of the science and the
benefit of truth.
66
66
"If fifteen millions sterling a year extraordinary,"
says the noble Earl, were levied by the government
"from the revenue of its subjects, to defray the
charge of warfare, or any other extraordinary ex-
penditure; as this money would be expended in
articles of consumption, as fast as assumed, the
66 expence of the government would effectually coun-
"teract the effects of the parsimony it renders
06
necessary and creates in the subject. The only
"mischief therefore that could ensue, would arise from
"the extensive demand it must suddenly occasion
"for one class of commodities, and from the conse-
quent abstraction of so large a portion of the revenue
"of the subjects from the acquisition of those articles
"in which it is usually expended;—a mischief in
"itself no-wise trifling, as recent experience has
taught.
66
CC
Very different, however, must have been the effect of
"raising fifteen millions for the purpose of accumula-
tion, or of forcibly converting fifteen millions of
"revenue into capital. In this, as in the former case,
"there would have ensued all the mischief occasioned
86
66
by abstracting a portion of demand represented by
"fifteen millions a year from the commodities which
the subjects were accustomed to acquire with this
part of their revenue: but in this case there would
"unfortunately have existed no extraordinary expen-
"diture to counteract the full effects of this forced
parsimony; for it would have been difficult to per-
"suade the proprietors of stock, from whom such
66
216
ON THE VARIOUS SYSTEMS
"extensive purchases would have been made by the
"commissioners of the sinking fund, all at once to
66
spend, as revenue, that which habit had taught
"them to regard as capital; or, in other words, all
" at once to ruin themselves in order to counteract the
"bad effects of this miserly policy in government.
"Unless, however, the stock-holder could have
"been persuaded thus to expend his capital, fifteen
"millions a year less must have been expended in
"the different articles the country produced or
"manufactured; that is, a portion of demand would
"at once have been withdrawn from commodities of
"British growth or manufacture.
.
"But if it is true, (which all writers on political
economy, however much they may differ on other
"subjects, concur in asserting,) that the whole quan-
tity of industry employed to bring any commodity
"to the market, naturally saits itself to the effectual
"demand, and constantly aims at bringing the pre-
"cise quantity thither that is sufficient to supply the
"demand; it follows, that this diminution of demand
"must occasion a similar diminution of the produc-
❝tions of the country.
"Though the opinions of great and eminent men
"are here referred to for establishing the position, that
$6
a diminution of demand must occasion a diminu-
"tion of produce, that is, of wealth; it is not on autho-
"rity alone that this inference rests; reason also
"shews that it must be so. It follows, therefore, that
"three hundred millions (calculating the value of
"the fifteen millions of produce which must have
" been annihilated, at twenty years purchase) of real
OF POLITICAL ECONOMY.
217
65
"wealth would have heen extinguished before this
accumulating fund, with all its boasted activity,
"could have, in all probability, converted one hun-
"dred millions of the revenue into capital.
"Dismal as the consequences of this experiment
"must have been in diminishing the re-production
“and revenue, there appear, on the other hand, no
"good effects likely to have resulted from it in rela-
"tion to the capital of the country, to counteract its
" evil effects on the revenue.
66
CC
"The stockholders, who would have been tempted
"to sell by the offer of the commissioners of this sink-
ing fund, would, it is evident, have had in their
possession fifteen millions of capital, upon the
employment of which, in such a manner as to
"return a profit, their income, that is, their subsis-
tence, must have depended. To acquire a profit,
we know that capital must be applied to supplant
66
CC
65
CC
st
or perform a portion of labour in producing or
giving form to commodities; and it is hardly pos-
"sible to suppose, that there could have existed any
66
new channels of so employing a capital, at a
moment when there was forcibly created a dimi-
"nution of demand for commodities to the extent of
"fifteen millions.
"So far from its being reasonable to suppose there
“could have existed, under such circumstances, any
"opportunity of employing an additional quantity
"of capital, it is certain, that so great a diminution
of demand must have thrown out of employ some
of that capital which was useful in supplanting labour,
"in the progress of bringing to market those commo-
118
ON THE VARIOUS SYSTEMS
"dities for which there could no longer have sub-
"sisted a demand.
"The only means, therefore, those stock-holders
"could have had of forcing the capital in their hands
"into employment, must have been by offering to
66
supplant labour at a cheaper rate than that at which
"it was antecedently performed. A competition
"would thus have arisen; the profit of capital must
"have been diminished; the interest paid for stock
66
or money must have fallen; and, of course, the
"value of fixed annuities, or government securities,
"must have risen; and this must have continued
progressively till capital became so abundant and
its profits so diminished, that the proprietors would
"have been induced to remove it to other countries,
"where higher profits might be made: and France
would inevitably have been amply supplied with
t
capital, the want of which is the great drawback
"on her industry.
66
"Neither is it theory alone which points out these
"evils as the necessary result of such a measure; for,
as far as practice gives us an opportunity of judg-
ing, the accuracy of the inference is uniformly con-
"firmed by experience.
66
"When Pope Innocent XI. reduced the interest
"of his debt from four to three per cent, and
"employed the sum sved to accumulate, but a
"short time elapsed till the new three per cent fund
"sold at 112. In like manner, when the interest
"of the national debt of England was reduced, in
1717, from six to five per cent, and the saving
"devoted to accumulaton; the consequence was,
66
OF POLITICAL ECONOMY.
219
"that, in 1727, from the rise of public securities,
"there was an opportunity of again reducing the
"interest from four to three per cent, and of apply-
66
ing an additional sum to accumulate. This of
"course produced another rise, and to such a degree,
"that the sinking fund was now grown to a great
"maturity, and produced annually about 1,200,000l.
"and was become almost a terror to all the individual
"proprietors of the public debt. The high state of
"credit, the low rate of interest of money, and the
"advanced price of all public stocks and funds above
par,
made the great monied companies apprehend
"nothing more than being obliged to receive their
"principal too fast; and it became almost the uni-
"versal consent of mankind, that one million a year
r
was as much as the creditors of the public could
"bear to receive in discharge of part of their prin-
cipal."*
CC
Such are the arguments on which Lord Lauderdale
rests his opposition to the system of paying off public
debts by means of a sinking fund.
The first reflection to which the noble Earl's argu-
ments give rise is, that they triumphantly refute the
principal objection of Adam Smith against public
loans. He considered the re-payment of national
debts by savings from the ordinary revenue, as fan-
ciful and impossible; while Lord Lauderdale proves
not only that these savings may discharge the whole
* The Earl of Lauderdale's Inquiry into the Nature and
Origin of Public Wealth, Chap. iv, page 244, and following,
220
ON THE VARIOUS SYSTEMS
national debt, but even that this payment, from being
over-quick, becomes burthensome and prejudicial to
the creditors of the state. If this effect of a sinking
fund be correct, (and it would be difficult to contest
its correctness,) Adam Smith has evidently laboured
under a mistake in thinking that national debts could
not be paid by means of savings from the ordinary
On the contrary, it is evident that this
object is completely accomplished by a sinking fund;
and, in this respect, it is intitled to the praises
bestowed upon it by all who know its nature and
appreciate its results.
revenue.
But is not this advantage of a sinking fund, which
cannot be denied, counterbalanced by the most serious
inconveniencies? Does it not abstract a portion of
the public revenue from consumption; and does not
this diminution occasion a proportionally diminished
production? Does it not depreciate capitals, and
force them abroad to find a better employment? Let
us examine how far these doubts, raised by Lord
Lauderdale, are founded.
When a country borrows one hundred millions at
five per cent; and one per cent of the capital is
placed at compound interest to repay it in thirty-seven
years, the loan costs that country six millions a year.
One hundred millions lent by the owners of circu-
lating capital diminish this capital by the sum which
is exported and consumed abroad. With regard to
that portion of the capital which is consumed by
government in the country, the circulating capital
suffers no diminution from this consumption. Let us
therefore suppose, that the portion exported consists
OF POLITICAL ECONOMY.
221
of fifty millions, and that consumed at home also
fifty millions; in that case the country is liable to
experience a diminution of fifty millions in its circu-
lating capital, and has no hope of recovering this
sum, or part of it, but by a profitable balance of
foreign trade.
The fifty millions, consumed in the country, form-
ing an accidental and transitory increase of expence,
occasion a rise in the price of all commodities; and
as this rise is a clear benefit to the producers, it is pro-
bably mostly economized; and this economy helps
to repair the loss experienced by the circulating
capital.
There is, therefore, nothing lost, in fact, to the
country, but the fifty millions consumed abroad.
The six millions, which the country has to pay for
thirty-seven years, are assessed upon the whole nation;
and every contributing individual pays his share either
by performing more labour, or by using more economy
in his consumption.
If the tax be paid by additional labour, the country
not only experiences no loss, but is even enriched;
because the tax is temporary, and the produce derived
from more labour is durable and permanent.
If the tax be paid by more economy in the use of
the existing produce, individuals suffer a temporary
privation, which is more or less painful according as
it falls upon comforts or necessaries: but in that case,
labour and its produce remain the same, and under-
go no alteration.
Of the six millions, amount of interest and sinking
fund, the creditors probably consume five, or the
222
ON THE VARIOUS SYSTEMS
amount of the interest of their capital. As for the
sixth million, which forms a part of their capital, they
probably seek a new employment for it, which restores
the interest of which the sinking fund deprived them.
Such new employment is easily found, since the hun-
dred millions, consumed by the loan, have diminished
the circulating capital by that sum, and left a void in
circulation. The gradual return of the extinguished
debt into circulation covers part of the loss or priva-
tions suffered through the abstraction of the borrowed
hundred millions, and insensibly restores the natural
course of circulation.
Thus it is evident that the sinking fund, both in
its principle and in its results, produces none of the
fatal effects which are ascribed to it by the Earl of
Lauderdale.
1. It does not abstract a part of the general revenue
from consumption; neither does it diminish re-pro-
duction in the same degree.
The economy which it occasions, is in proportion
to the extraordinary consumption effected by the loan,
as one to an hundred, or at the utmost as one to fifty:
it, therefore, can neither impede nor diminish pro-
duction, since it feels already a void of ninety-nine, or
at least, of forty-nine millions. When the necessity
to produce is as one hundred, the sinking fund, which
diminishes it one hundredth part, is neither felt nor
perceived.
Lord Lauderdale, and many other estimable wri-
ters, have been misled by the supposition that pro-
duction in England is on a level with consumption,
that the fixed capital in England is as considerable as
OF POLITICAL ECONOMY.
223
it ought to be, and the circulating capital proportioned
to the wants of consumption and labour; and that the
sums repaid by means of the sinking fund are a sur-
plus which cannot find any employment in the coun-
try without deranging its general economy.
But I think they may be easily undeceived. Al-
though the sinking fund is considerable in England,
it is but a fifty-second, or thereabouts, of the national
debt, and, consequently, returns to the circulating
capital but a fifty-second part of the funds which had
been abstracted from it. To render this return of a
fifty-second part of the national debt to the circu-
lating capital burthensome to the nation, the loss of
the five hundred eighty millions sterling borrowed by
the English government, and consequently abstracted
from the circulating capital, must be supposed to
have been recovered by more labour and economy;
the national debt of England at this present day must
be supposed to be a clear gain to the capitalists to
whom it belongs, and the revenue which serves to pay
its interest and to accumulate for the extinction of
the debt, must be supposed to become absolutely free
or unnecessary when the national debt is paid. Such
an increase of wealth in the short space of less than a
century, would be an inconceivable phenomenon and
beyond all belief. In vain it is urged that, in spite
of the loans and the enormous capitals which they
have abstracted from the circulation of the country,
the circulating capital is adequate to all the branches
of labour and to all the wants of circulation; which
would not be the case, if the capitals consumed by
the loans had not been re-produced by labour and
224
ON THE VARIOUS SYSTEMS
economy. This fact, which appears conclusive and
decisive, is however but specious and delusive.
When England opened her first loans, she gave to
those who lent her their money a credit in the great
book, which guaranteed their claims as creditors.
This credit in the book certainly did not re-pay the
money that had been lent; England always continued
debtor to its amount. She never began to pay her
creditors but when she created a sinking fund, and she
has liberated herself only as far as she has been allowed
to do so by this fund.
Had things continued in this state, it would be
obvious to any one, that having by her loans consumed
five-hundred eighty millions sterling of the circulating
capital, and re-imbursed only as much as the sinking
fund has allowed her to re-pay, there must be in the
circulating capital a deficiency paramount to the
national debt: excepting however the ameliorations
which that capital has gained from labour and
economy.
How then can it be supposed, that there is no void
in the circulating capital, that the consumption of the
five-hundred eighty millions sterling which constituted
part of it has been repaired, and that an auginentation
of this circulating capital would be burthensome to
the country? This is one of the greatest mysteries
of political economy and of the science of circulation.
The written acknowledgment given by the state to
every one of its creditors has replaced the circulating
capital absorbed by the loans. Every bearer of such
an acknowledgment offered it in case of need, as he
would have offered that part of the circulating capital
OF POLITICAL ECONOMY.
225
•
with which he had parted, to lend it to the state; and
this acknowledgment every-where obtained the same
value. Thus an acknowledgment, containing the very
proof of part of the circulating capital having been
consumed, was every-where received, like any
other actual part of the circulating capital, or as if it
had represented a still existing circulating capital. This
appears inconceivable, and yet it is so.
To increase the delusion, the Bank provided the
money for these acknowledgments, and, by throwing
them in small shares or into general circulation, it
has altered their nature even to the most clear-sighted
eye. The present circulating capital of England is
thus composed in part of her national debt, that is to
say, of the acknowledgments which attest the actual
consumption of part of the circulating capital. This
is so true, that if it were possible for the English
government to re-imburse the whole of the national
debt, and receive from the hands of its creditors the
acknowledgments which it has given them; if the
public creditors in their turn paid their creditors and
withdrew their notes; if, in short, a general and com-
plete liquidation took place of the public and private
debts in England, the circulating capital would only
be altered in its nature, without being increased by one
farthing. Instead of the public and private paper of
which that circulating capital consists, it would con-
tain its real value, and nothing more. There would be
no alteration in its quantity, and consequently circula-
tion would continue in its habitual state.
Hence it follows, that as the sinking fund effects
only in fifty-two years what I have just supposed to
226
ON THE VARIOUS SYSTEMS
be effected in an instant, nothing can result from it but
a gradual and successive diminution of the acknow-
ledgments of the public debt, a return to the circula-
ting capital of the funds that had been abstracted from
it, and the re-establishment of circulation in real and
effective values.
To say that the sinking fund increases the circula-
ting capital at the expence of consumption and re-pro-
duction, is tantamount to supposing that the circulating
capital consists only of real values, and that the
acknowledgments of the national debt do not form any
part of it; which supposition is altogether inadmis
sible; or it is like maintaining that a private indivi-
dual, who is re-paid what had been borrowed of him, is
twice as rich as he was before this re-payment; it be-
trays, in short, the most complete ignorance concerning
the nature of loans, of a sinking fund, and of circulation.
2. The assertion, that extinction of the public debt
by a sinking fund depreciates capitals and forces them
abroad, is equally incorrect.
The circulating capital continues the same before
and after the extinction of the debt: the difference is
only in the objects of which the circulating capital
consists. Before the extinction it consisted of paper,
which after the extinction is replaced by the same
sum in metallic currency. The circulating capital
receives no increase; and hence it is difficult to under-
stand how it can be depreciated, and have more or less
value than it had before the paper was converted into
a metallic currency.
But might it not be objected, that since the acknow-
ledgments of the debt are sufficient for circulation,
OF POLITICAL ÉCONOMY.
227
and fill precisely the place of the values of which they
are the mortgage, it is useless to redeem them and to
collect for that purpose from the individual members of
the nation values which would have been productive in
their hands, and which, in the hands of the creditors
of the state, produce only what the claim which they
extinguish would have produced?
Could national debts keep their value without the
aid of a sinking fund, the accumulation of such a fund
might undoubtedly prove detrimental to public and
private wealth; for, however advantageous a capital
placed at compound interest may appear, it only
extinguishes a debt which costs six per cent., while
the capital applied to this extinction, if it had been
left in the hands of the husbandman, the manufac-
turer and merchant, would have produced at least ten
or twelve per cent. A sinking fund would therefore
be a real loss to public and private wealth, if it could
be dispensed with.
But can a public debt keep its full value without a
sinking fund, particularly when it forms a fifth of the
circulating capital of a country? This is a problem
which experience has long ago solved. Let the debt
of those nations that neglected to prop it by a sinking
fund be compared with the debt of those countries
which devoted a sinking fund to it; and it will easily
be seen, that national debts have only ceased to be
injurious, since they have been supported by a sinking
fund; that to this fund they are indebted for the
solidity and stability which are their safeguard, and
which have entitled them to be the thermometer and
regulator of all other values.
Q 2
228
ON THE VARIOUS SYSTEMS
Thus, in whatever way Lord Lauderdale's criticism
of the sinking fund be viewed, it appears to rest on
erroneous notions, contrary to the true principles and
essence of a sinking fund.
Finally, it has been observed by Adam Smith, that
"the practice of funding has gradually enfeebled every
state which has adopted it; and he adduces as
instances Genoa and Venice, which seem to have
begun it; Spain, which seems to have learned the
practice from the Italian republics; and France,
the United Provinces, and England, which followed
the example."*
I may at least be allowed to doubt both the decline
of most of these nations and the cause to which this
decline is ascribed by Adam Smith. Were it neces-
sary, it would be easy to prove that the wealth of these
nations grew progressively with the system of public
loans, particularly since it has been perfected by a
sinking fund; and indeed it could not be otherwise.
A nation cannot borrow, unless it is growing rich;
its loans cease as soon as it gets poor. It is therefore
unreasonable to impute the decline of a nation and
the decay of its power to the system of public loans.
The causes of their fall must be sought for in other
circumstances; and were it either useful or proper to
point out those which may have contributed to the
decline of Genoa, Venice, Spain, and the United
Provinces, they would be discovered in the ruinous
wars which these states maintained, for such a length
* Adam Smith's Wealth of Nations; London, 1805; vol. iM.
book v. chap. 3, page 450.
{
OF POLITICAL ECONOMY.
229
of time, against more powerful nations. The system
of public loans, far from aggravating the distress of
their situation, enabled them, on the contrary, to
oppose a protracted and courageous resistance, while
every other means would have hastened the decay and
ruin of their power. As for France, and England in
particular, if their prosperity has been maintained, if
it has made immense progress in spite of the calami-
tous wars to which they have been a prey, they are
indebted for this advantage to the system of public
loans, the least distressing, I had almost said, the most
advantageous way of providing for the incalculable
wants of war.
Thus every thing concurs to demonstrate, that even
under a supposition the most unfavourable to public
loans, when they abstract capitals from productive
labour to make it serve to an unproductive consump-
tion, they are still preferable to excessive taxes which
impair every capital and exhaust the powers of labour.
If, from the formation of capitals and their employ-
ment in divers branches of labour and public loans,
we pass to their influence upon wealth, new consi-
derations crowd in the mind, the science expands its
views, and is enriched with new results.
230
ON THE VARIOUS SYSTEMS
CHAP. IV.
Of the influence of Capitals on the progress of
Public Wealth.
DR. Quesnay and Adam Smith are perfectly agreed
about the importance of capitals and their share in
the progress and growth of wealth.
The former teaches, that " the prosperity of an
agricultural country consists in great advances to
perpetuate and augment the national revenue and
taxes."*
Adam Smith says, that "the previous accumu-
lation of capital stock is necessary to the great deve-
lopement of the productiveness of labour; that it
necessarily precedes the division of labour; that the
progressive subdivision of labour itself is in propor-
tion to the previous augmentation of the capital stock
which has been gradually accumulated; and that
industry increases in proportion to the accumulation
of capital stock, which puts it into motion.”
But while they acknowledge the powerful influence
of capital, both authors think this influence is not
equal in every employment of capital, or that all
modes of employing capital are not equally beneficial
to the wealth of the nation by which it is employed.
* Physiocratie, page 296.
+ Adam Smith's Wealth of Nations, vol. i. Introduction.
OF POLITICAL ECONOMY.
231
Constantly prepossessed in favour of the agricul-
tural system, Dr. Quesnay considers the employment
of capital useful only as far as it is applied to agri-
culture.
Adam Smith admits likewise, that "the quantity
of productive labour which equal capitals are capable
of putting into motion, varies extremely according to
the diversity of their employment; as does likewise
the value which that employment adds to the annual
produce of the land and labour."*
We recognize in these two theories the difference of
the systems adopted by these two authors; it is a
restatement of their opinion respecting the sources of
wealth and the nature of labour. I shall not go over this
ground again, nor shall I endeavour to prove that what
I have stated with regard to labour applies alike to the
capital stock which puts it into motion and of which it
is but, as it were, the agent and tool; it would betray
me into useless and tedious repetitions.
But independently of the opposition which prevails,
and must prevail, between these two authors, Adam
Smith has set up a particular doctrine to determine the
degrees of utility of capital employed in the different
ramifications of productive labour. This doctrine is
too important to pass it over in silence; it behoves us
to examine and appreciate it, if possible.
Adam Smith asserts, that " capitals of equal value will
put into motion very different quantities of productive
* Adam Smith's Wealth of Nations; London, 1805: vol. ii,
book ii. chap. 5, pages 48, 49.
232
ON THE VARIOUS SYSTEMS
labour, and augment in very different proportions the
value of the annual produce of the land and labour of
the society to which they belong, according as they
are employed either in procuring the rude produce
annually required for the use and consumption of the
society in manufacturing and preparing that rude
produce for inmediate use and consumption; in
transporting either the rude or manufactured produce
from the places wuere they abound to those where
they are wanted; or, lastly, in dividing particular
portions of either into such small parcels as suit the
occasional demands of those who want them."
Accordingly, he teaches that "no equal capital
puts into motion a greater quantity of productive
labour than that of the farmer, because nature per-
forms seldom less than a fourth, and frequently more
than a third, of the labour; and no equal quantity of
productive labour employed in manufactures can ever
occasion so great a production."
Next to the capital of the farmer, Adam Smith
ranks that of the manufacturer, "who augments the
value of the raw materials he employs by the wages of
his different workmen, and by his own profits upon
the whole stock of wages, materials, and instruments
of trade employed in the business."
To the capital of the wholesale-merchant he assigns
the last rank, because “it augments the price of his
goods merely by the value of his profits, and the wages
of the sailors and carriers who transport his goods
from one place to another."
The difference too he states to be very great,
OF POLITICAL ECONOMY.
233
according to the different sorts of wholesale-trade´
in which any part of the capital is employed, which
he reduces to three.
"The capital employed in the home-trade is the
most lucrative, because its returns come in three or
four times in the year, which multiply three or four
times the sum of national labour.
"The capital employed in the foreign trade of
consumption, is less productive than that employed
in the home-trade, because its profits are shared
between the native merchant and the foreign one.
Lastly, the capital employed in the carrying
trade is the least productive of all, because it is alto-
gether withdrawn from supporting the productive
labour of the country to support that of some foreign
countries."*
This theory, it must be acknowledged, is ingenious
and captivating; it does honour to the sagacity of its
author: but is it not in reality more brilliant than solid?
Is it not a merely ideal and perfectly fanciful abstrac-
tion? And would it not frequently be fatal and
almost always dangerous, to put it into practice?
To obtain correct notions in this respect, we must
descend from the speculative and often fascinating
heights of theory, and convince ourselves of its truth
or fallacy by an attentive examination of the different
cases to which it may apply. We must know whether
it is in all situations, or only in some particular situa-
tions, that the employment of capital in agriculture
is the most proper to enrich a nation, or whether any
* Adam Smith's Wealth of Nations, book ii. chap. 5.
234
ON THE VARIOUS SYSTEM3
other employment is more or less favourable to wealth.
In short, we must follow capitals in their progress,
ascertain their effects, and determine in some degree
their absolute and relative power. This examination
will either unveil the error, or confirm the accuracy,
of the fascinating doctrine of Adam Smith.
If a nation possessed of a territory of large extent,
great fertility, and fit to be cultivated, had large capi-
tals, and employed them chiefly in agriculture; that
nation would undoubtedly obtain a very considerable
agricultural produce: but this produce, whatever
might be its magnitude, would not of itself consti-
tute any real and effective wealth; it would be
wealth only when it had the power of obtaining in
exchange all the other objects which the cultivators of
the soil might be in want of, or which might suit their
convenience. That part of produce which they could
neither consume nor exchange, would be without any
value, and as if it did not exist. A country possessed
of none but such wealth, would be completely
wretched. If agricultural produce is to constitute
wealth, it is absolutely necessary that it may easily be
exchanged against equivalents.
But where are we to look for, where to find these
equivalents, which alone can give it a value, and raise
it to the rank of wealth?
Is it in the interior of the country, where the agri-
cultural produce has been gathered? The attempt will
prove abortive, if manufactures and commerce have
not made a progress similar to that of agriculture; if
the manufacturing and trading classes are inconside-
rable in number, and not sufficiently rich to give
OF POLITICAL ECONOMY.
235
equivalents in exchange for the agricultural produce
offered to them.
"The extent of the home-market, for corn," says
Adam Smith, "must be in proportion to the general:
industry of the country where it grows." *
If this maxim be correct; how can the employ-
ment of capital in agriculture be the most profitable,
the best calculated to enrich the society to which it
belongs? How can the manufacturing and trading
classes, when deprived of the capitals reserved for
agriculture, rise and prosper so as to give any value to
the produce of the agricultural class? And without
this value, what will become of the agricultural
produce?
The nations of ancient and feudal times employed
their capitals exclusively in agriculture, and yet they
never arrived at wealth; or at least their wealth was
confined to the hands of a few individuals, and did
not circulate in the nation. The agricultural produce,
however abundant for each land-owner, created neither
commerce nor manufactures. Every rich and power-
ful individual had in his house slaves whose labour
supplied his wants; and having nothing to ask of his
fellow-citizens, he had nothing to offer them. When-
ever his wealth became excessive, he imagined no
other way of using or employing it than to erect public
monuments, and to entertain the people with sumptu-
ous feasts, or to surround himself with a numerous
train of courtiers, flatterers, and valets; so that it
* Adam Smith; Wealth of Nations; London, 1805, vol. ii.
book iv. chap. 5, page 321.
7
ON THE VARIOUS SYSTEMS
236
was consumed without any re-production, and without
any advantage to national wealth and population.
Such was the effect of the employment of capital in
agriculture.
Prejudicial as it was to the nations of antiquity and
of the middle age, it would yet prove much more fatal
to modern nations. It then produced at least private
wealth, because agriculture was entrusted to slaves and
bond-men, whom fear condemned to labour: but at
present it would not even produce private wealth.
Not finding any vent for the surplus of their produce,
the agricultural classes would only labour up to their
wants, and all means of attaining wealth and prosperity
would vanish for ever *.
Will it be said, that the agricultural country may
sell her produce abroad?
But if other countries also employed their capitals in
agriculture, if they too neglected manufactures and
commerce, her hopes would be disappointed and her
* In our modern states, lands are unequally distributed. They
yield more produce than those by whom they are cultivated can
consume; and if arts be neglected, and agriculture alone practised,
the country cannot be peopled. Those who till, or cause the
ground to be tilled, having a surplus of produce, nothing stimulates
them to labour the following year; neither is the produce consumed
by the idle, because the idle have not wherewith to purchase it. Arts
must therefore be introduced, that the produce may be consumed by
artists and workmen. In short, it is necessary, in modern states,
that many should raise agricultural produce beyond what they
want. For this purpose, a wish must be excited in them to possess
superfluities; and these are afforded only hy artisans. Montes-
quicu, Esprit des Loix, Liv. lxiii. chap. 16.
OF POLITICAL ECONOMY.
237
produce without value. Were some nations even less
favourably situated for agriculture, or blind enough to
apply their capital to manufactures; if navigation had
no-where made a progress proportioned to that of agri-
culture, (which would infallibly be the case, if the
employment of capital in agriculture were the most
beneficial;) there would be no vent for the surplus of
agricultural produce, and consequently all superfluous
re-production would be at an end.
Adam Smith was no doubt aware of these results,
when he said that "the agricultural system can
enrich a country only by rearing artisans, merchants,
and manufacturers; and that this can only be accom-
plished by giving the utmost liberty to commerce and
manufactures."
But he also was so sensible of the insufficiency of
these means, that he
that he says, "the agricultural system
discourages, in the end, the very industry which it
ought to favour."
If the agricultural system can enrich a country only
by creating industry and commerce, and if, instead
of favouring, it discourages them; it is self-evident
that this system never can in any case enrich a
country, and consequently no country can, without
prejudice to her interests, employ her capitals in agri-
culture.
Will it be said, that the surplus of capitals which
cannot be employed in agriculture, is applied to manu-
factures and commerce, and that this employment, by
causing the latter to prosper, confers upon the agri-
cultural produce a value and power which it had not
of itself?
238
ON THE VARIOUS SYSTEMS
The consequence may at least be doubted; it is
much more probable, that being incited to labour by
their wants, the agricultural classes will only rear as
much produce as is sufficient to supply these wants, and
never will have a surplus to devote to the establish-
ment and maintenance of manufactures and commerce.
But admitting that there is a surplus of agricul-
tural produce which, by its new employment, might
create manufactures and commerce; if this surplus,
by creating manufactures and commerce, is the true
cause of the wealth of the agricultural classes, it must
be acknowledged that the most useful employment
of capital is not that which supports agriculture, but
that which supports manufactures and commerce.
And let it not be supposed, that if the employment
of capital in agriculture be not the most useful in the
infancy of wealth and capitals, it is more beneficial
when wealth has reached a certain pitch, and capitals
are abundant and nearly sufficient for the support of
every branch of labour. The influence of capitals
employed in agriculture upon public prosperity even
then can only be proportioned to the success of the
capitals employed in manufactures and commerce.
Even then agriculture can prosper only through the
prosperity of manufactures and commerce. How can
the employment of capital in agriculture be the most
useful and most profitable, when its utility is depen-
dent on the utility of the capitals employed in manu-
factures and commerce; when the nation to whom
these different capitals belong, can expect wealth only
from manufactures and commerce, which enrich agri-
culture and render it productive?
OF POLITICAL ECONOMY,
239
It appears to me fully demonstrated, that in this
first supposition, in the case of an agricultural country
with an extensive territory, the employment of capital
in agriculture is not the most advantageous, and cau-
not lead to wealth: a nation can only grow wealthy,
as has also been remarked by Adam Smith, by some
great manufacture destined to answer the demands of
foreign countries.
But would not the case be different with regard to
a people whom nature or fate has cast on some barren
shore or deep marsh-land, whence the sea has receded,
but which it still threatens every moment with a fresh
incursion ?
In this case, I think again, that to propose to such
a people to employ their capitals in agriculture would
be condemning them to eternal misery.
If, on the contrary, they apply their savings to
manufactures, commerce, and navigation; this em-
ployment opens inexhaustible sources of wealth,
which, pouring in from abroad, are concentrated in
the country, and render barrenness itself productive.
Of this, both ancient and modern history afford
numerous and striking examples.
Tyre, Athens, Carthage, Constantinople, Venice,
Genoa, and Holland, rose to wealth and power by
employing their capitals in industry and commerce;
and, what is equally remarkable, history does not offer
a single nation that, by the exclusive employment of
capitals in agriculture, accumulated with so little
means and resources such extensive wealth, enjoyed
30 great a consideration, and attained such an emi-
nent degree of power and grandeur. How then is it
1240
ON THE VARIOUS SYSTEMS
possible to compare, and even to prefer, the employ
ment of capital in agriculture to its employment in
manufactures and commerce?
Adam Smith again furnishes us with an argument
conclusive against his system, and all in favour of
manufactures and commerce.
He acknowledges, that "the first improvements
of art and industry must have been made on the sea-
coast and along the banks of navigable rivers, where
the conveniency of water carriage opens the whole
world for a market to the produce of every sort of
labour."*
How has it happened, that a truth so pregnant with
consequences did not wean him from the system he
adopted? How was it that he did not perceive, that
if industry and commerce owed their first progress to
causes unconnected with agriculture, if they prosper
by themselves and independently of agricultural
wealth, nothing can hinder capitals, thus employed,
from enriching the people to whom they belong, as
well as capitals employed in agriculture? The fact
cannot be denied. Although Adam Smith laid
the foundations of the mercantile system, he yet
could not detach himself from the impression which
agricultural ideas had made on his mind. Though
he attached great importance to manufactures and
commerce, he yet considered them simply as the
instruments, agents, and distributors of agricultural
wealth. He constantly kept very close to the system
* Adam Smith's Wealth of Nations, London, 1805, vol. i.
book i. chap. 3, page 31.
OF POLITICAL ECONOMY.
241
of the French economists which he had combated,
and in the end gave it the preference over the system
he had created.
But he has himself provided us with the means of
avoiding the error into which he fell, by the very lights
which he disseminated and neglected.
Why should capitals employed in agriculture be
more advantageous to a nation than capitals employed
in manufactures and commerce? It is, says he,
because in this kind of labour nature does a third or
a fourth of the work, and, consequently, economizes
a third or a fourth of the capitals.
But the produce of labour, according to his own
principles, is not valued by what it has cost, nor by
its use, but by its value in exchange of course it
matters little, whether the agricultural produce costs
more or less to be raised, if it has not a greater value
or even less value in exchange. A quarter of wheat,
though it cost less to produce than a large looking-
glass, and though its value in use be far superior to
that of a mirror, may, however, have no value at all,
if no one wants it; while a mirror may have a very
great value, if desired by many individuals. It is,
therefore, neither this nor that particular produce
which constitutes wealth; it is the exchangeable value
of all produce, and the capitals which confer the
greatest exchangeable value upon the produce of a
country are the most useful and most favourable to the
wealth of that country. Capitals employed in manu-
factures and commerce are eminently possessed of that
faculty, because they afford the produce most in
request, and find consumers and commodities in
R
1
242
ON THE VARIOUS SYSTEMS
exchange for it in every part of the globe. The
nation which employs its capitals in manufactures and
commerce is therefore evidently nearer the source of
wealth, than the nation which employs them in agri-
culture, and which, under the most favourable sup-
position, can, after all, derive no wealth but from the
prosperity of manufactures and commerce.
And what ought particularly to recommend this
system to every friend of humanity and social hap-
piness, is this: while the agricultural system, accord-
ing to Adam Smith himself, always tends ultimately
to discourage manufactures and commerce, through
which alone it can prosper; it is in the very nature of
the mercantile system to encourage agriculture, to
develope its powers, and to carry it to the highest
degree of improvement of which it is susceptible.
The characteristic of the mercantile system is every
where to stimulate labour, to accumulate its produce,
and to increase wealth. The greater the wealth of
the country, the more it prospers; it increases by the
very increase which it affords to public wealth. The
capitals which commerce employs must therefore be
the most beneficial, not only to the wealth of one
nation, but even to universal wealth. The mercantile.
system is as preferable to the agricultural system
with regard to the employment of capital, as with
regard to the nature and effects of labour. If it be
advantageous for mankind to prefer the labours of
industry and commerce to those of agriculture,
it is equally advantageous for them to employ their
savings and capitals in the same way. The greater
their progress in manufactures and commerce, the
OF POLÍTICAL ECONOMY.
243
}
nearer will they be to wealth, and their wealth will
be so much the larger, the more capitals they have
employed in manufactures and commerce.
This result of facts and reason is also that of the
human instinct, of the propensity of man to exchange
commodities, and of his fondness for all those enjoy-
ments which can be had only by means of such
exchanges.
Adam Smith is of opinion, that, "had not social
institutions deranged the order of things, the wealth
and aggrandizement of towns would in every civilized
society have advanced with equal steps with the
improvements of the agriculture of the country."
I think, on the contrary, that if social institutions
had seconded, or, at least, not thrown any obstacle in
the way of, the developement of human faculties,
thesc faculties would have been turned to those labours,
the produce of which is most sought for, and which
afford most objects of exchange: and as manufactures
and commerce are eminently possessed of this privi-
lege, the mercantile would, every where, have been
preferred to the agricultural system. The least indus-
trious and skilful would alone have continued attached
to the rude and less productive labours of agriculture.
And in spite of those social institutions which
oppose the developement of industry and commerce,
is it not still to manufactures, commerce, and the
arts, that the most industrious, the most ingenious
individuals, those whom nature and education have
endowed with most talents and faculties, devote them-
selves? And is not agriculture the lot of men the
R 2
Į
244
ON THE VARIOUS SYSTEMS
least endowed by nature, and the least disposed to
occupations which require dexterity and talents?
This general tendency of men to industry and com-
merce renders it impossible to be blind to their advan-
tages; and it is without any foundation, that Adam
Smith asserted that capitals employed in agriculture
are more favourable to national wealth, than those
employed in manufactures and commerce. The most
profitable capitals are not those which put most
labour, but the most useful labour, into motion;
not those which employ most, but the most skilful
individuals; not those which yield the largest, but
the most valuable produce. The most profitable
capitals are, consequently, those employed in manu-
factures and commerce.
CHAP. V.
Of the Profit of Stock.
ADAM Smith is the first and only writer on political
economy, who discovered the laws which regulate the
rent of capitals or profit of stock; and his theory has
not met with any criticism, nor does it appear suscep-
tible of being criticized.
He observes, first, that the profit of capital stock
employed in any private business, is so very fluctu-
ating, that the person who carries on a particular
trade, cannot always tell himself what is the averagė
OF POLITICAL ECONOMY.
245
of his annual profit. It varies not only from year to
year, but from day to day, and almost from hour to
hour. To ascertain what is the average profit of all
the different trades carried on in a great kingdom,
must therefore be much more difficult.
The only rule which can direct us in this difficult
and complicated research, is the rate of the interest
of money in a given country, and at a given time.
According as the usual market-rate of interest varies
in any country, we may be assured that the ordinary
profits of stock must vary with it, must sink as it
sinks, and rise at it rises; whence Adam Smith draws
various consequences relative to the progress of wealth
in France, England, Holland, and Mexico *,
But this rule is liable to several exceptions, which
render its application extremely doubtful and uncer-
tain. According as circumstances augment or diminish
capitals, or bad laws derange the monetary system of
a country, the profits of stock may be more consider-
able than they ought to be. Certain it is, in general,
that the profits of stock decrease in proportion to the
increase of wealth, and augment in proportion to its
decline. When a country possesses the sum of capi-
tals which it wants, the profits of stock are very low.
Such is the doctrine of Adam Smith on this part of
political economy. Though it does not afford much
positive information, and is confined to mere conjec-
tures, it yet furnishes us with one corollary worthy to
be treasured up; namely, that the operations of
governments, when not conducted with proper know-
* Adam Smith's Wealth of Nations, vol. i. book i, chap. 9.
246
ON THE VARIOUS SYSTEMS
ledge and prudence, may have the most distressing
influence on the individual, social, and foreign rela-
tions of a country.
If government, by any political, legislative, or
administrative regulation, deranges the natural rate of
the interest of money, the private interest of all suf-
fers; the land-owner is sacrificed to the capitalist, or
the capitalist to the land-owner; agricultural, manu-
factural, and commercial undertakings are carried on
beyond, or stop short of their means; and in both
cases labour is a sufferer, and wealth declines.
On the other hand, if government do not avail itself
of the new methods which the science of capital has
introduced in other countries, the nation over which
it rules, labours with equal capitals under an unavoid-
able disadvantage in its dealings with other nations,
and for a great length of time contributes unknowingly
to enrich them at his own expence.
The employment of capital is, beyond contradic-
tion, one of the most difficult branches of the science
of public administration; it is that which deserves
the greatest attention, and on which depends the pro-
gress or the decay of public prosperity.
M
OF POLITICAL ECONOMY.
247
i
CHAP. VI.
Conclusion of the Third Book.
CAPITALS consist in the accumulation of the produce
of labour. This accumulation is effected by eco-
nomy in consumption. In proportion as this accu-
mulation takes place, capitals divide and follow various
destinations. Some are destined to produce a revenue,
and are called fixed capitals: others are destined to
maintain labourers and to furnish the materials of
labour; these are called circulating capitals: others,
lastly, are destined to be lent out at interest in public
or private loans, and constitute a part of the circu-
lating capital.
Of all these employments of capital, the most use-
ful, the best calculated to enrich even an agricultural
country, to increase its wealth, and to raise it to the
highest degree of prosperity which it can attain, is
that which is applied to manufactures and commerce,
which gives motion and life to the mercantile system,
and seconds its efforts, its combinations, and its spe-
culations. But the more this employment is favour-
able to the progress of public wealth, the less is its
utility to private wealth; and the more it is productive
of private wealth, the less it is beneficial to public
wealth.
Governments, however, ought not to suppose that
it is in their power to put an end to this opposition of
248
ON THE VARIOUS SYSTEMS
interest. It is grounded in the nature of things:
whatever governments may do, capitals always have a
great value wherever national wealth declines, and
they constantly lose their valve in proportion to the
increase of public wealth. All attempts to stem this
irresistible tendency will ever prove unavailing; and
the remedy will always be worse than the evil. The
best thing enlightened and prudent goveruments can
do under such circumstances, is to remove the acci-
dental causes which may hasten the decline or impede
the progress of national wealth. Their power goes no
further. Above all, they ought never to forget that an
error on this subject is much more fatal than in tax-
ation, to which they give such serious attention. An
error in taxation produces but partial evils, private
misfortunes, and local inconveniencies. But an error
in matters concerning capitals affects the faculties of
the community, attacks the principle of life in the
body-politic, and paralyses the whole. May this
important consideration enforce the utmost caution,
and teach governments, that it is not always enough
to wish to do good, that they ought also to know how
good is to be effected, and that, in the present state
of political economy with regard to capitals, the
wisest administration is that which commits the fewest
mistakes.
1
OF POLITICAL ECONOMY.
249
BOOK IV.
OF THE VARIOUS SYSTEMS RELATING TO THE
CIRCULATION OF THE PRODUCE OF LABOUR
BY MEANS OF COMMERCE.
INTRODUCTION.
Ir man be indebted for his subsistence to labour; if it
be to the accumulation of capital as the sole means of
abridging, facilitating, and improving labour, that he
owes his opulence and comforts; it is only through
the circulation of the produce of labour by means of
commerce, that nations attain wealth, splendour, and
power.
"Trade," says D'Avenant," is the living fountain
"is
whence we draw all our nourishment. It disperses
that blood and spirits through all the members by
which the body-politic subsists. The price of lands,
value of rents, and our commodities and manufac-
tures, rise and fall as it goes well or ill with our
foreign trade." *
"The greatness of a state," says David Hume,
" and the happiness of its subjects, how independent
soever they may be supposed in some respects, are
* Essay on Ways and Means, vol. i. page 16.
}
250
ON THE VARIOUS SYSTEMS
commonly allowed to be inseparable with regard to
commerce; and as private men receive greater secu-
rity, in the possession of their trade and riches, from
the power of the public; so the public becomes
powerful in proportion to the opulence and extensive
commerce of private men." *
"for
"Like sale, like production;" says Dr. Quesnay.
"That commerce is necessary," says Galiani,
the support of life and the happiness of rations, is
well known. Commerce owes its rise to the neces-
sity of exchanging the surplus of our commodities
for those we stand in need of, and may be defined,
the interchange of the produce of general labour to
provide for the wants of all. In the wretched state of
nature, every one thinks only of himself: but com-
merce leads to social life, in which every one thinks
and labours for all, not from a principle of piety and
virtue, but from interest and utility. "
(C
is,
"The end of social economy," says Genovesi,
1st, an increased population; 2dly, wealth; 3dly,
natural and civil happiness; 4thly, the grandeur,
glory, and welfare of the sovereign.
"Of all the means capable of attaining this end,
there is not one more efficient than commerce, which
avails iself of human avidity, as the most powerful
promoter of all social advantages." §
* Hume's Essays, Edinb. 1801, vol. i. Essay on Commerce,
page 271.
+ Physiocratic, Max. 16.
Della Moneta.
§ Lezioni di Econom. Civile, part i. chap. 16.
OF POLITICAL ECONOMY.
251
"As it is the power of exchanging," says Adam
Smith, that gives occasion to the division of labour,
so the extent of this division must always be limited
by the extent of that power, or, in other words, by
the extent of the market.” *
There is, therefore, no doubt remaining concern-
ing the extreme importance of commerce or the cir-
culation of the produce of labour, nor respecting its
intimate connection with individual wealth and
national power. All writers on political economy are
unanimous in this respect; there is not any one point
more firmly established.
But with regard to the principle, nature, progress,
method, different modes, and numerous effects of this
productive and beneficial circulation, opinions vary,
systems differ, and the science fluctuates between a
number of contradictory theories.
The origin of commerce is sought for by some in
the avarice of mankind; by others in their propen-
sity to truck, barter, and exchange one thing for ano-
ther; and by others, in their vanity §.
Nor are authors better agreed concerning the laws
which determine the respective value of the produce
exchanged by commerce. Some make it depend upon
a fixed and invariable standard; others derive it
* Wealth of Nations, London, 1805, vol. i. book i. chap. 3,
page 27.
+ Physiocratic, Obs. 6.
+
Wealth of Nations, by Adam Smith, 1805, vol, i. book i,
chap. 2, page 21.
$ Principes d' Economic Politique, par Canard, page 85.
252
ON THE VARIOUS SYSTEMS
exclusively from the proportion of the demand, or the
proportion of the abundance or scarcity of the pro-
duce; and all vary concerning the conduct to be ob-
served in case the proportion should be unfavourable.
Some pretend that commerce is no-wise injured by
an unfavourable balance, as it always offers some
advantages; others, on the contrary, think that com-
merce in that case ought to be shackled, restricted,
and even entirely suppressed.
The same uncertainty prevails concerning the
influence of money and credit upon commerce; their
nature, and the principles by which they are guided ;
the institutions which are favourable or prejudicial to
them; and the causes which obstruct or paralyse their
effects.
Nor is there more unanimity respecting the question:
which is the most useful and most profitable com-
merce? Some authors think that the inland trade
is the most beneficial; but the greatest number regard
foreign trade as the only profitable commerce.
The controversy, in fine, has extended to the dif-
ferent modes of trading. Almost all nations have
adopted corporate bodies, privileged companies, colo-
nies, and treaties of commerce, as the most advanta-
geous mode; and almost all authors have unanimously
condemned these different modes as pernicious and
prejudicial to commerce.
Amidst this variety of systems upon each ramifica-
tion of this part of political economy, to which theory
is the preference to be given as the most profitable to
wealth? This is the subject which we intend to dis-
cuss in this book.
OF POLITICAL ECONOMY.
253.
CHAP. I.
Of the Causes of the Circulation of the Produce of
Labour.
WHETHER the circulation of the produce of labour
owes its origin to the desire to sell at high prices and
purchase cheap, or to the propensity to truck and
barter, or to the emulation and eagerness to excel, is
of little importance. Be its source love of novelty,
avarice, or vanity, the result is the same.
No one
parts with the produce of his labour, and puts it into
circulation, but in the expectation that it will procure
him more food, or greater conveniencies, comforts, and
enjoyments; and every one labours so much the
harder, as his hopes are but seldom disappointed.
Hence, the farther circulation extends, or the larger
the market and the more that market offers varied pro-
ductions and new enjoyments, the more does labour
increase in intensity and activity, the more is its pro-
duce multiplied, and the more is public and private
wealth enlarged and augmented.
But is this propensity of mankind to enjoyment
the work of nature or of commerce? is it innate, or
does it owe its existence merely to the attractions of
commerce?
Dr. Quesnay says, that " prices and commerce are
not owing to merchants: on the contrary, it is the pos-
254
ON THE VARIOUS SYSTEMS
sibility of commerce and prices which gives birth to
merchants."*
But what was commerce before the existence of
merchants, and how is the possibility of trade and
prices to be conceived at a time when there was nothing
to be bought or sold ?
Before the existence of merchants, exchanges were
as unprofitable to individuals as useless to wealth.
They rarely extended beyond the limits of any parti-
cular place; and, confined within such narrow bounds,
they had none of those attributes of circulation, which
accelerate its motion and diffuse its benefits among all
producers and consumers. The assertion therefore is
strictly true, that at that time neither prices nor còm-
merce were possible.
It was only when individuals undertook to export
and import the produce of the soil and industry from
one place to the other, and when they substituted
exchanges to barter and sales to exchanges, that circu-
lation actually commenced, that prices were formed,
and commerce began to exist. This circulation wast
extended, developed, and increased in proportion as
merchants multiplied in boroughs, towns, and cities;
as they corresponded with each other, and invited
individuals and nations to partake of the gifts which
nature and labour have diffused in all countries and all
climes. Commerce reached the highest degree of
intensity, when the genius of the arts launched it on
the vast expanse of the seas, guided it across inhospi-
* Physiocratic, Obs. 6, and the note of Max. 9.
OF `POLÍTICAL 'ECONOMY,
"255
table deserts, and helped it to overcome the obstacles
which nature and men opposed to its progress.
Thus the sources of the circulation of the produce of
labour may be traced in the passion for enjoyment, in
the efforts of commerce, and in the genius of the arts.
To their combined action commerce owes its impulse,
its progress, and its success; and it will be seen in the
following chapters, that it cannot pass the point
which it has reached, unless these sources be further
developed and improved.
CHAP. II.
Of the Value of the Produce of Labour.
WHEN men first wished to exchange the produce
of their labour, either directly or indirectly, by
means of merchants, they must have experienced a
considerable difficulty in fixing its reciprocal value;
and it is not easy to conceive how the difficulty was
conquered. Perhaps, as they exchanged only objects
of no value to the exchanger, they did not attach
much importance to the matter, and every one was
satisfied with receiving an useful commodity for an
object of no value to himself.
But when the division of labour, says Adam Smith,
had converted every man as it were into a merchant,
and society itself grew to be what is properly called
a commercial society, no one was inclined to part
* Wealth of Nations, vol. i. book i. chap. 4.
256
ON THE VARIOUS SYSTEMS
with his produce but for an equivalent. To fix this
equivalent, it was necessary to know the value of
what was given and what was received; and it must
be confessed, that the difficulty of hitting upon the
means of doing so must have been very considerable.
Dr. Quesnay pretends, that "the wants of the
consumers, and their means of supplying them, ori-
ginally determine the price of productions at their
first sale."*
No doubt, this was the way resorted to at first in
every exchange. It may reasonably be supposed, that
every one who carried the surplus of his produce to
market, must have ascertained its value from the num-
ber or quantity of other commodities he was offered in
exchange.
But this must have ceased, when produce was no
longer materially measured one by the other; when
the equivalent was a generally preferred produce; and
particularly when credit rendered even the actual con-
veyance of this preferred produce unnecessary.
Mankind must then have felt the want of a stan-
dard to judge of the relative value of any production
compared to the preferred produce, and to ascertain
how far the exchange provided every producer with a
just equivalent. This standard of value has been the
object of the inquiries of all who have written on sub-
jects connected with political economy: "but," as has
been justly observed by the ingenious Galiani,
have successfully discovered an immutable measure of
time, space, and motion, the three great measures of
* Physiocratic, Obs. 6.
men
OF POLITICAL ECONOMY.
257
every thing but the price of things, that is to say
their proportion with our wants, is yet without any
fixed measure.
*
Most of the French, English, and Italian writers are
of opinion, that things have no other value than what
is fixed by the demand for them, and their abundance
or scarcity.
"Among a trading people," says the celebrated
Genovesi,
"the words price, worth, value, are relative
and not absolute expressions.-Things have no price
or value but relatively to man; wherever there are no
men, there are no values. But man assigns no value
to things, but as he wants them, consequently, the
value of things is only proportioned to their power of
supplying our wants."
"The sole capability of being exchanged, combined
with the greater or smaller natural abundance of things,
and with a more or less ardent desire to be possessed of
thein," says another Italian author, "forms the basis
of what mankind denominate value.”+
"The price of things," says Count Verri, “ is com-
posed of two elements, their utility and their
scarcity."§
"The value of things," says Condillac, "is grounded
upon their utility, or, what is the same, upon the need
in which we stand of them, or, what is again the same,
* Della Moneta.
+ Lezioni di Economia Civile.
+
‡ Osservazioni sopra il Prezzo legale della Monete di Pompeis
Neri.
§ Meditazioni sulla Economia Politica.
258
ON THE VARIOUS SYSTEMS
2.
upon the use which we can make of them.-The value
of things increases therefore with their scarcity, and
diminishes with their plenty."*
Other writers of great weight think, on the contrary,
that things have a real intrinsic value independent of
their being exchanged.
Sir William Petty was the first who started this
opinion, and developed it in a clear and intelligible
manner.
CC
:
66
Suppose a man," says he, could, with his own
hands, plant a certain scope of land with corn; that is,
could dig or plow, harrow, reap, carry home, thresh,
and winnow, so much as the husbandry of this land
requires; and had withal seed wherewith to sow the
same I say, that when this man has subducted his
seed out of the proceeds of his harvest, and also what
himself has both eaten and given to others in exchange
for clothes and other natural necessaries, that the
remainder of corn is the natural and true rent of the
land for that year; and the medium of seven years, or
rather of so many years as make up the cycle within
which dearths and plenties make their revolution, does,
give the ordinary rent of the land in corn.
"But a further though collateral question may be,
how much money this corn or rent is worth? I
answer, so much as the money which another single
man can save within the same time, over and above
his expence, if he employed himself wholly to pro-
duce and make it; viz. let another man go travel
into a country where is silver; there dig it, refine it,
* Le Commerce et le Gouvernement, part i. chap. 1.
OF POLITICAL ECONOMY.
259
bring it to the same place where the other man
planted his corn, coin it, &c., the same person, all the
while of his working for silver, gathering also food for
his necessary livelihood, and procuring himself cover-
ing, &c. I say the silver of the one must be esteemed
of equal value with the corn of the other."*
Agreeably to this opinion, the value of things
depends on the time consumed in producing them.
Mr. Harris has adopted the opinion of Sir William
Petty in his Essay on Money and Coins: but he has
not stated it in so clear and precise a manner.
"The values of land and labour," says this author,
"do, as it were of themselves, mutually settle or adjust
one another; and as all things or commodities are the
products of those two, so their several values are natu-
rally adjusted by them. But as in most productions
labour has the greatest share, the value of labour is to
be reckoned the chief standard that regulates the value
of all commodities; and more especially as the value of
land is, as it were, already allowed for in the value of
labour itself."
Galiani advances on this subject an opinion appa-
rently singular, but which comes very near that of Sir
William Petty and Mr. Harris.
66
"I think," says he,
that the standard of all value
is man himself, because, next to the elements, there is
not any thing more necessary to man than man; it is
on the numbers of men that the price of every thing
depends. There is, it is true, an infinite distance from
man to man; but if, by calculations, we succeed in
* Treatise of Taxes and Contributions, Ato. 1667. page 23,
S 2
260
ON THE VARIOUS SYSTEMS
!
finding the average value of a man, that value will be
the standard measure of all values, because man is, and
always will be, the same in all countries."*
Adam Smith has adopted the theory of Sir Wil-
liam Petty, and has extensively developed it with that
sagacity and profundity, which are the characteristics
of his excellent mind.
He states, that "the value of any commodity to
those who possess it, and who want to exchange it
for some new productions, is precisely equal to the
quantity of labour which it can enable them to pur-
chase or command." Whence he infers, that "labour
is the real measure of the exchangeable value of all
commodities."
This doctrine had prevailed, and has been adopted
in every work on political economy subsequent to that
of Adam Smith. The Earl of Lauderdale is the
only one who has attempted to oppose it, and, what
is very singular, the noble Earl grounds his criticism
upon
the authority of Adam Smith himself. Although
his criticism is rather long, I did not think it right
to omit any part of it, because it throws great light
upon one of the most difficult and important subjects
of political economy.
"To those who understand any thing of the nature
of value," says Lord Lauderdale, "the existence of
a perfect measure of value must at once appear impos-
sible for, as nothing can be a real measure of length
* Della Moneta.
+ Wealth of Nations, London, 1805, vol. i. book i. chap. 5,
pages 46, 47.
OF POLITICAL ECONOMY.
261
and quantity, which is subject to variations in its own
dimensions; so nothing can be a real measure of the
value of other commodities, which is constantly vary-
ing in its own value. There is nothing which is not
subject to variations, both in its quantity and in the
demand for it.—Things may alter in their value in four
different ways.
66
1st, at periods not remote; as for example, of the
same year.
<<
2d, at remote periods of time, as from one cen-
tury to the other.
"3d, in different countries.
66
4th, in different parts of the same country.
"These may be generally considered as the four
cases which give rise to alterations in the value of all
commodities. Labour, however, is subject not only
to all the usual sources of variation, but possesses
exclusively the characteristic of varying at the same
time and place."
After having thus announced his subject, Lord
Lauderdale proves his assertions by quoting the very
expressions of Adam Smith.
"That labour varies in its value at different periods
of the same year, every person must know, who has
observed" that the demand for country labour is
greater at hay-time and harvest, than during the
greater part of the year; and wages rise with the
demand. In time of war, when forty or fifty thou-
sand sailors are forced from the merchant-service into
that of the king, the demand for sailors to merchant-
ships necessarily rises with their scarcity, and their
Wages upon such occasions commonly rise from a
*
162
ON THE VARIOUS SYSTEMS
guinea and seven-and-twenty shillings to forty shil-
lings and three pounds a month.' *
"That labour varies in its value at distant and
remote periods of time, seems established by the fol-
lowing facts: The real recompence of labour, the
real quantity of the necessaries and conveniencies of
life which it can procure to the labourer, has, during
the course of the present century, increased perhaps
in a still greater proportion than its money price.' +
6
"The comparison made betwixt England and
America shews clearly the difference that takes place
in the value of labour in distant and remote coun-
tries: England is certainly, in the present times, a
much richer country than any part of North America.
The wages of labour, however, are much higher in
North America than in any part of England.' +
"The following facts," observes Lord Lauderdale,
"not only shew the extraordinary variations in the
value of labour that take place in different parts of
the same country but the ingenious reasoning, which
accompanies it, points out why these variations in the
value of labour must be more permanent than in any
other commodity;" and his Lordship again quotes a
passage of the work of Adam Smith, which runs
thus:" Eighteen pence a day may be reckoned the
common price of labour in London and its neighbour-
hood. At a few miles distance, it falls to fourteen
* Wealth of Nations, London, 1805, vol. i. book i. chap. 10,
pages 182, 183.
+ Ibidem, vol. i. book i. chap. 8, page 122.
Ibidem, vol. i. book i, chap. 8, page 109.
OF POLITICAL ECONOMY.
263
and fifteen pence. Ten pence may be reckoned its
price in Edinburgh and its neighbourhood. At a few
niles distance, it falls to eight pence, the usual price
of common labour through the greater part of the
low country of Scotland, where it varies a good deal
less than in England. Such a difference of prices,
which it seems is not always sufficient to transport a
man from one parish to another, would necessarily
occasion so great a transportation of the most bulky
commodities, not only from one parish to another, but
from one end of the kingdom, almost from one end of the
world to the other, as would soon reduce thein more
nearly to a level. After all that has been said of the
levity and inconstancy of human nature, it appears
evidently from experience, that a man is, of all sorts
of luggage, the most difficult to be transported." *
"This pretended accurate measure of value is not
even capable, like other commodities, of forming a
true measure of value at the same time and place;
which is evident when we recollect that, at the same
time and place, the real and the money-price of labour
vary, not only according to the different abilities of the
workmen, but according to the easiness or hardness of
the masters."
66
Finally," adds Lord Lauderdale, "it appears
most extraordinary that the Author of the Wealth of
Nations should ever have considered labour as an accu-
rate measure of value, for he treats in some part of
his work of productive and unproductive labour; and
* Wealth of Nations, 1805, vol. i. book i. chap 8, page 117,
+ Ibidem, vol. i. book i. chap 8, page 121.
J
264
ON THE VARIOUS SYSTEMS
it must be observed, that a proposition holding forth
a mathematical point as a measure of dimension,
would not be more absurd than proposing any thing
unproductive as a measure of value.
66
Great, therefore," concludes Lord Lauderdale,
as the authorities are, who have regarded labour as
a measure of value; it does not appear that labour
forms any exception to the general rule, that nothing
possesses real, fixed, or intrinsic value; or that there
is any solid reason for doubting that things are only
valuable in consequence of their uniting qualities,
which make them the objects of man's desire, with the
circumstance of existing in a certain degree of scarcity;
and that the degree of value which every commodity
possesses, depends upon the proportion betwixt the
quantity of it and the demand for it." *
This criticism of Lord Lauderdale triumphantly
overturns, in my opinion, the notion of an immutable
standard-measure of value, to which Adam Smith
attached so much importance, and for which he felt
so great a predilection. The confession which he is
forced to make, that the value of labour varies from
one place to the other, from day to day, and as it were
from one moment to the other, according as it is
wanted and as it may be procured, strips labour of the
prerogative which he had ascribed to it.
In vain does Adam Smith observe, that it is not
the value of labour that varies, but the value of the
commodities with which it is paid. This is an idle
distinction.
*The Earl of Lauderdale's Inquiry, chap. i. pages 27-38.
OF POLITICAL ECONOMY.
265
As the value of labour experiences a rise and fall
perfectly similar to the rise and fall of the price of
commodities; and as this variation in their respective
values proceeds from the same cause, that is, fron the
proportion of the demand to their abundance or scarci-
ty; there is not any difference possible between the two
values; both are alike liable to vary, and consequently
both are alike unfit to form an invariable measure of value.
Money, it is true, is said not to vary, although a
larger or smaller quantity of money is given at difer-
ent periods for a quarter of corn or a pipe of wine, for
this plain reason.
When more or less money is given at one time than
at the other for a quarter of corn or a pipe of wine, and
the same money is paid as usual for all other commo-
dities, it is evident that, in that instance, it is the
value of corn and wine that varies, because it is
impossible that the value of money, not varying with
regard to all other commodities, should vary with
regard to corn and wine.
But when the value of money varies with regard
to all commodities, that is to say, when a greater
quantity than usual is given for a certain quantity of
commodities, it is the value of money that varies.
This subject has been developed with the greatest
perspicuity by one of the most distinguished modern
Italian writers.
Money," says this able author, who is too little
known, has not absolute value; its value is always
relative; a guinea is the value of a hat, as a hat is the
value of a guinea.-But it ought to be remembered,
that the relation between commodities and money may
266
ON THE VARIOUS SYSTEMS
vary either through a change in the commodities or a
change in the money. In the former case, the price.
of commodities is justly said to be altered; in the
latter, the value of money is said to be altered. If
newly introduced cloth-manufactures cause a greater
quantity of woollen cloth to be purchased with
the same quantity of money as before, whatever
be the altered proportion of money to cloth, the value
of cloth is justly said to be less. But if, on account
of a greater quantity of money being thrown into
circulation, it happens that all commodities fetch
more money than fifty years before, money is justly
said to be depreciated."
The value of money therefore cannot vary, though
more or less money is given than formerly for certain
commodities; its value experiences an actual variation
only when more money than usual is paid for every
commodity.
But the case is different with labour. Its value
cannot vary, unless that of each commodity in parti-
cular and of the aggregate of all commodities and of
If the value of
money itself varies together with it.
labour rise, it causes all other commodities and even
money to sink in the same proportion, that is to say,
that if a day's labour which was at 15d. rises a fifth,
all commodities and money by which it is to be paid
sink or are depreciated one fifth; or, in other words,
it requires one fifth more of commodities or money to
pay for a day's labour. The case is the same, if a
day's labour sinks a fifth; commodities and
money
Jean Baptiste Vasco; Della Moncta; Turin, 1787, 1788.
in
I
OF POLITICAL ECONOMY.
267
that case rise one fifth, or it takes one fifth of commo-
dities or money less to pay for labour.
It is therefore evident, that as commodities and
money are invariable and labour variable, it is the
value of labour that varies, and not the value of com-
modities and money. Consequently, the value of
labour varies like that of all other values, and labour
is no more than any of them entitled to be considered
as a general measure of value. *
Seduced by the opinion that objects have a real
value independent of their being exchanged, of which
value labour is the accurate measure, Adam Sunith
has successively extended this attribute to money in
some cases, and corn in others, and thought, that
wages of labour, money, and corn, are capable of pre-
serving values more or less intact in the midst of the
changes, alterations, or modifications occasioned by
time in all things. He says: "Stipulations to be paid
in corn, in cases of long leases, reserved perpetual
rents, or contracts of extensive and as it were unli-
mited duration, keep their value better than if the
payments are stipulated to be in money ;" and he
supports his opinion by the experience of the last
centuries. But I do not think it better founded on
that account.
* But it is on the ground of labour, or the produce of previous
labour, being the only legal way of arriving at the possession of
things of value, that labour may in some degree be considered as a
gencral measure of exchangeable value, or as a standard by which
the exchangeable value of all commodities may be determined.—
Boileau's Introduction to the Study of Political Economy. book i.
chap. 8, pages 62. 63.
268
ON THE VARIOUS SYSTEM
When a proprietor quits his property against a
reserved perpetual rent, or when he grants a long
lease to a farmer against a fixed rent, he neither
regards the real value of his property, as it has no such
value, nor the value he is to enjoy at a future time,
which is unknown. By what rule then does he fix
the perpetual reserved rent, or the rent of a long
lease? Simply by the exchangeable value of his pro-
perty at the time it is sold or taken in farm upon a long
lease, and by the opinion he has of the events by
which its value may be modified during the duration
of the reserved rent or of the long lease. He enters
rather into a gambling contract than a contract grounded
upon equivalents. His efforts to balance, by the
nature of the reserved rent or of the rent to be paid
by his farmer, the risks which he runs, must always
prove nugatory; because the obscurity in which fu-
turity is involved is an impenetrable cloud to his
interested views.
This profound obscurity can derive no light from
the experience of the last centuries. The circum-
stance that feudal, perpetual, or quit-rents, stipulated
to be paid in corn in the fifteenth century, have bet-
ter kept their value than those that were stipulated to
be paid in money, can afford no rule of conduct for
the future. The fact is owing to a particular event,
which probably will not occur again, and from which
no general and universal principle can of course be
inferred.
Ever since social order has been consolidated, and
since the mercantile system exercises a salutary influ-
ence over the political system, money has experienced
OF POLITICAL ECONOMY.
269
greater variations than corn, because commerce and
industry have introduced a quantity of money superior
to the quantity of corn with which agriculture has
been able to furnish commerce; and
commerce; and particularly
because money, by being abundantly diffused among
all the classes of the people, has conferred a greater
exchangeable value upon corn; stipulations to be
paid in corn must therefore have become more advan-
tageous than stipulations to be paid in money.
But, if the military system had prevailed and con-
centrated all the precious metals in the metropolis and
among a small number of individuals, would not the
contrary have happened, and would not those stipula-
tions to be paid in money, which are so detrimental
to proprietors and creditors, and so profitable to farmers
and debtors, have proved ruinous to the latter and
favourable to the former? The stipulations to be paid
in corn would have afforded results similar to those
arising from stipulations to be paid in money.
Let us therefore conclude, that men are deluding
themselves when they imagine they can subject futu-
rity to steady and permanent laws, and imprint on
their
power, which is limited and circumscribed by
the fluctuation of events, the immensity and immobility
of eternity. Whatever efforts we may make, we shall
never be able to extend our dominion beyond the pre-
sent moment, or to give, during this short space of
time, a fixed and steady value to things. That value is
subject to the laws of exchanges, and to the proportion
of the demand to the abundance or scarcity, which is
always fluctuating, and which cannot be fixed nor sub-
jected to steady and permanent rules.
}
270
ON THE VARIOUS SYSTEMS
We must however acknowledge, with Adam Smith,
that this perpetually fluctuating value of things tends
to being fixed, since it always gives the producers the
equivalent of what their production has cost. Else
productions that do not obtain this equivalent, this
just return, would no longer be reproduced, or they
would be reproduced only in a proportion calculated
to re-establish the equilibrium of their exchangeable
value. Thus a natural proportion is, as it were,
established between the different productions of man's
labour; none has a lasting and permanent prepon-
derance over the other, but up to what it has cost.
Beyond this all are measured, not by their real, but by
their relative value; not by their cost price, but by
what they are worth. So that it is the exchangeable
value which ultimately gives to every producer the
equivalent of what his commodity cost to produce, and
consequently secures the producers against loss.
But does not this exchangeable value afford to
some producers profits superior to those which it gives
to others; and are commercial exchanges to be conti-
nued, and circulation to be maintained in its activity,
in that case?
In spite of the tendency of exchangeable value to
insure to every producer the equivalent of what his
production has cost, it yet cannot be denied that, when
exchangeable value has reached this point, it is liable
to vary and to grant to some producers advantages
which it denies to others. Suppose a farmer expends,
either in wages, interest of capital, or rent, one hun-
dred pounds sterling, to grow fifty quarters of corn;
whilst a manufacturer of woollen cloth expends only
OF POLITICAL ECONOMY.
271
seventy-five pounds to manufacture one hundred yards.
of cloth, the exchangeable value of which is one hun-
dred pounds; it is obvious that the farmer, if he
obtain only one hundred pounds for his fifty quarters
of corn, is less benefited by a fourth, or five-and-
twenty pounds, than the manufacturer; and that, as
long as their respective situation is the same, the wealth
of the manufacturer is progressive, and that of the
farmer stationary.
Adam Smith observes, that the superiority of certain
labours and employments of capital over other labours
and employments of capital cannot be of long duration,
because those which are least favoured go over to the
most favoured ones, and by their competition re-estab-
lish, if not a perfect equality, at least a certain pro-
portion between the profits of all labours and employ-
ments of capital.
This is, no doubt, the case when the exchangeable
value does no longer afford to a labour or employment
of capital, the equivalent of what its production has
cost; because, in that instance, the smallness of the
equivalent informs the producer of his loss: but it is
difficult to conceive how this can happen, when the
equivalent covers all the expences of the producer,
when nothing informs him that what he has obtained
as an equivalent has not cost so much to produce as his
production. I am even convinced that it never hap-
pens in common life, and that, among all labourers
and employers of capital, there are not two classes, or
perhaps not two individuals, capable of discovering
which labours and which employments of capital yield
272
ON THE VARIOUS SYSTEMS
the best returns. Every'one is attached to the labour
or employment of capital to which he has given the
preference; and when he begins to perceive that it is
not as profitable as others in which he might have
embarked, it is generally too late to quit his pursuit
and to go over to that which he ought to have pre-
ferred.
To inquire into the most advantageous employment
of capital appears, after all, not desirable; the private
wealth of certain classes and individuals resulting from
the advantages which exchangeable value gives them,
affords an incitement to general emulation, activity,
and industry, and to aim at effecting a proportionate
equality in the benefits of all labours and all employ-
ments of capital, would perhaps be attended with
pernicious consequences.
The case is different when the advantages which
exchangeable value gives to certain productions are
derived from bad laws or the partiality of govern-
ments, and due to monopolies, privileges, and bounties.
Discouraged by the privations to which they are
doomed, and sometimes by the sacrifices to which they
are forced, the labouring classes are then pining, they
attach less importance to the increase of their capitals,
and both their industry and wealth decline apace.
Except this highly important case, which is little
attended to, I think national wealth has nothing to
apprehend from, and cannot be injured by, the inequa-
lity of profits resulting from the various exchangeable
value of the produce of labour which is circulated at
home.
OF POLITICAL ECONOMY.
273
But is the inequality of profits in the exchange of
home for foreign produce equally harmless?
Suppose a nation excels another in industry, in the
accumulation of capitals, and in sciences and arts, and
both nations interchange the produce of their labour;
will not the productions of the industrious, enlightened,
and wealthy country, have a more considerable ex-
changeable value, than those of the country inferior in
knowledge, industry, and wealth? As her productions
are really better, more acceptable, and cheaper, will
they not be preferred? And if the circulation of the
foreign commodities meet with no obstacles, will not
labour diminish in one country, and augment in the
other; or, at least, will not one nation appropriate to
itself the most lucrative labour, and steadily advance
on the road to wealth, whilst the other, being confined
to the least profitable labour, pines in continual and
intolerable misery:
Among the distinguished writers who hold this
opinion, David Hume and Cantillon, in particular,
think that rich nations are far from having the advan-
tage in their dealings with poor nations, and that the
latter generally get rich in the end at the expence of
the former.
"The advantages of a rich trading country," says
David Hume," are compensated in some measure by
the low price of labour in every nation which has not
an extensive commerce. Manufactures gradually shift
their places, leaving those countries and provinces which
they have already enriched, and flying to others,
whither they are allured by the cheapness of provisions
Τ
274
ON THE VARIOUS SYSTEMS
and labour, till they have enriched these also, and are
again banished by the same causes.” *
But the observation is more specious than founded.
A country can grow rich only when industry is fa-
voured by nature, and ably seconded by government :
in proportion as prosperity increases, the wages of the
labouring classes are raised. But let it not be supposed
that increased wages are necessarily productive of higher
prices.
When the labourer is well paid, he labours
more and better; the high price of his labour is profit-
ably compensated by an enlarged and improved produce.
The fact is established by every traveller who has com-
pared the produce of labour in countries where labour
is badly or well paid.
The cheapness of capitals, on the other hand, sinks
the price of the productions of the rich country, be-
cause it affords the means of setting up machines which
shorten and facilitate labour, of selecting the best raw
materials, and of granting long credits; all which are
advantages so superior to low wages of labour, that
they insure to the nations that enjoy these advan-
tages, an absolute preponderance over those that have
them not.
Lord Lauderdale says precisely the same. The
noble Earl thinks, that David Hume "did not suffi-
ciently attend to the unlimited resources that are to be
found in the ingenuity of man in inventing means of
supplanting labour by capital; for any possible aug-
mentation of wages that increased opulence can occa-
* Essays by David Hume, Edin. 1804, vol. i. of Money, p. 300.
OF POLITICAL ECONOMY.
275
sion, is but a trifling drawback on the great advantages
a country derives, not only from the ingenuity of man
in supplanting labour by machinery, but from capital
laid out in roads, canals, bridges, inclosures, shipping,
and employed in the conduct of home and foreign
trade." *
The sentiments of Cantillon and David Hume on
this subject ought therefore not to arrest our attention
any longer.
But Dr. Quesnay has started a singular opinion.
He not only is not afraid of the augmentation of
the wages of labour raising the prices of productions and
injuring their sale; but he even wishes to persuade us
that the low price of labour, which sinks the exchange-
able value of commodities, renders the trade with a
foreign country less profitable. "The national income,"
says he, "is always greater in proportion as the ex-
changeable value of commodities is high. Abundance
and dearness are opulence."+
This doctrine is absolutely contrary to the elementary
notions of political economy. If man's propensity to truck
and barter, or rather his desire of enjoyment and happi-
ness, promotes the circulation of the produce of labour, it
must be more active when the number of those who have
any thing to exchange is considerable, and when the
objects to be exchanged are in great quantity and
variety; when the commodities to be exchanged origi-
nally cost little, and when their price is within the
reach of a larger number of consumers; or, in other
* The Earl of Lauderdale's Inquiry, chap. v. page 299.
+ Physiocratic, Max. 18, page 116.
T 2
276
ON THE VARIOUS SYSTEMS
words, the cheaper commodities are, the more con-
sumers do they find, the less precarious is their sale,
and the more profitable are their returns.
Mr. Say has expressed this truth by an image of
great brilliancy and admirable correctness.
"Consumption," he
he says,
"resembles
a huge
pyramid; the breadth of the pyramid represents the
number of consumers, or the extent of the demand;
and its height, the price of the commodity: the higher
the price, the smaller the breadth; that is, the demand.
Sometimes the natural price of certain commodities
rises higher than the pyramid; that is, to a height where
there is no demand; such commodities are no longer
produced."
If such be the ultimate result of the high price of la-
bour, (and the fact is certain,) it is evident that opulence
does not consist in abundance and dearness, which are
incompatible; but in abundance and cheapness, which
always harmonize. In short, nations are so much the
richer, as commodities are in greater plenty and at
lower prices; and by a consequence equally infallible,
their commerce is so much the more profitable, as the
productions of their labour are cheap.
What then ought nations to do that are poor, or
inferior in wealth, and do not derive from the general
circulation of the produce of their labour the same
profits as rich nations?
Must they insulate themselves, multiply custom-
houses and prohibitions, and refuse to communicate
with richer nations?
* Traité d'Economie Politique, par Say, tome ii. page 72.
OF POLITICAL ECONOMY.
277
The best-guarded toll-bars are generally powerless
against the cheapness and perfection of foreign com-
modities. Private interest easily overleaps them, and
turns them to the disadvantage of the people whom
they keep confined.
These bars not only do not exclude the productions
of rich countries, but this very obstruction causes them
to stand much dearer to the poor country, and, what is
still more deplorable, forces the poor country to sell its
own produce cheaper, because there are less competitors
to export it. Thus poor nations are punished for their
endeavours to do without the raw and manufactured pro-
duce of rich countries. And were their imprudent efforts
crowned with success, they would be still more mise-
rable. They would deprive themselves of the certain
profits arising from the cheapness of the foreign com-
modities and from the dearness of their own produc-
tions. For it is an undoubted truth, that foreign
produce is imported only as far as it is cheaper than
the home-produce; and for the same reason, home-
produce is exported only because it obtains higher
prices abroad than in the home-market. The rule is
infallible; it proceeds from the immutable order of
things, and is not liable to any exception.
Nature has granted every country some particular
advantages, of which she cannot be stripped, and of
which others can partake only as far as they let her
enjoy part of the advantages of which she is deprived.
Nations that resist this communication of mutual
benefits, are dooming themselves to fruitless privations.
To attempt to conquer such difficulties by national
industry, is often impossible, and always more expen-
Uor M
278
ON THE VARIOUS SYSTEMS
5
sive, than to acquire the foreign commodities by an
interchange of national productions. Commerce
preserves to every country her advantage in the kind
of industry for which she is peculiarly fit, and allows
that industry to be improved by a concentration of
capital; whilst the attempt to rival foreign industry
in every particular, and to do without foreign produce,
weakens and splits its capitals, hurts national industry,
impedes its productiveness, stints its growth, and con-
verts its ramifications into as many parasite branches
which unprofitably suck the sap of the tree and remain
barren twigs.
Left without rivals, without competition, and aban-
doned to its own impulse, national industry painfully
drags along in the beaten tract, it derives no benefit
from the progress of general industry, and without
having decayed, experiences a fatal decline. Such is
the ultimate fate of every nation that disdains foreign
commerce, and fancies it can exist without any inter-
course with other nations, or at least that deems itself
so much the richer as its exterior communications are
few, and as it has more internal means to supply its
wants. It stops the progress of wealth, condemns
itself to everlasting mediocrity, and obstructs the gran-
deur of its destiny.
There is however, it must be confessed, one peculiar
case in which a nation ought to renounce all inter-
course with other nations; this is, when its government
is so bad, that it strips it of all means to rival other
nations in any production and in any branch of
industry whatever. Such a nation is forced to
renounce general commerce, otherwise its resources.
OF POLITICAL ECONOMY.
279.
would soon be exhausted, it would become tributary
to nations that are better governed, and never could
shake off its dependence. Nations smarting under a
bad government would labour for those which enjoy a
good administration, and the latter would enrich them-
selves with the sweat of their brows: sad and deplo-
rable result, which teaches the depositaries of the
fate of nations the necessity of attentively studying
the causes of their prosperity, which is the basis of
political power.
Adam Smith states three other cases in which
nations ought to restrain the circulation of the produce
of general labour.
CC
The first is, when the safety of the country is con-
cerned; which was, says he, the case with England
when her act of Navigation was framed; an act
prejudicial to the growth of wealth: but as defence is
of much more importance than opulence, the act of
Navigation is, perhaps, the wisest of all the commercial
regulations of England."*
This manner of viewing the English act of Naviga-
tion betrays in the author a greater attachment to his
country than to truth.
Before this act of Navigation, the Dutch had the
greatest share in the inaritime commerce of the world,
and were indebted to their trade for a formidable navy
and immense riches. But whatever might have been
their power in both these respects, it could not threaten
the safety of England; and it cannot be supposed that
* Wealth of Nations; London, 1805; vol. ii. book iv. chap. 2,
page 203.
280
ON THE VARIOUS SYSTEMS
a population of about two millions of individuals, who
had scarcely attained the rank of a free and indepen-
dent nation, could inspire with serious alarms a, popu-
lation of five or six millions, who were still burning
with the enthusiasm of liberty. Adam Smith himself
acknowledges as much.
"In the Dutch war," he says, "during the
"during the govern-
ment of Cromwell, the navy of Great Britain was
superior to that of Holland; and in the war which
broke out in the beginning of the reign of Charles II,
it was at least equal, perhaps superior, to the united
navies of France and Holland."*
The safety of England, therefore, was not, as Adam
Smith pretends, the true cause of the framing of the
act of Navigation. Its regulations proceeded from
national animosity, rivalship, and ambition; and
they certainly were well calculated to gratify such
dreadful passions.
By excluding from the ports of England vessels
that imported any other produce than that of their-
own country, the act of Navigation seemed to invite
all maritime nations to share in the advantages of navi-
gation which the Dutch enjoyed, as it were, exclu-
sively. But as those nations had no vessels, they could
not avail themselves of the advantage that was offered,
nor enrich themselves with the spoils of Holland; so
that this measure weakened the naval power of Hol-
land without any benefit to the maritime nations. No
one except England reaped any profit from it not
only was her naval strength increased by the weakness
*Wealth of Nations, vol. ii. book iv. chap. 7, page 454.
N
OF POLITICAL ECONOMY.
281
of her rival, but she also succeeded Holland in that
maritime trade which she had interdicted. From that
instant the naval power of Great-Britain acquired an
absolute preponderance over that of all other nations,
and ruled the seas.
Had the maritime and continental nations of Europe
been alive to their true interests, they might easily
have counteracted a measure pernicious to the circu-
lation of their produce. It would have been sufficient
to exclude from their ports British ships loaded with
any other than British produce; and the consequence
would have been this :
England, being reduced to carry in her ships her
own raw and manufactured produce, could not have
profited by the spoils of Holland, nor could she have
grown rich by the losses of the Dutch. Her naval
power, limited by that of her rival, could not have
dictated laws to the other seafaring nations.
Sweden alone dared to resist this imperious mea-
sure, and forced England to relinquish it towards
her. *
But the example was not followed. The other
nations submitted to the yoke; and from that instant
*Macpherson's Annals of Commerce, vol. ii. page 552; or
Anderson's Origin of Commerce, vol. ii. pages 145, 146; where
it is said, that: although one of Sir Josiah Child's most prin-
cipal aims was the pointing out the increasing commerce of Hol-
land, yet, in the close of his Preface, he observes, that the Swedes
have laid such high impositions on their own merchandize, unless
they be carried in Swedish bottoms, as amounts to almost a navi.
gation act in Sweden."-T.
282
ON THE VARIOUS SYSTEMS
England exercised an absolute dominion over general
circulation, or commerce.
It is therefore without any foundation that Adam
Smith has transformed the English act of Navigation
into an act of safety. It is evidently nothing but
an act of hostility and ambition, incapable of forming
a just exception to the necessity of a free circulation of
the produce of general labour.
The second case, which, according to Adam Smith,
ought to induce a nation to restrict the liberty of com-
merce, is when the produce of foreign industry is not.
burthened with a tax equal to that imposed upon the
produce of inland industry. He thinks it is then rea-
sonable that an equal tax should be imposed upon the
like produce of foreign industry, because foreign
industry would else have a certain advantage over the
produce of national industry.
This second limitation of the freedom of trade has
led Adam Smith to examine whether it ought to be
extended to the produce imported from countries
which impose no tax upon objects of the first neces-
sity, whilst in the country into which they are imported
the necessaries of life are burthened with a tax.
And
although this second case appears every way similar to
the first, his decision is precisely the contrary to
what it had been in the former case. The arguments
on which he grounds this diversity of opinion, are:
1. That it might always be known with great exact-
ness how far the price of such a commodity could be
enhanced by such a tax but how far the general
enhancement of the price of labour might affect the
OF POLITICAL ECONOMY.
283
price of every different commodity about which labour
was employed, could never be known with any tole-
rable exactness.
2. That taxes upon the necessaries of life have
nearly the same effect upon the circumstances of the
people, as a poor soil and a bad climate; and as in this
case it would be absurd to direct the people in what
manner they ought to employ their capitals and
industry; it would be equally absurd, on account of
an artificial scarcity arising from such taxes. To be
left to accommodate their industry to their situation, and
to find out those employments in which, notwith-
standing their unfavourable circumstances, they
might have some advantage either in the home or in
the foreign market, is what in both cases would evi-
dently be most for their advantage,
3. That, to lay a tax upon the foreign produce,
because the home produce is already overburthened
with taxes, and to make the natives pay dear for the
greater part of other commodities, because the neces-
saries of life are dear, are certainly two most absurd
ways of making amends. *
But in spite of Adam Smith's endeavours to estab-
lish a difference between the two cases, I think there
is none to burthen the produce of foreign industry
with taxes equal to those imposed upon the produce
of national industry, and not to impose any tax upon
the raw produce of a foreign country, although the
produce of the soil at home is burthened with a tax,
appears a contradiction. If, in the first case, national
* Wealth of Nations; London, 1805; vol. ii. b. iv. ch. 2, p. 206.
284
ON THE VARIOUS SYSTEMS
industry would be discouraged, national agriculture
would be alike discouraged in the second. Conse-
quently, if the equality is to be restored in one case,
it ought to be so in the other.
The question therefore remains, and we must still
examine, whether nations ought to refuse circulating
the raw and manufactured produce of other countries,
under the pretence that the exchangeable value of their
productions does not afford them equivalents equal to
those which the foreign producer receives. I think
the question is completely answered by what I have
stated above.
If the equivalent obtained by commerce does not
repay the national producer for what his commodity
has cost him to produce, he will cease producing it,
and empley his capital and industry in some other
labour in which he is enabled to stand the competition,
and to reap profits equal to those of the foreign trader;
or if all productions are burthened with taxes to such a
degree, that none can stand the competition with
foreign productions, not even in the home-market,
government in that case is so bad, that it becomes a
matter of indispensable necessity to stop all kind of
foreign commerce.
Finally, Adam Smith examines how far it may be
proper to continue the free importation of certain
foreign goods, when the foreign nation restrains, by
high duties or prohibitions, the importation of some of
our manufactured produce into their country; and he
justly decides, that when there is no probability that
retaliation will procure the repeal of such prohibitions,
it is a bad method of compensating the injury done to
OF POLITICAL ECONOMY.
285
certain classes of our people, to do another injury our-
selves, not only to those classes, but to almost all
classes of the community. Such law would impose a
real tax upon the whole country, not in favour of that
particular class of workmen who were injured, but of
some other class *.
Thus, of all the motives which may induce a nation
to prohibit the importation of the produce of other
countries, there is but one that is reasonable and just,
because it is necessary; I mean when the government
of our own country is so defective, that none of our
home-productions can stand a competition with foreign
productions even in the home-market; when national
industry is not capable of being stimulated by the
rivalship of foreign industry; and when the people,
being discouraged and debased, abandon themselves
to sloth and misery. Except this case, foreign com-
merce or general circulation is beneficial, useful, and
profitable to all, and contributes, if not with equal,
at least with certain success, to the progress of public
and private wealth.
The author says: “ Autrement c'est imposer une taxe sur
tout le pays en faveur de la classe d'ouvriers qui fournit les pro-
duits prohibés;" which is perfectly correct: but Adam Smith
shews particularly, that the workmen who suffer by our neigh
bour's prohibition are not benefited by ours, which is the main
point of the question. (Wealth of Nations, 1805, vol. ii. book iv.
chap. 2, pages 207-210.)-It is this point which the framers of
the famous English Orders in Council, by which it was intended to
retaliate upon France, appear not to have sufficiently considered..-T.
286
ON THE VARIOUS SYSTEMS
CHAP. III.
Of the influence of Money and Credit upon the Cir-
culation of the Produce of Labour.
As soon as mankind discovered that commodities
have no value but what is determined by their being
exchanged, they must easily have perceived that this
value is always in proportion to the extent of the
competition; that is to say, that the more a produce
is sought for, the more is its exchangeable value
enhanced of course, every producer would carry his
productions to the place where the competition was
the most considerable, and consequently the market of
the borough must have been preferred to the village-
market, that of the town to the borough's, that of the
capital to the town's, and that of great fairs and staple
cities to the market of capitals.
:
This direction of the circulation of the produce of
labour is visibly the work of commerce; and it is
exclusively to merchants that we are indebted for the
benefits which it diffuses.
The interest of the producers and traders would,
however, have been but imperfectly consulted, if on
the most advantageous spot for their exchanges they
should have been unable to procure the commodities
they wanted otherwise than by the actual interchange
of raw and manufactured produce. How many
exchanges would they have been obliged to make
OF POLITICAL ECONOMY.
287
before the grower of a quarter of corn could have
obtained a dozen of stockings or a pair of boots, or
before the corn-merchant could have exchanged his
stock of wheat for the commodities he wanted! What
toils, what trouble must they have undergone, how
much time must they have lost, before they could
accomplish an operation so simple and so easy!
How was this operation discovered? how was the
material or actual exchange of produce avoided, and yet
its reciprocal value fixed, as if the exchange had been
effected with material produce?
Adam Smith supposes, that after the first establish-
ment of the division of labour, every prudent man,
in every period of society, must naturally have endea-
voured to manage his affairs in such a manner as to
have at all times by him, besides the peculiar produce
of his own industry, a certain quantity of some one
commodity or other, such as he imagined few people
would be likely to refuse in exchange for the produce
of their industry; that many different commodities
were at different times employed for this
purpose. In
the first ages of Greece, cattle was thus employed;
in Abyssinia, salt; in some parts of the coast of India,
a species of shells; dried cod, at Newfoundland;
tobacco, in Virginia; sugar, in some of the West-India
islands; and hides, or dressed leather, in some other
countries. *
It evidently follows from these facts, that, in the
very first stages of civilization, men determined the
exchangeable value of the produce of their labour,
* Wealth of Nations, vol. i. book i. chap. iv, page 36.
288
ON THE VARIOUS SYSTEMS
C
not by comparing it with the commodities offered, to
them in exchange, but by comparing it with a pre-
ferred produce. Thus the owner of a quarter of corn
did not say My quarter of corn is worth the dozen
of stockings, or the pair of boots that I am offered for
it' but it is worth so much of the preferred com-
modity, as will get me a dozen of stockings, or a pair
of boots.-This new mode of exchanging simplifies the
operation, and yet leads to the same results.
6
Had matters continued in this primitive simplicity,
the nature of the preferred commodity and its func-
tions in exchanges would never have been mistaken,
and the numberless and fatal errors of the monetary
system would have been avoided.
But merchants having succeeded in making all
civilized nations receive gold and silver as the preferred
produce, it became necessary to fix the exchangeable
value of the precious metals, to divide them in por-
tions proportioned to the wants of commerce, and to
assign to each portion a value strictly proportioned to
the totality of the value assigned to a certain mass of
gold and silver.
This operation appeared impossible, not only on
account of the exchangeable value of gold and silver,
being liable to fluctuate like all other values, but
also from the difficulty of giving to the coined metals
a numeric value and an invariable fineness always
equivalent to their intrinsic value.
This second impossibility has been officially and
solemnly recognised at a period not very remote from
our time.
In 1788, the French government consulted the
OF POLITICAL ECONOMY.
289
Royal Academy of Sciences, to know whether it was
possible to give to coined metals a monetary value
and an invariable fineness always equivalent to their
intrinsic value. Five academicians*, who were named
commissioners for this purpose, demonstrated by dif
ferent experiences, that it was not possible to fix with
strict accuracy the relation of two representative
and intrinsic values, both because it is impossible to
determine the quantity of alloy to be added to the
precious metals for the purpose of giving the coin
that resistance and incorruptibility which form one of
its essential properties, and because it is extremely
difficult to render perfectly homogeneous a mixture of
metals which prevents the precise quantity of each
being ascertained, as the alteration which the action
of the fire may produce upon them cannot be fore-
seen.
This defect, peculiar to the converting of gold and
silver into money, was, however, neither the most dis-
agreeable nor the most prejudicial to the general cir-
culation of commodities. An enlightened govern-
ment might wish to make it disappear, and to give its
coin the highest attainable degree of perfection: but
this praiseworthy attempt could not remedy the origi-
nal defect inherent in metallic money; that is, it
could not confer upon gold and silver coin a positive
and absolute exchangeable value, when that value is
and can be but relative to the demand for coin and
to the quantity in circulation. It is this defect which
Borde, Condorect, La Grange, Lavoisier, and Tillet.
+ Histoire de l'Académie des Sciences, année 1788.
U
290
ON THE VARIOUS SYSTEMS
has given rise to the frequent alterations of the monc-
tary system, to the numerous errors with which these
alterations have been attended, and the countless sys-
tems invented to correct or prevent them.
The first difficulty on this subject is to know what
is meant by money, what is its nature, and wherein
it consists.
Several writers, and among them the celebrated
Montesquieu, consider money as an ideal and arbi-
trary sign of value; and it will easily be credited that
a doctrine, so favourable to the supreme authority,
was immediately adopted by all governments. They
have ali alternately raised or sunk the nominal value.
of money according to their wants and temporary
interests; and what is not less strange is, that when
this injury was done to public and private property,
governments were ignorant of the nature and extent
of the evil which they brought upon individuals and
nations. The most intelligent men of all nations.
have been obliged to devote their studies to elucidate
this important part of the science; and it is now
demonstrated that the value of money can only be
raised or sunk in three different ways:
Either by altering its fineness and standard;
Or by diminishing its weight;
Or by giving it a value superior to the exchangeable
value of the metals of which it is composed.
When governments alter the fineness or standard
of money, and yet retain its nominal value; if the
alteration amounts to 1-20th, the state loses 1-20th of
what is due to it from abroad; or, if the state is
indebted to foreign countries, it pays 1-20th more,
OF POLITICAL ECONOMY.
291
because the foreigner is paid in merchandize, and
gets 1-20th more than he would have got had not the
standard of money been altered. Foreigners even do
not confine themselves to this benefit; they introduce
counterfeit money into the country, and gain the dif
ference between the nominal value of the new and
the real value of the ancient coin.
The advantages which foreigners derive from the
altered standard of money, influence the exchange,
turn it against the state, and in a short time exhaust
the country of its wealth.
An alteration in the weight of coin, without med-
dling with its standard and its nominal value, is liable
to less inconveniencies, because the nation imme-
diately perceives this alteration, and guards against it
by raising the price of the produce of labour.
But this raising of prices in proportion to the
diminution in the weight of money, does not either.
prevent or stop the evil. The heavy coin is exported
or melted; the active debts which the state has out-
standing abroad, are reduced by the whole amount of
this diminution in the weight of the coin; which
reduction occasions incalculable losses in trade.
Finally, the raising the value of money without
altering either its standard or its weight, furnishes
foreigners with the means of liquidating their debts
with a smaller quantity of the precious metals, or
getting paid for what is due to them by requiring a
more considerable value; of purchasing the national
produce cheaper, and selling their own at the same
price as before; of introducing counterfeit money
into the state, and of profiting by the difference
U 2
292
ON THE VARIOUS SYSTEMS
between this counterfeit coin and the real price of the
precious metals.
This occasions the same disadvantages in the ex-
change, which have been observed with regard to the
alteration of the fineness or standard of money.
Independently of the losses which the alteration of
money brings upon nations in their commercial deal-
ings with other nations, its effects are not less disas-
trous in their interior, civil, and domestic concerns.
1. It causes money to be hoarded, which obstructs
payments, multiplies failures, impairs credit, dimi-
nishes and interrupts labour, reduces the labourers to
misery, and occasions universal despair.
2. It alters the price of wages and of personal ser-
vices, and the stipulations of contracts, deprives
labourers, servants, pensioners, and creditors, of part
of what is due to them, encourages bad faith, and
inflicts a fatal blow to morals.
3. It deprives the sovereign of part of his revenue,
forces him to disastrous measures, exposes the state
and the subjects to violent commotions, and carries
disorder and confusion into every department of civil
society.
Not only ought money not to undergo any alteration
in its standard or fineness, or in its weight and ex-
changeable value; but if it be composed of different
metals, the proportion of their exchangeable value
must also be strictly preserved; so that if the exchange-
able value of gold is to that of silver as one to fifteen.
that proportion must be accurately observed between
the two metals; else the coin, the exchangeable value
of which is superior to its nominal value, would
OF POLITICAL ECONOMY.
293
immediately be exported or melted, whilst that of
which the exchangeable value is inferior to its nominal
value, would occasion an importation of counterfeit
coin, which would bring a double loss upon the state
and injure internal circulation.
Lastly, the coin of a country ought not only to
preserve the proportion of its exchangeable value;
that proportion ought also to be observed in the frac-
tions of coin, else the nation is again exposed to have
its over-heavy fractional pieces of coin exported or
melted, and the lighter ones counterfeited.
These inconveniencies of the monetary system,
which have been so well developed by celebrated
writers*, overturned the opinion which had at first
been formed of money, and it was no longer consi-
dered as an ideal and arbitrary sign of value. It was
supposed that the share which money has in the inter-
change of commodities consists in fixing the value of
each produce. Accordingly, the most enlightened
writers, among whom ranks David Hume, taught
that money is nothing but the representation of
labour and commodities, and serves only as a method
for rating or estimating them."
66
(6
Money," says Hume," is not, properly speak-
ing, one of the subjects of commerce; but only the
instrument which men have agreed upon to facilitate
the exchange of one commodity for another. It is
not one of the wheels of trade; it is the oil which
* In England, by Locke; in France, by Dutot; in Italy, by
Davanzati, Broggia. Galiani, Carli, Neri, and Beccaria.
294
ON THE VARIOUS SYSTEMS
บ
renders the motion of the wheels more smooth and
easy.*"
Though this opinion is rather incorrect, (as we shall
see hereafter,) it yet had one good effect; it led to
the inference, that since money is the standard mea-
sure of value, it cannot be altered without injuring
commerce. To augment the value of a coin, a sixth,
by altering its standard, its weight, or the exchange-
able value of the metal of which it is composed, was
perceived to be exactly the same operation as if the
capacity of a bushel was feduced by a sixth, and that
measure yet retained the same name. It hastened the
discovery that such an alteration destroyed commer-
cial relations, injured civil transactions, and paralysed
business; and the necessity of respecting the stan-
dard measure of exchangeable value was at length
submitted to.
Enlightened by the errors of the writers who had
gone before them, Count Verri in Italy, and Adam
Smith in England, gave accurate notions of the nature
and functions of money.
"Some," says Count Verri,
66
fancy that money
* Hume's Essays, Edinb. 1804, vol. i. of Money, page 299.
But the quotation in the French has this comparison: "L'argent
peut être comparé à beaucoup d'égards aux voiles d'un vaisseau
sans le secours desquelles un batiment ne pourroit traverser l'espace
des mers et naviguer dans les pays les plus éloignés." Which is
probably taken from one of the first editions of Hume's Essays;
for I have not been able to find this comparison in any of the later
editions. Its purport is, that money may, in many respects, be
compared to sails, without which a ship could not cross the seas and
reach the most distant shores.-T.
OF POLITICAL ECONOMY.
295
is the representative of the value of things: but money
is a commodity, a metal, whose value is represented by
the commodity for which it is exchanged; and the,
property of representing value is common to any other
merchandize.
"Others think money is a pledge, an instrument to
obtain merchandize: but merchandize is likewise a
pledge, an instrument to obtain money; and any mer-
chandize is also a pledge, an instrument to obtain any
other merchandize.
"Others still define money the common measure
of things; they forget that money is a value, and
the raw material of many manufactures, and that
whatever has a value is measured by the value of other
commodities.
"These definitions, therefore, do not particularly
agree with money and do not comprise all its attributes.
The error arises from the anxiety of considering
money as something more than a simple metal.
Money has a stamp, but receives no value from this
stamp.
(C
Money is the universal merchan dize, that is, the
merchandize which, on account of the smallness of
its volume, which renders its transport easy, and on
account of its divisibility and incorruptibility, is univer-
sally acceptable and taken in exchange for any other
merchandize. I therefore think that considering
money in this point of view, is attaching to it the idea
which corresponds with all its functions.”*
The definition which Adam Smith gives of money,
Della Econ. Polit. § ?.
296
ON THE VARIOUS SYSTEMS
譬
​though less circumstantial than that of Count Verri, is
precisely the same.
6.6
"In all civilized nations," says Adam Smith,
money has become the universal instrument of com-
merce, by the intervention of which goods of all
kinds are bought and sold, or exchanged for one
another."*
Reduced to its true nature, that is, considered as a
preferred commodity, and, as such, as a general instru-
ment of commerce, money has been released from
that dependent and arbitrary state to which it had
been too frequently exposed, and henceforward it is
safe against all financial or fiscal operations.
As a produce of labour, money has an exchangeable
value, which is determined by the demand for it, and
by its abundance, or scarcity. As a preferred commo-
dity, it has a higher exchangeable value: but for this
increased value it is indebted merely to the nature of
the metals of which it is composed. Public authority,
which by its stamp confers upon it the character of
legal money, adds nothing either to those metals or to
their exchangeable value, and therefore cannot give it
any other value than what commerce confers upon
those metals. The monetary law is simply declaratory
of the fact, and can neither change nor modify this fact;
it never can be arbitrary.
Should modern sovereigns assign to money a value
in exchange superior to what general commerce assigns
to it, either by the alteration of the standard of the
metal, the diminution of its weight, or the raising of
*Wealth of Nations, 1805, vol. i. page 44.
OF POLITICAL ECONOMY.
297
its price or exchangeable value, they would be the vic-
tins of their error, and would entail upon their sub-
jects immense losses, which would soon have a power-
ful re-action upon themselves. The prosperity of na-
tions, it seems, has nothing more to dread from adul-
terations of coin, and this is an essential service derived
from the progress of political economy.
upon
66
But although all good writers are now agreed, that
the law cannot confer upon money any other value
than that of the metals of which it is composed; there
are some very enlightened authors who think that a
small addition to that value might be of use to pre-
vent the exportation of money, and that a slight duty
its coinage would accomplish this salutary end.
"A small seignorage, or duty," says Adam Smith,
upon the coinage of both gold and silver would pro-
bably increase still more the superiority of those metals
in coin above an equal quantity of them in bullion.
The coinage would in this case increase the value of
the metal coined, in proportion to the extent of this
small duty; for the same reason that the fashion
increases the value of plate in proportion to the price
of that fashion. The superiority of coin above bul-
lion would prevent the melting down of the coin, and
would discourage its exportation. If, upon any public
exigency, it should become necessary to export the
coin, the greater part of it would soon return again of
its own accord. Abroad, it could sell only for its
weight in bullion. At home, it would buy more
than that weight. There would be a profit, therefore,
in bringing it home again. In France a seignorage of
about eight per cent. is imposed upon the coinage, and
>
298
ON THE VARIOUS SYSTEMS
the French coin, when exported, is said to return home
again of its own accord.”*
Several distinguished writers are of an opinion
directly opposite to that of Adam Smith. They think
that all duties on money are bad, and that the expence
of coining ought to form part of the public expences.
Mr. Henry Thornton's opinion on this point is entitled
to particular attention.
But I shall not quote his opinion, because the
motives on which he builds it are grounded upon the
nature and principles of a combined circulation of
paper and metallic currency: and the investigation of
these motives might betray me into an unavoidable
confusion that would require extensive developements.
My regret at being obliged to omit the opinion of
that distinguished writer is, however, lessened by the
hope of refuting Adam Smith even without his assis-
tance.
When a country cannot pay with the produce of
her labour for the value of the foreign produce which
she consumes, she has no other means of acquitting
herself, than by exporting her metallic money; and
whatever value she may have set upon her coin, it
obtains no other value with the foreign creditor than
that of the metal of which it is composed, and is
received in payment only up to that value. The
seignorage or duty on coinage is reckoned for nothing
and does not prevent the money being exported.
Wealth of Nations, vol. i. page 70.
+ Henry Thornton's Inquiry into the Nature and Effects of
Paper Credit, page 205.
OF POLITICAL ECONOMY.
299
When circumstances change, and the country, on
re-establishing her affairs, instead of being indebted to
a foreign country, becomes her creditor, the balance
is then paid to her in her own coin, but not according
to its metallic value, as she has paid it, and as Adam
Smith seems to suppose, but according to its numeric
value; so that the foreign country benefits the value
of the coinage superadded to its metallic value.
The surcharge of a duty on coinage or seignorage,
far from being advantageous, is extremely detrimental
to nations; it aggravates the distress of their situation
when they are obliged to export their money, and
impedes the re-establishment of their affairs when they
begin to take a favourable turn.
In fine, if money be nothing but a preferred com-
modity, as I think I have shewa; a commodity for
which every one readily consents to exchange any
other produce; its exchangeable value is determined
by the exchangeable value of the metal of which it is
composed, or, in other words, by the proportion of
the demand for it to its abundance or scarcity; and as
the duty on coinage or seignorage adds nothing either
to the demand for it, or to its abundance or scarcity,
it has no influence whatever upon its exchangeable
value.
Not only does such a duty on coinage afford none
of the advantages that Adam Smith has ascribed to it,
but, in my opinion, it is liable to very great incon-
veniencies.
1. It augments the charges of the circulation of
commodities, and of course raises their price; and
though this increase of price be not considerable, it
300
ON THE VARIOUS SYSTEMS
may yet be prejudicial to their being sold abroad,
restrict their consumption at home, and even insure to
foreign commodities, which are not liable to it, a
preference over those which are burthened with this
duty.
2. It keeps bullion from the countries where it is
deprived of the facility of being converted into money,
or where, at least, that faculty is burthened with a
duty; and consequently it must render coin scarcer
than in countries where bullion is converted into
money without paying any duty or seignorage.
Every thing therefore tends to shew, that even the
smallest duty upon coinage is of no avail to keep
metallic money in the country, that it alters its desti-
nation and its functions, and injures the general cir-
culation of the produce of labour.
Another question, originating in the very nature of
money, has occupied the attention of governments
and philosophical inquirers, and has not yet been
generally answered; that is, whether either gold or
silver alone ought to be admitted as money, or whe-
ther equal favour ought to be shewn to both these
metals.
The doubts on this question arise from the circum-
stance, that if it be difficult to fix the fluctuating
exchangeable value of money, the inconvenience is
still more serious when the exchangeable value of two
metals is to be fixed, which, varying in their value,
render commercial exchanges unequal, and subject
them to chances which carry confusion into mercantile
operations.
Suppose a person sells four quarters of wheat for ten
OF POLITICAL ECONOMY.
301-
guineas. If gold and silver perform alike the func-
tions of money, the purchaser may pay the ten guineas
either in gold or in silver: yet it may not be imma-
terial to the vender, whether he be paid in gold or in
silver.
If the proportion between the two metals be not
accurate; if gold, which, according to its market-
price, should be fixed in the proportion of fifteen to
one, be only fourteen and a half, the buyer will pay in
silver, and the seller, instead of receiving ten guineas,
or ten pounds ten shillings, will actually get but about
ten pounds two shillings. Should the contrary hap-
pen, should gold be rated fifteen and a half, when its
market-price is fifteen; then the buyer will pay in
gold, and the vender again will only receive about
ten pounds two shillings instead of ten pounds ten
shillings,
This fact may appear of small importance at first
sight, because individuals become alternately venders.
and purchasers; and what they lose in one transaction,
they regain in the other. But this view of the matter
is evidently erroneous and defective.
Most commodities are exchanged by the interven-
tion of merchants, who, when they make their pur-
chases, pay in the least advantageous coin; and when
they sell, they take care to fix the prices as if they
were to be paid in the least favourable coin: so that
the fluctuation in the value of gold and silver coin
gives the trading class, in every instance, an infallible
advantage over the labouring and productive classes.
The inconvenience of two metallic currencies was
early observed by the best understandings, Locke
302
ON THE VARIOUS SYSTEMS
saw no other remedy for it, than to attribute the
function of money exclusively to silver.
His opinion has been followed by most commercial
nations, and, some slight differences excepted, gold is
every-where considered as a merchandize, and silver
alone performs the functions of money. *
This example has been neglected by nations less
familiar with the operations of commerce.
In spite
of the doctrine of all good writers, and notwithstand-
ing the efforts of all enlightened minds, some nations
have not ceased to admit both gold and silver as
money; which occasions considerable inequalities in
their dealings with other nations, and subjects them to
infallible and unexpected losses.
Let it however not be inferred from this theory,
that all nations ought suddenly to apply it to their
monetary system; local and temporary considerations.
may oppose the actual depriving gold of the functions.
of money, or at least require important modifications
in the operation. The care of repairing the evils.
occasioned by time must sometimes be left to time,
and, as I have frequently observed in the course of
this work, it is not always in the power even of the
most enlightened governments to, attain the end
pointed out by the philosophical inquirer. Between
practical truth and speculative doctrines, the interval
is immense, and it is to their approximation in pro-
per times, that the philosophier confines his wishes,
and that governments ought to direct their efforts.
* Such as Hamburgh, Lubeck, Bremen, Dantzick, and Holland.
It is only since 1728, that England has given currency to gold.
OF POLITICAL ECONOMY.
303
Another question, more interesting, more extensive
and more difficult to resolve, is, whether there be a
known and fixed proportion between money and the
produce which it is to circulate, and, in case the exist
ence of such a proportion should be doubted, whether
the abundance of metallic money be beneficial, inju-
rious, or indifferent to the progress of wealth.
Many celebrated writers on subjects connected with
political economy have examined this question: but
their opinions are mere conjectures, on which no posi-
tive doctrine can be grounded.
Sir William Petty thought that England required
a quantity of money equal to half of the annual rent
of her lands, to a fourth of the rent of dwelling-
houses, to the weekly expences of the people, and to
the value of a fourth of all commodities exported.
D'Avenant, who quotes the opinion of Sir William
Petty, regards it as extremely well founded. *
Cantillon thinks, that the money which circulates
in the different countries of Europe is generally equal
to at least half of the produce of the soil, and at the
utmost to two thirds of that produce.
Montesquieu thinks, that the quantity of money is
pretty nearly indifferent, because the rising or sinking
of its value proportionates it to all wants.
"If we compare," say this illustrious author, " the
mass of gold and silver which is in the world with the
amount of existing merchandize, it is certain that
every commodity or merchandize in particular may be
* On the Protection and Cares due to Trade, vol. i. page 410.
+ Essai sur la Nature du Commerce, liv. ii. chap. 3.
304
ON THE VARIOUS SYSTEMS
compared to a certain portion of the whole mass of
gold and silver. As the total amount of one is to the
total amount of the other, so will be a portion of one
to the portion of the other. Suppose there be but
one commodity or merchandize in the world, or only
one that is purchased, and that it be divided like
metallic currency, that portion of merchandize will
correspond to a portion of the metallic currency, half
of the amount of one to half of the amount of the
other, the tenth, the hundredth, the thousandth part
of one to the tenth, the hundredth, the thousandth of
the other but as that which constitutes the property
of men is not all at once in trade, and as the metals
or coins which are the representatives of that pro-
perty are neither in trade all at the same time, prices
will be fixed in the compound ratio of the totality of
commodities to the totality of representative coins,
and of the totality of commodities actually in trade
to the totality of the representative coins actually
current; and as commodities which are not in trade
to-day may be so to-morrow, and as the coin which is
not in circulation to-day may return to it to-morrow,
the fixing of the price of things is always chiefly
dependent on the proportion of the total amount of
commodities to the total amount of representative
coin.”*
Adam Smith has neither adopted nor combated any
opinion on this point. He contents himself with
observing, that "what is the proportion which the
circulating money of any country bears to the whole
Esprit des Lois, liv. xxii. chap. 7.
OF POLITICAL ECONOMY.
305
value of the annual produce circulated by means of it,
it is, perhaps, impossible to determine. It has been
computed by different authors at a fifth, at a tenth, at
a twentieth, and at a thirtieth part of that value. But
how small soever the proportion which the circulating
money may bear to the whole value of the annual pro-
duce, as but a part, and frequently but a small part,
of that produce, is ever destined for the maintenance
of industry, it must always bear a very considerable
proportion to that part."
""*
From these various opinions it may be inferred with
certainty, that the problem is not yet solved; and it
ought perhaps to be considered as incapable of being
solved, when we reflect that the circulation of com-
modities in an agricultural country is essentially
different from that which takes place in a manufac-
turing country; that the circulation of a country
which enjoys a great credit cannot be the same as that
of a country whose credit is limited or circumscribed
by the nature of its government or the imperfection
of its legislation; and that a circulation mostly carried
on with the assistance of well accredited banks has no
resemblance to a circulation that derives no assistance
from banks. So many circumstances and combina-
tions, and relations so various, render the task of
searching for a conjectural, probable, or barely pos-
sible proportion unnecessary, and we ought to imitate
in this respect the prudent circumspection of Adam
Smith.
But what are we to think of the "
very consider-
* Wealth of Nations; London, 1805; vol. i. pages 454, 455.
X
306
ON THE VARIOUS SYSTEMS
able proportion" which Adam Smith supposes the
amount of money must always bear to that part of
the produce which is destined for the maintenance of
industry? Is it true, that industry is benefited by the
abundance of money and injured by its scarcity? and
ought any particular attention to be paid to the
complaints of people about the scarcity of money?
The extract which I have given from the work of
Adam Smith, appears to authorize this opinion. But
how is it to be reconciled with what he states in other
parts of his work concerning the scarcity or plenty
of money? On this important subject he expresses
himself thus:
"No complaint is more common than that of a
scarcity of money. Money, like wine, must always
be scarce with those who have neither wherewithal
to buy it, nor credit to borrow it.-This complaint,
however, of the scarcity of money is not always con-
fined to improvident spendthrifts: it is sometimes
general through a whole mercantile town, and the
country in its neighbourhood. Over-trading is the
common cause of it. Sober men, whose projects have
been disproportioned to their capitals, are as likely to
have neither wherewithal to buy money, nor credit to
borrow it, as prodigals whose expence has been dis-
proportioned to their revenue. Before their projects
can be brought to bear, their stock is gone, and their
credit with it. They run about every-where to bor-
row money, and every-body tells them that they have
none to lend. Even such general complaints of the
scarcity of money do not always prove that the usua!
number of gold and silver pieces are not circulating in
OF POLITICAL ECONOMY.
307
I
]
the country, but that many people want those pieces
who have nothing to give for them. When the profits
of trade happen to be greater than ordinary, over-
trading becomes a general error both among great and
small dealers. They do not always send more money
abroad than usual; but they buy upon credit, both
at home and abroad, an unusual quantity of goods,
which they send to some distant market, in hopes
that the returns will come in before the demand for
payment. The demand comes before the returns,
and they have nothing at hand with which they can
either purchase money, or give solid security for
borrowing. It is not any scarcity of gold and silver,
but the difficulty which such people find in borrowing,
and which their creditors find in getting payment,
that occasions the general complaint of the scarcity of
money. To attempt to increase the wealth of any
country, either by introducing or by detaining in it an
unnecessary quantity of gold and silver, is as absurd
as it would be to attempt to increase the good cheer
of private families by obliging them to keep an unne-
cessary number of kitchen-utensils. It is not by
the importation of gold and silver that the discovery
of America has enriched Europe. By the abundance
of the American mines, those metals have become
cheaper. A service of plate can now be purchased
for about a third part of the corn, or a third part of
the labour which it would have cost in the fifteenth
century. So far Europe has, no doubt, gained a real
conveniency, though surely a very trifling one. The
cheapness of gold and silver renders those metals
rather less fit for the purposes of money than they
X 2
308
ON THE VARIOUS SYSTEMS
were before. In order to make the same purchases,
we must load ourselves with a greater quantity of
them, and carry about a shilling in our pocket, where
a groat would have done before. It is difficult to
say which is most trifling, this inconveniency or the
opposite conveniency. Neither the one nor the other
could have made any very essential change in the state
of Europe."*
Elsewhere Adam Smith states, that "the greater
part of the writers who have collected the money-
prices of things in ancient times, seem to have consi-
dered the low money-price of corn, and of goods in
general, or, in other words, the high value of gold
and silver, as a proof not only of the scarcity of those
metals, but of the poverty and barbarism of the coun-
try at the time when it took place. This notion is
connected with the system of political economy,
which represents national wealth as consisting in the
abundance, and national poverty in the scarcity of
gold and silver. I shall only observe, that the high
value of the precious metals can be no proof of the
the poverty or barbarism of any particular country at
the time when it took place. It is a proof only of
the barrenness of the mines which happened at that
time to supply the commercial world.
A poor
country, as it cannot afford to buy more, so it can as
little afford to pay dearer for gold and silver than a
rich one; and the value of those metals, therefore, is
not likely to be higher in the former than in the lat-
ter. In China, a country much richer than any part
*Wealth of Nations, vol. ii. pages 159, 160, 164, 176, 177.
OF POLITICAL ECONOMY.
309
of Europe, the value of the precious metals is much
higher than in any part of Europe. As the wealth of
Europe, indeed, has increased greatly since the dis-
covery of the mines of America; so the value of gold
and silver has gradually diminished. This diminution
of their value, however, has not been owing to the
increase of the real wealth of Europe, of the annual
produce of its land and labour, but to the accidental
discovery of more abundant mines than any that were
known before. The increase of the quantity of gold
and silver in Europe, and the increase of its manu-
factures and agriculture, are two events which, though
they have happened nearly about the same time, yet
have arisen from very different causes, and have
scarcely any natural connection with one another.
The one has arisen from a mere accident, in which
neither prudence nor policy either had or could have
any share; the other from the fall of the feudal sys-
tem, and from the establishment of a government
which afforded to industry the only encouragement
which it requires, some tolerable security that it shall
enjoy the fruits of its own labour. Poland, where
the feudal system still continues to take place, is at
this day as beggarly a country as it was before the
discovery of America. The money-price of corn,
however, has risen; the real value of the precious
metals has fallen in Poland in the same manner as in
other parts of Europe. Their quantity, therefore,
must have increased there as in other places, and nearly
in the same proportion to the annual produce of its
land and labour. The increase of the quantity of those
metals, however, has not, it seems, increased that of the
310
ON THE VARIOUS SYSTEMS
. annual produce; it has neither improved the manufac-
tures and agriculture of the country, nor mended the
circumstances of its inhabitants. Spain and Portu-
gal, the countries which possess the mines, are, after
Poland, perhaps, the two most beggarly countries in
Europe. The value of the precious metals, however,
must be lower in Spain and Portugal, than in any other
part of Europe as they come from those countries to
all other parts of Europe, loaded, not only with a freight
and an insurance, but with the expence of smuggling;
their exportation being either prohibited or subjected
to a duty. In proportion to the annual produce of
the land and labour, therefore, their quantity must
be greater in those countries than in any other part of
Europe; those countries, however, are poorer than
the greater part of Europe. Though the feudal sys-
tem has been abolished in Spain and Portugal, it has
not been succeeded by a much better. As the low
value of gold and silver, therefore, is no proof of the
wealth and flourishing state of the country where it
takes place; so neither is their high value, or the
low money-price, either of goods in general, or of
corn in particular, any proof of its poverty and bar-
barism." *
I have connected and brought under one point of
view the scattered parts of the doctrine of Adam Smith
concerning the plenty or scarcity of gold and silver,
their proportion to labour and industry, and their
co-operation in the progress of public and private
wealth, in order to view at once all the arguments by
* Wealth of Nations, vol. i. pages 387, 388, 389.
OF POLITICAL ECONOMY.
311
which he supports his opinions, and to compare them
with the motives that induce me to doubt the accuracy
of his doctrine.
And to rivet the attention of the reader to this sub-
ject, I must add, that the truth of the system of poli-
tical economy of Adam Smith rests mostly upon the
truth or fallacy of this particular doctrine, and that if
they do not support, they necessarily destroy each
other.
His system indeed is this.—If the natural order of
things had not been deranged by the combinations of
governments, wealth would have been indebted for its
first elements to agriculture; the industry of the
towns would have arisen from the accumulation of the
agricultural produce; the home-trade would have deri-
ved its first capitals from the surplus stock of the
produce of agriculture and manufactures; and after-
wards foreign trade would have grown out of the
superabundance of the home-trade.
According to this system, gold and silver, which in
countries that have no mines can only be obtained by
foreign trade, are quite useless to the formation, pro-
gress, and increase of wealth; and Adam Smith could
not but consider their plenty or scarcity as indifferent
in themselves, and as destitute of any influence upon
the wealth of modern nations.
But whereupon does this system rest? Where are
its proofs and how can we suppose, that a country
may prosper, flourish, and grow wealthy, without
the assistance of gold and silver converted into money?
Adam Smith appears perfectly convinced, that their
plenty or scarcity are of no importance to wealth;
312
ON THE VARIOUS SYSTEMS
but he did not go so far as to say that they were of no
utility, and that nations might grow rich without their
assistance. It is however difficult to separate the two
ideas; and if it were clearly demonstrated, that nations
cannot arrive at wealth but by means of gold and silver,
it could not easily be supposed that their plenty or
scarcity has no influence upon wealth. Let us there-
fore first inquire, whether the wealth of nations is
entirely independent of gold and silver, or how far it
depends upon these metals?
Before gold or siver coin is introduced in any country.
exchanges are made in material commodities, but not
beyond the place where they are produced. The sur-
plus of agricultural produce is carried to the next
town, and the produce of the industry of the town is
consumed in the neighbouring hamlets or villages.
The home-trade does not go beyond each town and
its district; it has neither motives nor means to leave.
this narrow sphere, to look at a distance for a more
advantageous sale of its commodities, and of course
it never exceeds the ordinary wants of the country.
In such a state of things desires are confined within
wants, and to labour to satisfy them is the limit of the
efforts and ambition of all.*
* Three things, says Genorcsi, have led mankind to commerce ;
the natural love of self-preservation, the desire of the conveniencies
of life and wealth, and the pleasures of luxury. The first produces
but a rare and scanty commerce, because necessaries are generally
furnished by the country, and foreign countries contribute very
little to the supply of wants of that kind. The second produces a
little more commerce, because the number and variety of conve
niencies are great, and cannot all be produced by the same soil,
OF POLITICAL ECONOMY,
313
Should people even succeed in creating a local
money of the nature of those enumerated by Adam
Smith, such money would not impart great activity
to the circulation of productions, and would not
extend commercial relations very far.
Brittle or
perishable, of difficult or expensive conveyance, des-
titute of any particular or general attraction, it would
be little sought for, and could content neither indivi
dual avarice nor national ambition. Consequently
it would leave things in the state in which they were
before its existence, and it is difficult to conceive how
they could be mended with its assistance.
This theory is fully confirmed by history. The
hordes and tribes of savages discovered in the interior
of Africa and in some parts of Asia and America,
that were destitute of gold and silver coins, though
they had other money, were yet plunged into extreme
indigence and misery, and all accounts of travels and
voyages afford scarcely a single exception to this
general fact.
But no sooner are gold and silver introduced in any
country, than the wish of possessing them excites the
desires of the inhabitants, sets labour, industry and
commerce in motion, and developes the energies,
The third is the cause of an infinite commerce, because pleasures and
luxury have no end.
The internal trade, or circulation, (says Mengotti in his Essay
on the Commerce of the Romans, which was crowned by the Aca-
demy of Sciences at Paris in 1789,) must have been slow and
extremely languid without the impulse of gold and silver coin, which
is the soul of industry and commerce.
+ Wealth of Nations, vol. i. book i, chap. 4.
314
ON THE VARIOUS SYSTEMS
faculties, and talents of every individual member of
the nation. The incorruptibility of the finer metals,
their divisibility, the facility with which they may be
kept and concealed from all eyes, or displayed and con-
veyed any where, with the certainty of procuring by
their means any desirable commodity or enjoyment,
cause them to be sought for; and the desires which
they inspire are unlimited, because imagination mag-
nifies the gratifications which gold and silver are able
to purchase.
It therefore appears certain, that gold and silver are
necessary to the formation of wealth, and that without
them wealth cannot possibly exist.*
Their necessity being thus demonstrated, it follows
evidently that their plenty or scarcity cannot be
indifferent to the progress of wealth. Their scarcity
causes them to be hoarded, concentrated among a small
number of individuals, and renders them as it were
strangers to the generality of the people. To the
classes that cannot partake of them it is as if they were
not; they have of course no influence upon their
labour, industry, and talents. Some one has observed,
very justly in my opinion, that the first guinea is more
difficult to earn than the second million; and I think
I am not mistaken, when I add that the difficulty of
*Money, in a word, is the most universal incitement, iron the
most powerful instrument of human industry; and it is very
difficult to conceive by what means a people, neither actuated by the
one, nor seconded by the other, could emerge from the grossest
barbarism. Gibbon's Decline and Fall of the Roman Empire,
chap. ix.
OF POLITICAL ECONOMY.
315
earning the first guinea is the greatest obstacle that can
be thrown in the way of labour, industry, and com-
merce. As little as diamonds and precious stones, the
trappings of opulence, have ever tempted the ambition
of the labouring and industrious classes, or increased
the labour and industry of any people, as little would
gold and silver, reserved exclusively for the rich, have
any influence upon the labouring and industrious
classes.
When, on the contrary, a gold and silver currency
is so plentiful that, without being depreciated, it gets
within the reach of any individual that chooses to
labour, the most careless are stimulated by the desire
of getting money, and all redouble their efforts to
obtain a quantity equal or superior to what is possessed
by their equals. Ornaments of gold and silver, the
price of which is neither so low that any one might
get them, nor so high as to be exclusively reserved for
the rich, form one of the most powerful incitements to
labour, because they gratify the vanity of the labouring
classes. Every production of industry that is within
the reach of the least favoured classes, partakes of this
property of gold and silver, and it would not be beneath
the care of an enlightened government to turn the
efforts of industry to cheap commodities rather than to
the expensive frivolities of opulence; the progress of
riches would be so much the more rapid, and national
wealth would receive a new impulse from individual
comforts.
We may, therefore, conclude, with some degree of
certainty, that a gold and silver currency is the first
and most powerful stimulus to labour, industry, and
316.
ON THE VARIOUS SYSTEMS
wealth; that this stimulus is weaker in proportion as
money is scarce and circulates less freely among the
labouring classes*, and stronger in proportion as
money is plentiful and widely diffused among the
labourers.
But whatever importance I may assign to gold and
silver, and although I am inclined to believe that their
plenty has the greatest influence upon wealth; yet it
would not be reasonable to infer, that wealth depends
on the fecundity or sterility of gold and silver mines;
and that those authors, who considered gold and silver
as the only wealth, were not so very wrong. There
is a great difference between the two systems; they
do not approximate in any respect. According to one
system, the precious metals are only means to acquire
wealth; according to the other, they are the end, or
wealth itself. Vain, therefore, would be the attempt
to assimilate them, and to confound one with the
other.
In vain does Adam Smith himself observe,
"that
to attempt to increase the wealth of any country,
* In every kingdom into which money begins to flow in greater
abundance than formerly, every thing takes a new face: labour and
industry gain life.-Hume's Essays; Edinb. 1804; vol. i. of
money, page 303.
+ That an increase of the circulating medium tends to afford
temporary encouragement to industry, seems to be proved by the
effects of the Mississipi Scheme in France; for it is affirmed by
French writers, that the notes of Mr. Law's bank appeared for a
time to have a very powerful influence in extending the demand for
labour, and in augmenting the visible and bonâ fide property of the
kingdom. Mr. Henry Thornton on Paper Credit, page 263.-T.
OF POLITICAL ECONOMY.
317
either by introducing or detaining in it an unnecessary
quantity of gold and silver, is as absurd as it would
be to attempt to increase the good cheer of private
families by obliging them to keep an unnecessary
number of kitchen utensils."
The plenty of gold and silver which those wish for
who are intimately convinced of their influence upon
labour, industry, and commerce, does not extend to
a quantity useless to commerce, but simply to the
quantity that commerce can employ. One has
nothing common with the other; or rather, the asser-
tion is perfectly correct, that if at the first working of
the mines of America, the abundance of gold and
silver exceeded the wants of labour, industry, and
commerce; if it sunk the value of those metals, and
had no other effect than to employ a greater quantity
of money for the same operations, this excess has long
since ceased to exist. The labour, industry, and com-
merce of nations, have long ago opened so many
channels for the precious metals, that they are no
longer sufficient for their wants; and it is not unjustly
that people complain of the scarcity of money, nor
is it without a just cause that governments have
resorted to divers measures to prevent the calamities
attendant on the scarcity of gold and silver.
Not that, in imitation of some authors who are
fascinated by the advantages resulting from the plenty
of the precious metals, I imagine it can be obtained
by prohibitions, privileges, and other not less disas-
trous measures: but I entirely concur with those who
discover the source of this plenty in foreign commerce,
318
ON THE VARIOUS SYSTEMS
and who peculiarly recommend that commerce as
one of the principal sources of the wealth of modern
nations.*
The example of Poland, Spain, and Portugal,
which have not availed themselves of the plenty of
gold and silver, and which remained poor in the
midst of the prosperity of the other nations of Europe,
can be of no weight here. Adam Smith himself
ascribes the poverty of those countries to the vices of
their governments. They prevented their sharing in
the progress of the industry of other nations, which
was so powerfully forwarded by the plenty of gold
and silver. Their poverty, therefore, does not attest
the inefficacy of gold and silver; it only shews how
greatly those political writers and practical statesmen
err, who fancy that a good economical system is not
incompatible with a bad political system; and that
a nation may grow rich in despite of the defects of
its political institutions. The security of the labourer,
the freedom of labour, and the protection of property,
contribute more to the growth of wealth than the
order, economy, and good use of the stocks which
it accumulates. The best governed nation will always
be the richest; just as plenty of gold and silver
always will be one of the most powerful means of
accelerating the progress of labour and industry.
And let it not be supposed that, according to this
system, if the gold and silver mines ceased to be
productive, general wealth would be arrested in its pro-
* D'Avenant, Steuart, Count Ferri, &c.
OF POLITICAL ECONOMY.
319
gress, or, at least, that wealth could not be pro-
gressive in one nation without retrograding in the
others.
As soon as a metallic currency has given the impulse
to general labour, its scarcity may be remedied by
credit and banks, and its plenty maintained among
the labouring classes; so that it may constantly afford
a new aliment to their emulation, activity, and indus-
try. These means are another benefit for which
wealth is indebted to the plenty of gold and silver,
as I shall endeavour to shew in the following chapter.
Let us, therefore, conclude, that in whatever light
we view the question of the plenty or scarcity of
metallic currency, its plenty is indispensably necessary
to the progress of wealth, and that governments ought
to patronize and second, with all their might, what-
ever can carry the abundance of the precious metals
to the highest pitch which it is capable of attaining.
CHAP. IV.
Of Credit and Banks.
CREDIT is to money what money is to the produce
of labour when it is exchanged. Just as money sup-
plies the place of one of the exchanged commodities,
so credit supplies the place of money. The only dif
ference between the two equivalents is, that the equi-
valent money is real and actual, and the equivalent
credit is but temporary and grounded in confidence.
320
ON THE VARIOUS SYSTEMS
Money actually hands the exchangeable value; credit
only promises it. But to him who delivers his pro-
duce on credit, the promise of money has the same
value as money, and this value in opinion, or imagin-
ary value, maintains itself till the stipulated term of
payment. If at that term the creditor pays the pro-
mised money, credit has not been a single instant with-
out having the value of money, and has produced all its
effects.
These effects are various.
The first is to operate the exchange of an existing pro-
duce for a produce which possibly may not exist at that
time, and to procure an actual consumptionon the faith
of a future equivalent; which circumstance facilitates
and accelerates the consumption of commodities.
The second effect is to force him who consumes.
upon credit to labour in order to perform his promise;
which circumstance is favourable to industry, and
increases the sum of produce.
The third effect is to circulate commodities without
the assistance and intervention of gold and silver;
which circumstance restricts the use of the precious
metals, and insures their plenty notwithstanding the
unproductiveness of the mines or the unfavourableness
of foreign commerce.
But these advantages derived from credit, and
credit itself, exist only as far as money is of gold and
silver, and as its monetary value is as nearly as possible
equal to its exchangeable value. Any other money
than that of gold and silver, of whatever materials it
may be composed, whether it consists in cattle, in
agricultural produce, in the productions of industry,
OF POLITICAL ECONOMY.
321
or even in land, will always be liable to considerable
chances, to which neither creditors nor debtors will
be willing to expose themselves, whatever may be the
measures adopted to give it a monetary value exactly
proportioned to its exchangeable value. Cattle, corn,
wine, hides, cloth, or any of the productions of the
labour of man, vary much in themselves. A quarter
of corn may vary from one year to the other a third,
a half, or even be worth double; without expe-
riencing any extraordinary fluctuation, the mere
difference of quality may within the same place
increase or diminish its value by a fifth, or a sixth;
the case is the same with wine, cattle, &c.; conse-
quently the result of such a money would almost
always be that the debtor would pay more or less than
he has promised, or than he owes. Credit of course
would not be equal to money, and consequently there
could be no credit.
I am not alluding to the other advantages of a gold
and silver currency over any other money, such as its
incorruptibility, divisibility, homogeneity, facility of
being conveyed to a distance, and every-where con-
verted at will in any kind of merchandize; these
properties must give it the preference before any other
money; and it is my opinion that any other than a
gold and silver currency is radically defective, and
opposes an insurmountable obstacle to the progress of
wealth, for the sole reason that with such a money
there can be no credit, because the lender would not be
sure to receive back the same value which he has lent.
The case is the same when a gold and silver cur-
rency is altered in its standard and weight, and its
Τ
322
ON THE VARIOUS SYSTEMS
monetary value does not come up as near as possible.
to its exchangeable value. Credit, of which money is
the basis, is more or less impaired by such an alteration,
and frequently receives a mortal blow. Thus credit is
intimately connected with a gold and silver currency,
and cannot exist but through such a currency.
But what ought to be the proportion of credit to a
gold and silver currency?
I believe that, on this head, there are none but
peculiar, local, and accidental data, which it is almost
impossible to generalize. We shall hereafter investi-
gate whatever is known on the subject.
There are three sorts of credit; commercial, private,
and public credit. Their nature, their object, and their
end, are not the same; and it is evidently through mis-
take that they have been confounded and assimilated.
Commercial credit must have taken place the instant
when the labourer, the primitive producer of a pro-
duction, was enabled by his savings to wait, for the
wages of his labour, or the price of his produce, till
the end of the week, of the fortnight, of a month, of
three months, of six months, or a year.
By affording this facility to the undertaker, the
labourer enabled him to sell his articles to the mer-
chant or wholesale dealer without requesting immediate
payment in money.
The merchant, in his turn, was enabled to grant
the same indulgence to the retail dealer.
And the retail dealer could grant the same favour to
the consumer.
So that, on the very first outset, or from the first
effort of commercial credit, commodities were pro-
OF POLITICAL ECONOMY.
323
duced; they ran the whole career of circulation and
were even consumed without the assistance and use of
a single piece of coin.
Were this the only advantage afforded by commer-
cial credit, it would still deserve the highest consi-
deration. The facility of consuming without handing
an actual and present equivalent is one of the greatest
encouragements that can possibly be given to produc-
tion, and one of the most fruitful elements of wealth.
It affords a just notion of the power of credit, and
yet it is only its very first advantage and one of its
least benefits.
When the day of payment or term of credit
arrived, the consumer was under the necessity of fur-
nishing the promised monetary equivalent; and this
equivalent being carried from the retail dealer to the
merchant, from the merchant to the undertaker of the
manufacture, and from the manufacturer to the
labourer, and being distributed among them in the
proportion of their co-operation in the value of the
produce, required the same quantity of money as if it
bad been paid in small payments at every partial for-
mation of the produce, and during its circulation,
before it reached the consumer. The only advantage
of credit in this hypothesis was therefore reduced to
delay the delivery of the monetary equivalent, which
was, no doubt, a considerable advantage, as has been
shewn just now; but not to be compared with its
other benefits and properties which time and circum-
stances have successively displayed,
The Jews, being creditors of considerable sums in
several states of Europe, whence their blind cupidity
Y 2
324
ON THE VARIOUS SYSTEMS
and the ignorance of governments had banished them,
contrived to collect their debts by letters, addressed
to their debtors; and the bearer of the letters acted
as if he had become, and frequently was in reality,
the owner of the demand. The debts were actually
discharged at the delivery of the letters, and through
this circumstance it was discovered that a creditor
may transmit or make over his demand to another
person, and by this transfer pay what he owes to
his own creditor, or acquire the objects of his desire.
*
This discovery was a ray of light to trade; and
from that instant metallic money became as it were
a stranger in all purely commercial transactions. It
is well known, that, materially considered, such trans-
actions consist in forwarding the productions of the
producers to the consumers; and it is easy to conceive
that, after the invention of bills of exchange, com-
mercial transactions required no longer the assistance
and intervention of money.
Bills of exchange, according to De Paz, were used at
Athens. Gibbon, in his History of the Decline and Fall of the
Roman Empire, remarks, that bills of exchange were known
among the Arabs. The Abbé Raynal, in his Philosophical and
Political History of both the Indies, asserts that bills of exchange
were used in the East Indies at the time the Portuguese arrived
there. Whether the Arabs availed themselves of the discovery of
the Athenians, and transmitted it to the Jews, and to the people of
Hindostan, is a problem of history which I shall not attempt to
resolve.
+ David Macpherson, in his Annals of Commerce, vol. i.
page 405, states that bills of exchange are mentioned for the first
time in 1255. Ile says Though the recellent accommodation of
remitting money by bills of exchange was pron known, long
OF POLITICAL ECONOMY.
325
Indeed, whenever a merchant received any quantity
of produce from the farmer or manufacturer, he gave
him a bill of exchange upon his debtor; and when he
transferred any part of this produce to the retail
dealer, he in turn obtained of him a bill of exchange;
The
before this time, in Italy and all other countries in which there
was any commerce; there is not, I believe, any express mention
of them (so little attention did historians pay to matters of real
utility and importance), till a very extraordinary and infamous
occasion connected them with the political events of the age.
Pope, having a quarrel with Manfred, king of Sicily, had, in the
plenitude of his power as sovereign of the world, offered the king-
dom of Sicily and Apulia, on condition of driving Manfred out of
it, to the brothers of the king of France, and, after their refusal, to
Richard, earl of Cornwall, brother of King Henry III.; who said
he might as well offer to make him king of the moon. At last he
offered it to Henry for his second son, Edmund, who without
hesitation accepted the fatal gift, and empowered the Pope to carry
on his war against Manfred at the expence of England: whereupon
he immediately took up large sums from the merchants of Italy.
When they asked him for payment, he applied for the money to
Henry, whose constant profusion made him for ever poor.
While Henry was in terror of losing his son's visionary kingdom
for want of money to feed the Pope's rapacity, Peter de Egeblanke,
bishop of Hereford, told him, that he had hit upon an expedient
to raise the sums wanted, which was, that the Italian merchants,
who had advanced the money, being authorized by the King and
the Pope, neither of whom had any reluctance to forward so
honorable a business, should draw bills upon the English prelates
for sums pretended to have been advanced to them by merchants of
Sienna or Florence. This righteous plan was accordingly executed,
and an agent was sent into England to receive payment of the
bills." -Possibly the Jews were mere imitators of the merchants af
Sienna or Florence,
326
ON THE VARIOUS SYSTEMS
so that bills of exchange supplied the place of money
in all commercial transactions, and performed its
functions much better. They avoided the charges
attendant on the transport of money. the losses.
resulting from the risk of the conveyance, and the
friction, falsification and alteration of the coin; they
even afforded the means of extinguishing by compen-
sation the reciprocal commercial debts between retail
dealers and merchants of the same or of different
places, of the same or of different countries; and it is
obvious how greatly this facility must have increased
the benefits of credit and the resources of trade.
The compensation of commercial debts, which was
easily effected when two merchants of the same place
had bills of exchange to the same amount on each
other, became more difficult, when these bills were in
the hands of different persons resident in different
places or countries, it was then necessary that every
individual who had a bill of exchange to pay, should
provide himself with the money necessary to discharge
that bill when due: and the quantity of money which
this compensation, or rather this exchange of bills,
would require, is obvious.
Two ways equally ingenius were contrived to effect
this exchange without the assistance of money; both
have been crowned with the same success. One is the
setting off or compensating one debt against the other;
and the other the banking system.
The first way, that of setting off, was successfully
practised for a great length of time at Lyons. All bills
were drawn payable at one of the fairs, which took
OF POLITICAL ECONOMY.
327
place every three months*. Every merchant having
sums to pay and to receive, and all being alternately
debtors and creditors to each other, the actual exchange
of the documents of their respective debts liberated
them mutually without the assistance of money; or
at least there was no occasion for any money, except
for the settling of differences, which was a very trifling
object, compared with the totality of the debts extin-
guished and paid.
This method was peculiarly adapted to the situation
of Lyons, whether it be viewed as a manufacturing
town, or as a place of great consumption.
As a manufacturing town, the active and passive
debts of Lyons were all of the same kind; they were
derived from the same source, followed the same track
and arrived simultaneously at the same end. The
passive debt was always contracted by the purchase of
raw materials, and the active debt accrued by the sale
of manufactured produce. A term of three months
for the payment of the raw materials and the manufac-
tured produce, was alike suitable to the merchants,
whether they purchased raw materials or sold manu-
factured produce; it afforded them the time necessary
to obtain by their sales wherewithal to pay for their
purchases. The balance was always favourable, and
the surplus discharged the wages of labour.
This setting off is also known in London. The bankers send
all bankers'-drafts daily to a common receptacle, where they are
balanced against each other, and the difference is settled in bank-
notes; which contrivance economizes the use of the circulating
medium, and renders the same sum adequate to a much greater
amount of trade and payments than formerly.
328
ON THE VARIOUS SYSTEMS
As a place of great consumption, Lyons supplied its
wants with the wages of its labour, or the benefits of
its balance of trade; so that ultimately all its commer-
cial transactions resolved themselves in a general com-
pensation, and its merchants needed only to exchange
the respective documents of their debts.
It is indeed difficult to imagine a method more
simple, more easy, and more suitable in every respect
to the situation of Lyons, than that of setting off, which
for so great a length of time contributed to its splen-
dour and prosperity: but it must be acknowledged,
that this method could not be equally adapted to any
manufacturing, commercial, or staple town, or to any
place of great consumption; and that it would not be
crowned with the same success in every case and under
any circumstances. For instance, it could not be
introduced in a town whose industry is not homoge-
neous, whose transactions are not uniform, whose
interests are not identic. There are no doubt in
France and in the rest of Europe other manufacturing
towns; but the manufactures are not of the same kind,
or not the only industry of the place. Some manufac-
tures want longer, other shorter credits; some branches
of industry and trade are liable to more or less chances,
which cannot always be reduced to a common term.
In short, we might travel through all the commercial
towns of France and of the rest of Europe, and perhaps
not find one exactly similar to Lyons in every respect;
and yet the slightest difference would prevent the
success of a measure which had such fortunate results
in that celebrated town.
Whether it be owing to these considerations that
OF POLITICAL ECONOMY.
329
the measure has been attempted no-where else; or
whether banking has appeared, as it really is in every
respect, preferable; the latter method has generally
prevailed, and seems indeed entitled to the preference,
because it furnishes circulation with means constantly
proportioned to the prosperity of agriculture and
industry.
The first bank that ever existed in Europe is that of
Venice.
The republic smarting under the burthen of a war
with the emperor of the East in 1171, and being also
engaged in hostilities with the emperor of the West,
the doge or duke Michel II, after having exhausted all
financial resources, recurred to a forced loan borrowed
from the wealthiest citizens. The creditors formed a
´board, which received the interest from government at
the rate of four per cent., and divided it among its
members in proportion to their contribution. This
board afterwards formed the bank of Venice*, the
principal operations of which consisted in paying all
commercial bills of exchange.
In 1423, its revenue amounted to about 1.200,000.
sterling, and consisted chiefly in the interest paid by
government. It is more than probable that it issued
some paper-currency at that time for its operations.
The fact, indeed, seems to be proved by the circum-
stance that a law was passed ordering that all pay-
ments of bills of exchange, which had been made in
paper, should in future be effected in specie, under a
*Sanuto, Vite de Duche di Venezia, Muratori Script, vol, xxii.
col. 502,
330
ON THE VARIOUS SYSTEMS
penalty of one hundred ducats, or forty-five pounds
sterling.*
Venice was at that time a manufacturing and staple
town, and a place of great consumption.
The produce of its manufactures amounted to above
twelve hundred thousand pounds sterling.
As a manufacturing town and a place of great con-
sumption, it was the interest of Venice to economize
the use of metallic money, the cost of which increased
its expences and diminished its profits, and to supply
its place by bank-paper.
As a staple-town, Venice wanted bank-paper for
that portion of consigned commodities only which
were appropriated to its consumption. With regard
to the rest of the warehoused merchandize, which was
* Histoire de Venisc, par Laugier. The Abbé Laugier, in the
fifth volume, page 532, after having related the death of Thomas
(or Tommaso) Mocenigo, the fifty-eighth doge or duke of Venice,
which happened in 1423, adds: "Thomas Mocenigo fit faire un
réglement très essentiel pour la sureté du commerce.
Le change
s'étoil fait jusques là en papier, il fut réglé qu'on le feroit à
l'avenir en argent comptant sous peine de cent ducats d'amende.”
This fact, as it strengthens the opinion of those who think that the
convertibility of bank-notes into metallic money of proper weight
and fineness, is the only way of keeping gold and silver in the
country, is extremely remarkable. I have endeavoured to find a
more ample statement of it in the old historians of Venice: but
M. Ant. Sabellico, in his Historia Rerum Venetarum ab urbe
condita, makes no mention of the fact; and Lod. Ant. Muratori,
in his Annali d'Italia, second edition, Milan, 1753, vol. xiii, page
80, simply says: "Curiosissime sono le aringhe di questo doge, rap-
portate dal Sanuto, perchè ci fan tra l'altre cose vedere qual fosse
allora l'opulenza dell' inclita cilta di Venezia. Yet Sanuto, in his
Fitæ Ducum Venetorum Italicè scriptæ apud Muratori, Rerum
OF POLITICAL ECONOMY.
331
to be conveyed to strangers, and which left only a
commission to the Venitian merchants, the use of
metallic currency was very immaterial, because the
finding of the sums thus employed fell upon the
foreign consumers. But as consumption is stimulated
by cheapness and impeded by dearness, it was the
interest of Venice, even as a staple-town, to economize
the use of coin, because its cost was a dead loss to the
consumer, and obstructed consumption.
Thus in the triple capacity of a manufacturing town,
of a staple-town, and of a place of great consumption,
it was the interest of Venice, that its commercial pay-
ments should be made in bank-paper.
But the wars in which the government of Venice
was engaged with the Albanese and the dukes of
Milan, occasioned considerable expences which could
not be discharged otherwise than in metallic money.
Commerce had not made sufficient progress, its re-
sources were not sufficiently extensive, to relieve the
wants of government and economize its expences; and
as government considered payments in bank-paper as
causing coin to disappear from circulation, or at least
of rendering it more scarce, and making government
purchase it at a higher price, it thought it had attained
its end by ordering payments to be made in specie.
Thus the interests of commerce often appear in oppo-
sition to the well or ill understood interests of govern-
ment, and are sacrificed to it without any scruple *.
Italicarum Scriptores, vol. xxii. col. 885. and seq. does not
allude to the aforementioned circumstance.-T.
* In this case the interest of government was the interest of the
country, to which the interests of commerce ought always to be
332
ON THE VARIOUS SYSTEMS
Whether this measure of the government of Venice
induced the bank to cease paying in bank paper and
to make its payments by transfers in its books, I do
not know. But, according to Macpherson*, the pay-
ments of the bank of Venice are made by mere trans-
fers in its books.
The bank of Genoa, which was founded in 1407,
and which owed its existence to the causes that had
produced the bank of Venice, was formed upon the
same model.†
The foreign and civil wars with which that republic
was continually afflicted, forced its government to
resort to loans bearing interest, the payment of which
was provided for by certain demesnes, and the admi-
nistration of these demesnes entrusted to a company of
eight individuals chosen from among the state creditors.
Their association constituted the Bank of St. George.
As the wants of the republic increased in proportion
sacrificed without any hesitation. The recommendation of the
Report of the Bullion Committee to the House of Commons to
compel the Bank of England to resume its payments in cash in a
limited time, is, therefore, neither unprecedented, nor does it de-
serve the obloquy thrown upon it by Mr. John Hill and others.-T.
*Annals of Commerce, vol. i. page 341.-Macpherson says:
"The bank of Venice was established on such judicious princi-
ples, and has been conducted through the revolution of many
centuries with such prudence, that, though the government
have twice, since its establishment, made free with its funds, its
credit has remained inviolate and unimpeached. Payments are
made in it by transfers, or writing off the sum to be paid from the
account of the payer to that of the receiver, without having the
trouble of weighing gold or silver."
+ Ilistoire de Gêues, par Foglicttu.
OF POLITICAL ECONOMY.
333
as its power declined, government continued to bor-
row of the Bank of St. George, and to assign a larger
revenue to it; government even made over to the
bank the property of several demesnes and important
places, the administration of which was entrusted to a
council of one hundred individuals, chosen among the
holders of bank stock.
it as a
The historiographer of the republic of Genoa notices
circumstance worthy of admiration, that
during the various changes to which the republic was
exposed, and even when it passed under a foreign
dominion, the government of the bank experienced
no change but what change could a banking com-
pany experience, that confined itself to manage the
common stock, collect its revenue, and distribute it to
the parties concerned? The utmost that could be
apprehended was infidelity or negligence in the
management; and even this danger was sufficiently
removed by the interested superintendance of a coun-
cil composed of one hundred individuals. What is
most to be wondered at is, that the republic, in the
midst of its distresses and political troubles, never
touched the property of the bank. A proposal of that
tendency was made after the bombardment of Genoa,
in 1684 but it was rejected, because to touch the
money of the bank appeared too dangerous. It would,
indeed, have been extremely dangerous, since there
is every reason to suppose that the greatest part of the
nation were interested in the safety of the property
of the bank.
Moreover, I have not been able to discover what.
were the relations of the bank of Genoa to commerce;
334
ON THE VARIOUS SYSTEMS
whether its transactions consisted in transfers in its
books, or in payments in bank paper.
Confined to its primitive object of a chest, from
which government might borrow, the Bank of St.
George is an excellent institution for public credit;
it were to be wished that it had been imitated by the
great powers of Europe, when they had recourse to
loans. With the assistance of such a bank they would
have avoided that confusion in their finances, which
always proved so fatal to public credit, so injurious
to the honour of governments, and so detrimental to
the prosperity of empires.
The bank of Amsterdam was established in 1609,
on the model of that of Venice; and it must be
acknowledged to have been well adapted to the situa-
tion of that city, similar in almost every respect to
that of Venice.
Like Venice, Amsterdam was then a staple-town, a
perpetual fair, a market constantly open for the ex-
change of the produce of all climes, and of the industry
of all nations. The sales and purchases of the produc-
tions of all countries were reciprocally paid by the
intervention of the Amsterdam merchants, and the
particular commerce of each state had only the
balance of its trade to receive or to pay.
Had the merchants of Amsterdam always traded
on their own account, like those of Lyons, and had
they been able to fix the same term to their engage-
ments, they might, like the Lyonese, have carried on
their trade by simply exchanging the documents of
their respective debts, as Lyons did for its own pri-
vate trade.
OF POLITICAL ECONOMY.
335
But the immense extent of the payments which
the merchants of Amsterdam had to make, would
not allow their being effected by reciprocal exchanges
of debts and demands at certain fixed times. Pay-
ments must be made daily, because they were daily
wanted; and, in this respect, the bank of Venice
suited Amsterdam better than a liquidation by the
exchange of debts and demands, as used at Lyons.
By the charter of its foundation, the bank of
Amsterdam was authorized to receive the deposit of
any sum of money above three hundred gilders; and.
to pay all bills of exchange exceeding that sum by
transfers in its books. The sums deposited were
declared safe against any attachment; the city of
Amsterdam guaranteed their safety, and engaged to
represent them. The amount of these deposits has
been estimated very high by some authors, and rather
low by others. D'Avenant estimated them to amount
to thirty-six millions sterling*; Adam Smith calcu-
lates them to amount only to about three millions
sterling, or, at eleven gilders the pound sterling,
thirty-three millions of gilders.
Adam Smith was convinced, that the deposits in
the bank of Amsterdam had been faithfully respected.
But a modern English author pretends, that when the
French took possession of Holland, it was discovered
that the bank had lent part of its deposits to the city
of Amsterdam, and to the ancient government of
New Dialogues, 1710.
+ Wealth of Nations. London. 1805, vol. ü. page 241.
336
ON THE VARIOUS SYSTEMS
Holland*; but he does not quote the authority on
which he grounds his assertion.
* Henry Thornton's Inquiry into the Nature and Effects of the
Paper Credit of England, pages 64 and 309.-Mr. Thornton's
statements are these: "The Bank of Amsterdam did not issue
circulating notes, but was a mere bank for deposits, the whole of
which it was supposed by some to keep always in specie. It was
discovered, however, when the French possessed themselves of Hol-
land, that it had been used privately to lend a certain part of them
to the city of Amsterdam, and a part to the old Dutch government.
Neither of the two debts, as I understand, have yet (1802) been
discharged." And, although Mr. Thornton quotes no authority,
the fact is well known. The late Professor, J. G. Büsch of Ham-
burgh, in the first Appendix to his Dissertation on Banks, (which
was republished after his death by his friend Ebeling, in 1801,
under the title of J. G. Büsch's Sämtliche Schriften über Banken
und Münzwesen,) states, § 2, page 159: "This is proved by
what happened to the Bank of Amsterdam in 1790, when it was
discovered that it had lent more of its original treasure to the
state and to the East-India Company, than it should have done.”
and, § 6, page 166, he expressly states, that the directors acknow
ledged the fact. George Hassel, in his Statistical Account of the
Kingdom of Holland, (Geographisch Statistischer Abriss des
Königreichs Holland, Weimar, 1809,) also says, page 65, speak.
ing of the Bank of Amsterdam: "Its credit had lately been
impaired: but the Directory of the Batavian Republic decreed a
tax, on the 22d of June, 1802, for the purpose of remedying the
deficit of the bank; by which means the bank money, which was
at a discount of two per cent, bore again a premium of 41 per
cent in the end of the same month." These two authorities suf-
ficiently vindicate Mr. Thornton's assertion, and, as I trust, the
liberality of the French author will induce him to omit, in a second
edition, the concluding sentence of his paragraph, which runs
thus: "Mais il ne cite peint l'autorité sur laquelle il fondo son
assertion; de sorte qu'il est prudent de ne pas y croire i have.
left it untranslated.-T.
F
OF POLITICAL ECONOMY.
337
The bank of Rotterdam, created in 1635, was also
founded upon the model of that of Amsterdam.
So was the bank of Hamburgh in 1688.
In short, until the foundation of the Bank of Eng-
land, all the banks, created after that of Venice, were
deposit-banks, which effected the payments of those
who had deposits with them, by transfers on their
books; and of course rendered no other service to
commerce than to avoid the charges of transport, to
guard against errors in calculation and base coin, and
to save the time which paying in metallic money
requires.
By means of a blank cheque, with which the mer-
chants of Amsterdam are furnished by the bank, and
on which they write the sums which they wish to
transfer, they may, without moving, pay more in one
hour than they could do in a day, if they were
obliged to pay in specie.
These advantages of banks must, no doubt, have
recommended them to the attention of the merchants
and governments of all countries; and it appears unac-.
countable that such banks were not established every
where, in proportion as nations made any progress in
commerce. It is as if nations were placed near each
other merely to injure and destroy each other, and
never to profit by their respective knowledge and dis-
"overies; never to assist and help each other. They
are not aware that the communication of knowledge
and useful discoveries and the interchange of their
duce would increase the mass of that produce, multiply
their means of wealth in proportion to their respective
labour, and afford them advantages which are not to be
Z
pro-
338
ON THE VARIOUS SYSTEMS
found in their systems of exclusions and prohibitions,
or in their mutual monopolies and hostilities.
Notwithstanding her extensive home and foreign
trade; in spite of her efforts to pursue the career of
wealth, which the Dutch so successfully followed, and
even to exclude them from that career; and notwith-
standing her extreme attention to appropriate to herself
every measure useful to commerce, England wit-
nessed for near a century the success of the bank of
Amsterdam without being sensible of its advantages,
without being tempted to share them, and even
without suspecting their existence.
It was the stadtholder of Holland, William III, to
whom England entrusted her government, that first
made her sensible of the importance and utility of a
'bank; and yet it was only after a very considerable
time that his knowledge, his influence, and the con-
vincing authority of experience, could naturalize such
a banking establishment on a soil where it has so much
prospered, and where it exhibits this very day one
of the most extraordinary phenomena of commercial
credit.
Many causes may be assigned for this inconceivable.
tardiness, as many causes account for the subsequent
prodigious success of the Bank of England.
The Bank of England lost its way on its very outset.
Instead of devoting itself to the commercial credit of
which the banks of Amsterdam and Hamburgh had
so ably laid the foundation, it endeavoured to revive
public credit, and lent government the money which
its shares had produced. The first operation of the
bank confounded the commercial with the public
OF POLITICAL ECONOMY.
339
credit, though they are essentially different;
as will
be seen hereafter. This confusion caused the bank to
languish for sixteen years.
fate of public credit, its
20 per cent., and it was only through the constant
protection of parliament and through a very uncom-
mon perseverance, that the Bank of England was
finally established on a solid foundation.
Its credit experienced the
notes were at a discount of
The charter of the bank made it a corporation, and
granted it the exclusive privilege of banking as a joint-
stock company.
Subsequent statutes allowed the
bank to lend money on pledges, and to deal in gold
and silver bullion.
These grants shew, that the founders of the bank
and the parliament of England had not very correct
notions of the nature and object of banks of circula-
tion; and this becomes evident, when we consider
that the bank, even when it was in the greatest distress,
advanced to government all the money it could pro-
cure, either by creating new shares, or through pri-
vate loans. In its commencement the bank was,
and could not be considered otherwise than, a chest
for government to borrow from, or a lombard
(lumber-office) totally unconnected with commercial
credit.
But if the bank mistook at first the career which
it had to run with so much glory, it was not long ere
it discovered its error, and wisely promoted the object
which it was to accomplish. Without ceasing to be
faithful to its engagements with the public creditor,
from which it could not separate itself on account of
the sums advanced to government, the bank leaned
2. 2
340
ON THE VARIOUS SYSTEMS
more towards commercial credit, and perceived that all
its efforts ought to be directed to circulate commercial
bills without the intervention of metallic money,
It was a difficult problem for the bank to solve,
since it could only offer its own credit guaranteed by
the capitals which it had in the public funds; a gua-
rantee already discredited in public opinion by the
discredit of the funds, and perfectly novel and unknown
in money concerns. The banks that had preceded
the Bank of England, had all effected their payments
in real coin, equal and even superior to the standard
of the common metallic currency. How should the
bank be able to deviate from the customary method
which had become a generally adopted rule? This
consideration did not stop the bank-directors. They
dared to open a new path; they created bank-notes
convertible into specie at the pleasure of the holder,
and used them in all their payments. The promise to
pay in coin at the pleasure of the holder was obviously
and notoriously illusory; and both the bank and the
public knew perfectly well that it could not be rea-
lized for there was not, and there could not be, any
other coin in the coffers of the bank but what was
received as interest of the public debt, and its amount
bore no proportion to its notes.
:
Bank-notes were however received in circulation,
and though at a discount for a considerable length of
time, they yet recovered their value in proportion as
the services which they rendered to circulation became
better known, as their nature was better appreciated,
and the circumstance clearly understood that the
basis of their credit rested less on the primitive capital
OF POLITICAL ECONOMY.
341
of the bank than on the equivalent commercial bills of
which they effected the payment. Thus the Bank of
England notes owed their success to the same prin-
ciples which cause the commercial credit of all coun-
tries to prosper and flourish; that is, to an entire con-
fidence in the good faith and probity of the individuals
engaged in commerce.
The successful attempt of the Bank of England
ied to the discovery of one of the properties of banks,
which had not yet been and which could not have
been suspected as long as banks had made use in their
operations of real coin of a standard superior to the
common metallic currency. Till that time it had
been, and must have been, supposed that the services
and successes of banks were due to their monied
capitals. On a more close inspection, however, it
would have been perceived that those capitals bore no
proportion to the operations of banks, and that the
ability, good faith, and fidelity of the directors and
agents of such banks, are their true support in both
cases it would have been seen that bank-money is
but an instrument to liquidate commercial debts, and
that of course it matters little whether it be of gold and
silver or of paper.
:
It has already been observed, that the transfers of
the money deposited in the bank of Amsterdam liqui-
dated, without displacing any money, the totality of
the commercial transactions of that city, and that by
means of these transfers as many payments were
effected in one hour as could be performed in metallic
currency in one day. I ought to add, that the rapidity
of this mode of payment required a smaller quantity
342
ON THE VARIOUS SYSTEMS
of money than any other method would have required ;
and it is probable that, with the deposit of a single
million, as many payments were affected as with
twenty millions in metallic currency. This singular
phenomenon could undoubtedly not be attributed to
money only; it was owing to other causes; and that such
was the fact could no longer be doubted when it was
perceived that the cotes of the Eank of England pro-
duced the same effects as the transfers of the Bank of
Amsterdam.
These causes deserve careful investigation.
At the foundation of the Bank of England, London
was but a manufacturing town and a place of great
consumption. Though a sea-port town, and enjoying
a very extensive mariume commerce, it had not yet
risen to the rank of a staple-town, that is, it had no
share in the exchanges of general commerce.
As a manufacturing town, London was a creditor
for the whole amount of the produce of its industry
disposed of in the home or foreign trade.
As a place of great consumption, London was a
debtor for the amount of all the commodities bought
in the home-market, or imported from foreign coun-
tries.
The produce sold gave to the London merchants
bills of exchange on the towns of the interior or upon
foreign countries, and the commodities imported or
purchased at home gave to those places bills upon
London.
Had these bills, which made London alternately a
debtor and a creditor, been drawn and become due at
the same time, the method of Lyons would have com-
OF POLITICAL ECONOMY.
343
pensated the debts and demands by simply exchanging
the respective bills, and no coin would have been
required but for common payments, and settling the
differences.
But these bills of exchange were like those which
Amsterdam and Hamburgh had to pay and compen-
sate; they were payable at different dates; in order
to be extinguished, they must necessarily be paid;
and it mattered little of what nature the instrument
of payment was, since he who received it in payment
of a bill of exchange of which he was the holder, paid
it again to the bearer of the bill of exchange of which
he was the acceptor. The instrument lost its power
only when the merchants of London held no more
bills of exchange from the interior or from foreign
countries, and there were yet bills of exchange drawn
upon them unpaid.
unpaid. In that case the bank-notes
could not discharge the debt, because they were not
the actual money which can extinguish by payment a
demand that cannot be extinguished by compensation.
Experience having once established this property of
bank-paper, the Bank of England conformed its fur-
ther operations to it, and employed it with equal
success in liquidating and extinguishing commercial
demands by the debts of commerce, public expences
by the public revenue, and a great part of private
expences by a great portion of private income. In
short, with the help of its notes, the Bank of Eng-
land liquidated all the commercial transactions of
the London merchants at home and abroad; all the
engagements of government with its functionaries,
agents, and contractors; and all the transactions of
344
ON THE VARIOUS SYSTEMS
opulent private individuals with their tradesmen, ser-
vants, and labourers.
Mr. Henry Thornton gives the same account of the
operations of the Bank of England.
66
"Bills of exchange," says this author, who is
extremely well acquainted with the paper circulation
of England, are drawn upon London from every
quarter of the kingdom, and remittances are sent to
the metropolis to provide for them, while London
draws no bills or next to none upon the country.
London is in this respect to the whole island in some
degree what the centre of a city is to the suburbs.
The traders may dwell in the suburbs, and lodge
many goods there, and they carry on at home a variety
of smaller payments, while their chief cash account
is with the banker, who fixes his residence among the
other bankers in the heart of the city. London is
also become, especially of late, the trading metropolis
of Europe, and indeed of the whole world; the
foreign drafts on account of merchants living in the
out-ports and other trading towns, and carrying on
business there, being made, with scarcely any excep
tions, payable in London. The metropolis, moreover,
through the extent of its own commerce and the
greatness of its wealth and population, has immense
receipts and payments on its own account, and the
circumstance of its being the seat of government and
the place where the public dividends are paid, serves
to increase its pecuniary transactions. The practice
indeed of transferring the payments of the country to
London being once begun, was likely to extend itself;
for in proportion as the amount and number of pay
OF POLITICAL ECONOMY.
345
ments and receipts is augmented in any one particular
place, the business of paying and receiving is more
easily and cheaply transacted, the necessary guineas
becoming fewer in proportion to the sums to be
received and paid, and the bank-notes wanted, though
increasing on the whole, becoming fewer in proportion
also." *
This enumeration of payments made and received
in London in bank-notes shews, that they derive from
the sources I have stated, and result either from Lon-
don being a staple-town, from its having manufactures,
or from its consumption; and that all these demands
of London upon the inland country or foreign coun-
tries to be extinguished and compensated require only
to be exchanged one against the other: this exchange
is effected by bank-notes in the most simple, most
rapid, and least expensive way. The bank notes with
which the bills due by English merchants to foreigners
for their importations are discounted, are immediately
employed by foreigners to pay what they owe to Eng-
land on account of the goods exported, and the
bank-notes are returned to the bank by those who
have to pay these bills. So that this circulation of
bank-notes against inland and foreign bills is nothing,
in fact, but a mere and simple interchange of respec-
tive demands.
The same operation takes place with regard to the de-
mands of London upon the provinces and of the provinces
upon London. The notes which the bank-directors
* Henry Thornton's Inquiry into the Nature of Paper Credit,
page 59,
346
ON THE VARIOUS SYSTEMS
give for those different bills make them owners of the
bills, and the acceptors of them repay the bank its
notes when the bills become due. So that, in this
second operation, as in the first, bank-notes are
merely an instrument for exchanging and liquidating
commercial demands.
Viewed in this light, and confined exclusively to
this function, bank-notes want no funds for their
guarantee; they carry with them the most efficacious
guarantee that can be desired. The bills of exchange
for which they are given, must always bring them
back to the bank; and if on some rare occasion, the
holder of the bank-notes should wish to convert them
into coin before the bills become due, the payment of
the bills soon restores the value of the notes to the
bank; whence it follows, that banks, limited to the
liquidation of commercial debts and demands, require
little or no capital stock.
There are, however, three cases in which bank-
notes, though sufficiently guaranteed by the bills for
which they have been exchanged, may fall into actual
discredit, be thrown out of circulation, and endanger
the existence of banks and the true interests of the
nation.
It
The first is, when the debts due by the home-
merchants to foreigners are more considerable than the
debts due by foreigners to the national commerce.
is obvious that, in this case, after the reciprocal debts
and demands have been compensated, the surplus
must be paid in specie by the bank, which had given
its notes for the bills drawn for this surplus. When
the discounted bills become due, the bank, it is true,
OF POLITICAL ECONOMY.
347
is repaid its advances to foreigners: yet the necessity
of making these advances, obliges it to keep in its
coffers a stock of metallic currency proportioned to
their amount. Should the country be greatly indebted
to foreigners, it may even happen that whatever may
be the magnitude of the stock of coin reserved for
this purpose, it may yet prove insufficient; in that
case, the bank is forced to suspend its payments, and
can no longer fulfill its destination.
If it be observed, that such a misfortune is not
owing to the institution of banks, but to the dispro-
portion of national industry to the need of or predi-
lection for the produce of foreign industry, and to the
ignorance or impotence of government in correcting
this disorder and proportioning the expences of the
state to its revenue; I say, the observation is but
specious. It is certain, that banks facilitate by their
notes the circulation of both foreign and national pro-
duce, by accelerating its consumption and liquidating
its value. If merchants had not the facility of getting
their bills of exchange discounted in bank-notes, if
they were always obliged to keep in their coffers the
coin necessary to take up the bills they accept, they
would be more reserved in their speculations, and the
circulation of foreign commodities would be less active
and more expensive; their price would rise and the
consumption diminish, and consequently the state
would be a sufferer by such a commerce. It is there-
fore the interest of commercial banks, and the duty of
governments, to pay the greatest attention to the
vibrations of the balance of trade, which is the crite
348
ON THE VARIOUS SYSTEMS
rion of their success and prosperity, or of their decline
and ruin.
The second case takes place when political events
occasion uneasiness about futurity, and cause extraor-
dinary exigencies or embarrassments in public affairs
to be apprehended: in that case, the holders of bank-
notes hasten to exchange them for coin; those who are
indebted to the bank, pay badly or with difficulty ;
and if the crisis lasts, the bank is obliged to pay all
its notes in specic, and risks to recover only part of
its demands: it is therefore forced to violate its engage-
ments, to suspend its payments, and to wait for the
return of confidence and credit.
Finally, banks of circulation have to fear lest the
merchants, whose bills they discount, should abuse
their facility for the purpose of extending their specu-
lations beyond duc bounds, and pile in their ware-
houses a larger stock of commodities than what ordi-
nary consumption requires. The longer or shorter
continuance of such a glut may force the merchants
to exchange the bank-notes for coin in a proportion
superior to what the banks receive. If a bank, in such
a case, has not in its coffers a sufficient stock of
metallic currency to meet such an exigency, its embar-
rassment aggravates the crisis, and it is again forced to
suspend its payments, and to wait till the equili-
brium between consumption and the stock on hand be
re-established.
*
Against these dangers, which are but too often
realized, and to which all banks of circulation have
been more or less exposed, there is no effective remedy.
OF POLITICAL ECONOMY.
349
Palliatives afford but little or no relief. The only
resource of a bank in such a case is to restrict the
issue ofits notes. But this measure increases the general
distress, gives the alarm to commerce, and frequently
accelerates the evil which it wishes to prevent. Mr.
Henry Thornton remarks, that in that case the bank
would even do better to give a greater latitude to its
discounts, than to restrict the issue of its notes: but
the advice does not appear very safe, and ought of
course not be considered as convincing. Unfortu-
nately, the discredit of banks of circulation, when it
happens through any of the causes just stated, is as
fatal as their credit was beneficial to commerce. It
paralyses circulation, obstructs labour, carries disorder
`and desolation in every branch of industry and trade,
and shakes social prosperity in its very foundation.
Notwithstanding these imminent and fatal risks,
banks of circulation have been introduced into almost
all countries of Europe, and their present advantages
have got the better of distant fears.
England has, as it were exclusively, entrusted
them with the circulation of all the values of her
labour, her industry, her trade, her private income,
and public revenue. There are banks in large and
small towns, in boroughs, and even in villages. In
1800, their number amounted to three-hundred and
eighty-six *; and all were in some degree ramifica-
* Henry Thornton's Inquiry into the Nature and Effects of the
Paper-Credit of England, page 154.-But, in 1810, there were not
less than eight hundred and eighteen private or country-banks in
Great Britain. See an account of the number of licences for the
350
ON THE VARIOUS SYSTEMS
tions of the Bank of England, and served the latter
as channels of communication with every part of the
empire.
But a conjecture hazarded by Mr. Henry Thornton
respecting the extent of the payments effected every
day by the London banks, from sixty to seventy in
number, deserves particular attention. He calculates
them at the enormous sum of from four to five mil
lions sterling a day; which, reckoning only four mil-
lions for three-hundred and ten days, gives one
thousand two hundred and forty millions a year.
And what appears not less wonderful is, that this
immense circulation is effected with twelve or thirteen
millions sterling in coin, or bank-notes, which supply
its place *.
What an astonishingly rapid circulation! What
an economy in the cost of circulation; and what an
immense benefit to the nation which created, and
knew how to avail itself of this advantage!
Several distinguished writers, among whom David
Hume holds the first rank, are of opinion, that such
a considerable issue of paper-currency has the same
issue of promissory notes payable on demand, delivered to the
House of Lords by the Stamp Office, July 4th, 1811.-T.
* The number of London bankers, on the first of February,
1812, was exactly seventy; the circulation of Bank of England
notes amounted, in 1810, to twenty-three millions sterling ; and the
total circulation of Great Britain, including the private bankers'
notes, to fifty-six millions, to which may be added about four mil-
lions in specie. See the very able speech of Mr. G. Johnstone,
delivered in the House of Commons on the 19th of July, 1811.
OF POLITICAL ECONOMY.
351
effect as the introduction of a large quantity of gold
and silver; that it must necessarily depreciate, raise
the price of labour and merchandize, and be detri-
mental to the sale of national produce abroad and at .
home.
Hume observes, that the high price of commodi-
ties occasioned by the abundance of gold and silver
is a disadvantage for an established commerce, and
restricts it every-where by enabling poor nations to
sell cheaper than the rich ones *.
Mr. Henry Thornton observes, with as much saga-
city as justness, that the issue of a paper-currency,
like the introduction of a great quantity of gold and
silver, does not raise the price of labour and commo-
dities in one country only, but the effect, when it takes
place, is general and extends to all countries. Indeed,
a paper-currency drives gold and silver out of circu-
lation, and causes the metallic currency to be exported.
This exportation augments the quantity of the precious
metals wheresoever they are carried, sinks their value,
and of course raises the price of labour and commo-
dities. Consequently, it is not only in the country
in which a paper-currency is issued, that the price of
labour and its produce rises; the rise is general, and
of course detrimental to none or hurtful to all coun-
tries.
* Hume's Essays, Edinb. 1804; of the Balance of Trade,
page 330.
+ But if a comparatively small island exports twenty-five mil-
lions of its coin, and increases its paper-currency to fifty-six
millions, how can the effect of twenty-five millions upon a whole
continent, be equal to that of thirty millions additional currency
352
ON THE VARIOUS SYSTEMS
é.
These are the considerations which have hitherto
been advanced on the system of banks of circulation.
I have connected the subject with that of the Bank
of England, because that establishment has been the
model of such kinds of banks, and still serves them as
a pattern and an example.
The theory of banks has never been well understood
in France; a country so enlightened, which has made
so great a progress in sciences, in arts, in every kind
of knowledge, and which has almost always accele-
rated their improvement when it had not given them
the impulse. At least, the knowledge of the banking
system has never been sufficiently diffused in France,
to dissipate the gloomy fears of ignorance, to protect
the country against the deceitful illusions of improvi-
dence, or to help her to overcome the obstacles con-
nected with every new institution, and particularly
with the establishment of banks, which comes in close
contact with so many interests, and excites so many
apprehensions and so much uneasiness in the minds.
of all.
But the surprise ceases when we reflect on the
nature and spirit of the ancient government of
France. Instead of encouraging and favouring the
study of political economy, it considered itself inte-
rested in proscribing it, or in leaving its tenets
unpractised, and, if I may be allowed the expres-
sion, lived from day to day, and either rejected all
}
upon a country that counts no more than twelve or thirteen mil-
lions of inhabitants ? It is the most convincing argument that a
great local depreciation in such a case is unavoidable.-T.
OF POLITICAL ECONOMY.
353
innovations, or adopted them merely to abuse them,
and to render them as fatal as they might have been
useful, if they had been well directed.
In 1716, a bank of circulation was established at
Paris on the plan and principles of the Bank of Eng-
land. France was indebted for it to Mr. Law, a
foreigner, a Scotchman whose name is but too famous
in the annals of finance. This bank had every success
that could be expected, as long as it was conducted
according to the guardian and beneficial rules of banks
of circulation.
But its nature was soon altered, and measures
peculiar to commercial credit were applied to public
and private credit. I have elsewhere explained this
mistake and its dangerous results *.
This mistake occasioned the ruin of the bank, and,
what must appear very extraordinary, is that its bene-
ficial effects, as long as it was confined to the operations
of a bank of circulation, were completely forgotten.
The bank was pronounced good for nothing, no doubt,
because it was not found calculated for every use to
which it had been attempted to be put.
Sixty years after, a merchant, whose knowledge of
political economy I have heard greatly extolled, and
whose talents for that reason were little employed †,
succeeded by great exertions in establishing a dis-
counting bank (caisse d'escompte) for the circulation
of the commercial bills of Paris. The success of
this bank exceeded his most sanguine expectations:
* Essai Politique sur le Revenu Public.
+ Mr. Panchaud.
A A
354
ON THE VARIOUS SYSTEMS
*
indeed it could not fail to be considerable at a time.
when the commerce of France with foreign nations.
afforded every year a balance of thirty or forty mil-
lions of French Livres; when Paris, the seat of a
flourishing industry, the residence of a brilliant and
magnificent court, of a numerous and opulent nobility,
of a rich and sumptuous clergy, of an immense con-
course of strangers eager in the pursuit of pleasure,
and of several companies of financiers profusely
lavishing their fortune: when Paris, I say, obtained,
through its own private trade, as considerable a balance
as that of the whole French trade with foreign countries.
In such a state of things, it is difficult to conceive
what reverses could have befallen a bank of circu-
lation, the operations of which were limited to extin-
guish the debts and demands of the private trade of
Paris.
But prompted by ignorance or weakness, or dazzled
by its success, the discounting bank afforded public
credit an useless assistance; and the being deprived of
its capital stock brought upon it the fate reserved to
all banks which fondly imagine they may combine
commercial with public credit. The discounting bank
was obliged to dissolve itself, and to swell the list of
the creditors of the state.
In the sixth year of the French republic (1798-
1799), after the calamities of the revolution, but
before order was restored to the French finances, and
in the midst of the general discredit, the bankers of
Paris opened a bank of running or current accounts
for their private wants, to assist each other recipro-
cally in their operations, and to enjoy by their asso-
[
OF POLITICAL ECONOMY.
355
ciation a credit and facilities which they could not
have procured by any other means.
The example was soon followed. Some merchants
of Paris established likewise a commercial bank to
discount the bills of its share-holders.
The manufacturers, impelled by the same motives
of personal interest, opened a bank to procure cash
in cases of need.
Some speculators even established a land-bank
to restore private credit, which had been entirely
destroyed by a fatal paper-currency.
These heterogeneous establishments, different in
their object and views, which performed but imper-
fectly the functions of banks of circulation, being
founded upon a system of exclusion and limitation,
restored however to circulation the active and produc-
tive movement which it had been deprived of for a
great length of time; they recalled the nation to
labour, industry, and those commercial speculations,
which render modern nations flourishing and prospe-
rous, establish order and peace among individuals,
and ground the splendour and power of empires:
though devoted to private interest only, they forwarded
the interests of all.
Each of these banks experienced a different fate.
A defective administration, and the infidelity of
one of its principal agents, shut up the bank of run-
ning or current accounts; no resource was left to
commercial credit but in the commercial bank, and
in the bank of the manufacturers, whose means were
not very extensive.
In the eighth year of the French republic (1800---
*
A A 2
356
ON THE VARIOUS SYSTEMS
1801), a joint-stock company established, under the
protection of the consular government, a bank called
the Bank of France, which comprised in its specula-
tions the totality of the commerce of Paris.
The existence of a general bank and of two private
banks guided by the same spirit and directed to the
same end, was a singular and remarkable phenomenon
in the system of banks of circulation.
They first moved one by the side of the other with-
out injuring and apparently without troubling each
other: but it was not long ere the nature of things
, and the force of human passions triumphed over dis-
interestedness and the love of public good. Each
bank experienced the torments of competition; each
saw with sorrow that the bank-notes of its rival were
substituted for its own, and that its discounts were
limited by those of its competitor; they discounted
more readily, and sent each other, their notes to get
them exchanged in specie.
Hence, each bank was obliged to keep a more con-
siderable stock of metallic currency at hand, that they
might not be caught unprovided; hence originated
mad speculations, and venturesome or badly devised
undertakings, the bad success of which shook commer-
cial credit and kept it in a precarious state.
The unbounded extension of discounts afforded
also to the share-holders of these different banking
establishments dividends so considerable, that it was
difficult, not to say impossible, for the nation to lower
the rate of interest and to attain a secure and lasting
prosperity.
Considerations of this kind induced government to
OF POLITICAL ECONOMY.
357
suppress these different banking establishments, and
to erect in their stead a general bank interested in the
rise of public stocks.
I shall not enter upon the examination of these
various measures; the digression would carry me too
far from my object. I shall only cast a rapid glance
upon the operations which the bank of France pub-
lished in the public journals, and point out their con-
formity or disagreement with the regulating and
fostering principles of banks of circulation.
At that time, the bank of France had two kinds.
of capital stock; the one disposable, which amounted
to forty-five millions of French livres, arising
from the sums advanced by its share-holders; the
other, vested in the public funds, and proceeding
from successive reserves of its dividends, consisted of
about six millions of French livres; consequently, the
whole capital stock of the bank amounted to fifty-one
millions of French livres.
With this capital, the bank of France, in the thir-
teenth year of the French republic (1805-1806),
discounted commercial bills of exchange amounting
to six hundred thirty-three millions of French livres.
As the discount was for bills drawn at sixty days, it
was repeated six times a year, and consequently each
occasioned the issue of bank notes to the amount of
one hundred and five millions of French livres but
as, at the end of sixty days, the payment of the dis-
counted bills of exchange restored its own notes or
specie to the bank, it follows that the six annual
discounts put no more bank-notes into circulation,
358
ON THE VARIOUS SYSTEMS
than to the amount of one hundred and five millions
of French livres.
This proportion of the circulating notes to the capital
stock of the bank was not too considerable; on the
contrary, it was greatly inferior to what it might have
been.
But, as was justly observed by the censor of the
bank in his report, the exact limits of discounts are
those fixed by the wants of the place and the different
public services.
Consequently, the bank could neither be blamed
for not having enlarged its discounts, nor applauded
for not having circulated a larger amount of notes.
It appears that the bank made no distinction
between the private discounts of the trade of Paris
and those required for the accommodation of foreign-
ers, and the merchants of the several French depart-
ments or provinces; and yet the difference between
such discounts is very material and of the utmost
importance for the bank.
Before I account for this difference, I shall attempt
to state the extent of these various discounts.
The commerce of Paris, before the revolution,
might amount to about five-hundred and sixteen mil-
lions of French livres, of which two-hundred and
fifty-eight millions were for its own consumption, and
the same sum at least for its productions or the income
of its inhabitants.
It appears from the accounts of the president and
the censor of the bank, that this commerce, either of
consumption or of productions, and this income, did
OF POLITICAL ECONOMY.
359
not at that time exceed 328,500,000 French livres :
I ground my assertion on the following circumstances.
The two reports state, that the daily exchange of
bank-notes for specie amounted to 4 or 500,000
livres, the average of which sum is 450,000 li-
vres a day, and for three-hundred sixty-five days
163,250,000 livres.
Now, it is certain that, in ordinary times, bank-
notes are exchanged for specie merely for wants of
consumption, and rarely exceed their amount.
Whence it may be inferred with some certainty, that
the total amount of the consumption of Paris never
was much above 163,250,000 livres : we will however
rate it at 200 millions of livres, that we may not be.
accused of exaggeration.
Admitting the consumption of Paris at 200 mil-
lions of livres, the income of its inhabitants must
amount to the same sum, or else their expenditure
would exceed their income, impair their capitals, and
soon diminish the population of that great city. And
supposing even that the expenditure had exceeded the
income, and that the excess above it had been sup-
plied by capitals, it would still follow that the expen-
diture, and the values destined to provide for it, con-
stituted a total of four-hundred millions of French
livres, and that this sum was or might have been the
object and the result of the private trade of Paris.
Supposing that the bank had discounted the whole
of this sum, which is not probable; the totality of its
discounts relative to the private trade of Paris would
not have exceeded four hundred millions of livres, or
about sixteen millions sterling; and consequently, the
360
ON THE VARIOUS SYSTEMS
surplus to make up the six hundred and thirty mil-
lions of livres discounted, and amounting to two
hundred and thirty millions of livres, must have been
foreign to the trade of Paris, and employed merely
for the benefit of foreigners, or of the merchants of
the departments or provinces of France.
The bank-directors acknowledged in their accounts,
that foreign countries and the merchants of the
departments had really partaken of their discounts:
but they did not specify the amount of either.
"It happens," says the censor, in his report,
"that distant speculators exchange in the bank, by
means of their correspondents, their bills on Paris for
specie; and having this specie sent to them, they
employ it in other bills at a lower rate, but advan-
tageous enough to afford easy and often renewed
benefits. Thus a bank so useful to Paris has also a
salutary and much more valuable than valued influence
upon the greatest number of departments,"
But the safety and prosperity of banks, whose fate is
so intimately connected with the progress of wealth,
which I am now investigating, forces me to observe
that this employment of the capital of the bank, held
out as advantageous for the departments, was neither
profitable to them nor to the bank, but, on the con-
trary, expensive for both.
The bills of the provincial merchants discounted at
the bank of France in Paris were, it is true, dis-
counted in bank-notes; but these notes were imme-
diately exchanged for coin, because bank-notes were
not known in the provinces, where specie alone was
circulated. The result of this discount was therefore
OF POLITICAL ECONOMY.
361
a loan of the bank to the merchants of the depart-
ments at the rate of half per cent a month, or six per
cent a year. The loan in itself would undoubtedly
have been very advantageous to the departments,
had it been within the means of the bank: but as
the loan exceeded the means of the bank, the direc-
tors eagerly collected in the departments the metallic
currency which they had lent, and at a heavy expence
returned to the coffers of the bank the funds which
the provincial merchants had carried away at a great
expence; so that the whole operation consisted in
conveying the coin from Paris to the departments,
and back again from the departments to Paris, and to
burthen the bank and the departments with the
charges of a conveyance equally useless to both par-
ties. This circulation was not productive of any
advantage either to Paris or to the departments; it
was merely a change of place without any benefit
whatever, against which banks of circulation ought
constantly to guard by the most efficacious measures,
if they wish to attain their end without efforts and
without danger.
I shall not dwell upon the still greater inconve-
niency of discounting the bills of foreigners uncon-
nected with the private trade of Paris, which, accord-
ing to the censor of the bank himself, had "no other
object than to convey the capital of the bank to
our enemies and to incapacitate the bank from pur-
suing its operations:" whatever I might say on this
head, would merely be a tedious repetition of what I
have stated, and could add nothing to the strength of
the observations of the censor upon this subject.
362
ON THE VARIOUS SYSTEMS
Having approximated, as much as conjecture will
allow, the limits of the discounts of the bank for the
private trade of Paris and for the provincial or foreign
merchants, and having taken the former at four-h un-
dred millions of livres, and the latter at two-hundred
and thirty millions, it is of great importance to shew
how far the latter were detrimental to the bank, to
ascertain this detriment, and to render it so evident
that the bank-directors may be still more disposed to
guard against such discounts.
The six discounts of the bank at the rate of sixty
days each, had each, as we observed before, put into
circulation one-hundred and five millions of French
livres in bank-notes; which supposition placed the
notes, compared to the metallic money stock of the
bank, in the proportion of one to two.
But of these one-hundred and five millions in notes,
the part destined for provincial and foreign merchants
was immediately exchanged for specic, and consti-
tuted about a third of the whole; consequently, thirty-
seven millions of the specie of the bank took the place
of thirty-seven millions in notes. Deducting these
thirty-seven millions of specie from the forty-five mil-
lions of metallic currency which constituted the capital
stock of the bank, there were only eight millions in
coin left to take up above seventy-four millions in
notes, which made the proportion of notes to cash as
one to nine, instead of one to two; in which last pro-
portion they would have continued, had all the dis-
counts been for the private trade of Paris.
This approximation is sufficient to shew the dif
ferent nature of the two discounts, and to warn banks
OF POLITICAL ECONOMY.
363
to be on their guard against those discounts which
are merely covered loans, and which tend only to
strip them of their capital, to transform them into
mere lenders, and to confound commercial with private
credit.
When I am thus precluding the bank of France
from discounting provincial and foreign bills, which
are mere loans and totally unconnected with the ope-
rations of the bank; I shall, no doubt, be asked to
what use the bank could have put that part of its
capital stock which was useless to the circulation of
the private trade of Paris. The question is connected
with the very essence of banks, and can only be
resolved by a profound knowledge of the nature and
properties of banks.
Banks take commercial bills and give in exchange
bank-notes payable on demand in coin. Bills of ex-
change and bank-notes have neither of them any
intrinsic value; but they both contain a promise to
pay such a value. It is therefore a mere exchange of
claims, an interchange of promises, between the banks
and the merchants who receive their notes. Neither
does the merchant who pays his bank-notes to his
creditors, give them any thing more than the promise
which they contain. His creditors
His creditors pay these notes to
the retail-dealers for the commodities which they want,
and thus receive the intrinsic value which they had
been promised by transferring to the retail-dealers the
claim which they derived from the promise con-
tained in the bank-notes handed to the retail-dealer in
payment for his commodities.
364
ON THE VARIOUS SYSTEMS
+
The retail-dealer, in his turn, gives the bank-notes
to the bank in exchange for his accepted bill when it
becomes due; and on receiving back his bill, he
obtains not an intrinsic value, but the engagement
which he had contracted to furnish one, just as the
bank, on receiving back its notes, does not receive
any intrinsic value, but the promise which it had
given to furnish an intrinsic value. So that, after all,
this circulation of bills of exchange and bank-notes
circulates but respective promises to furnish an intrinsic
value and their being ultimately exchanged for eaclı
other effects a mere commercial liquidation.
On the other hand, other holders of bank-notes
paid to the retail-dealer for his commodities, had
received them for some personal service and some
intrinsic value, of which the purchased commodities.
were the exact equivalent; the bank-notes conse-
quently effect a second liquidation between the con-
sumer and the owner of the commodity consumed.
The only difference between these liquidations is,
that the former may be effected without the interven-
tion of coin, and that the second requires a more or
less considerable quantity of coin according to the
nature of the consumptions, the wealth of the consu-
mers, and the amount of bank-notes.
Thus, to liquidate the demands and debts of com-
merce and those of labour and consumption, is the
characteristic property of banks, the extent and limit
of their power.
But the demands of commerce and consumption
are of two kinds; one resulting from the general com-
OF POLITICAL ECONOMY.
365
merce of nations, and the other from the private trade
of cities, or large assemblages of individuals composing
the same society.
All nations cannot share equally in the great and
lucrative liquidation of general commerce. This
advantage is reserved to local conveniencies, to particu-
lar circumstances, and sometimes to happy situations,
which it is not in the power of human combinations
to produce or to change. Venice, Amsterdam, Ham-
burgh, have had prosperous banks for the liquidation
of general commerce; and it is impossible to assign
any other reasons for it, but considerations derived
from their locality, their government, particular cir-
cumstances, and a thousand other secondary motives,
which it would be useless to inquire into and to
develope. Most nations therefore must renounce
sharing in the liquidation of general commerce.
But all nations may have banks for the liquidation
of their private trade, either with foreign countries, or
with the different cities within their territory; and all
may derive invaluable advantages from such establish-
ments. Such banks may be established in all places,
which afford much produce, and where consumption
is considerable. England has adopted the banking
system with a success that has been disputed, it is
true, but which is alike attested by experience and
demonstrated by reason.
France has hitherto attempted the experiment of
banks in the metropolis only, and for its private trade;
but this trade is so limited, that it cannot flatter itself
with the hope of giving to its bank the extent and
importance of the other banks of Europe.
366
ON THE VARIOUS SYSTEMS
All possible combinations afford but two means of
employing capitals in the banking system.
The first and, no doubt, the most extensive and
most productive of great results, would be to establish
successively, and in proportion as its capitals should
exceed the wants of the private trade of Paris, branches
of the bank of France in all large manufacturing
towns and places of great consumption. The extent
of this vast empire, the immensity of its population,
the richness of its produce, the incalculable consump-
tion of its towns, would perhaps afford liquidations
equivalent to those of the general commerce which
are shared by a few cities of Europe. This extension
of the operations of the bank of France would
increase its labours and its benefits tenfold; it would
save the use of specie in the liquidation of the com-
mercial debts, and even in a considerable part of the
liquidation of the demands of labour and consumption;
and I should not be surprized if, with a capital of 200
millions of French livres, it rendered the same service
which is this day performed with a metallic currency
of above 2,000 millions.
The saving of 1,800 millions would free consump-
tion of an interest of 180 millions, at the rate of 10
per cent.; which crushes commerce, falls heavy on
the consumer, restrains consumption, and consequently
is detrimental to reproduction.
On the other hand, these 1,800 millions, having
become useless to commercial circulation, would flow
towards agriculture and manufactures, stimulate their
establishment and improvements, and increase their
OF POLITICAL ECONOMY.
367
ย
produce beyond what imagination can conceive most
fortunate and most flattering.
Every thing then ought to induce the bank of
France to turn its views towards a project of which the
execution is easy, the success certain, and the general
and private benefit invaluable.*
Finally, the bank might, by undertaking the
payments of all the great commercial establishments,
either foreign or French, give a still greater extent to
the issue of its notes without greatly enlarging the
stock of its coin.
It is the property of all commercial establishments
to draw to the place where they are established the
liquidation of their speculations. Their demands and
their debts are extinguished in that place, and the
bank would facilitate their liquidation by its notes. It
might even share in the liquidation of general com-
merce. Whether the establishment of banks is not
originally due to great commercial establishments, is
an important inquiry, into which I shall not enter at
present but it is certain that banks have arisen
under the wings of those great commercial establish-
ments.
The creation of branches of the bank in all manufac-
turing towns and places of great consumption, and the
*This part of my work was written long before the bank of
France had adopted the measure which I suggest ; and although my
object has been attained, I thought I ought to retain the arguments
on which my opinion is founded, and which appear calculated to
însure the success of my plan.
368
ON THE VARIOUS SYSTEMS
keeping the cash of great commercial establishments,
whether foreign or French, are the two only means to
which banks can resort, to employ their capital when
it exceeds the particular wants of the commerce of the
metropolis, and to assimilate themselves in some degree
to banks which share in the liquidation of general
commerce.
There are some other banks of circulation at Vienna,
Madrid, and Berlin; but if I am rightly informed,
those banks are less for the wants of commercial credit
than for the wants of government; they are rather
financial than commercial banks, and more connected.
with public than with commercial credit. I have
therefore no occasion to enter into the detail of their
operations, or to undertake the proof that they bear no
relation to banks of circulation. The discussion would
add nothing to the strength of my arguments, and be
without avail for the science.
Having thus developed the laws, proceedings, and
methods of banks of deposit and circulation, and their
reciprocal influence on commercial credit, it will not
be thought idle or uninteresting to inquire which of
the two kinds of banks is most favourable to the pro-
gress of wealth.
The services of banks of deposit are limited, but free
from risk, inconvenience, or any disastrous conse-
quence. They accelerate the circulation of money,
and multiply it by the velocity of this circulation;
they save the charges and risks of conveyance, avoid
the friction, adulteration, and counterfeiting of coin;
render errors in counting impossible, and prevent the
OF POLITICAL ECONOMY.
369
loss of the time taken up by payments in metallic cur-
rency. All these advantages are a clear gain, unal-
layed with any loss or risk.
The benefits afforded by banks of circulation are
undoubtedly more extensive, more numerous, and
more fascinating. They multiply the capitals neces-
sary to support labour, industry, and commerce, by
the facility of converting their produce into money as
soon as it exists; by giving them fresh employment,
and keeping them in constant and uninterrupted acti-
vity: and this invaluable service, which metallic money
and deposit-banks render but imperfectly and at a
considerable expence, is performed by banks of circu-
lation with the greatest ease, and at a most trifling
expence.
But these important benefits are attended with
imminent and almost unavoidable risks. The velocity
of the circulation of capital may be arrested by an
unfavourable balance of foreign and local trade, by
unfounded alarms, and by an overgrown commerce.
When one of these three cases happens, circulation is
shackled and frequently paralysed; capitals are not
easily converted into money; labour is suspended, or
left to languish; and both private and public affairs
experience a fatal and deplorable crisis.
When the result of the two kinds of commercial
banks is thus contrasted, it is difficult to decide.
which is preferable. David Hume did not hesitate.
He assigns the preference to deposit-banks, and even
proposes to improve them. Adam Smith appears to
incline in favour of banks of circulation; and Mr.
Henry Thornton, who is decidedly for the latter,
B B
370
ON THE VARIOUS SYSTEMS
has neglected nothing to insure the triumph of his
opinion.
This variety of sentiments might perhaps be recon-
ciled, if what is good in either mode of banking was
adopted, or if both were so combined as to obtain the
advantages of each and avoid their respective inconve-
niencies. Nothing needs to be done but to introduce
a bank-paper, the metallic value of which should
always be kept in the coffers of the bank. The thing
is not impossible; but this is not the proper place to
enter upon the discussion of projects which would
cause me to lose sight of the principles and remove me
too far from my object.
Thus banks of deposit or of circulation are the per-
fection and as it were the strong-chest of commercial
credit, and it is impossible to ascend without surprise
and admiration every degree of the scale of commercial
credit which transmits the productions of labour from
the producer to the consumer, without any real equi-
valent, without the use of money, on the faith of suc-
cessive and reciprocal promises returning to the coffers
of the banks. It is only at the two extremities of the
circulation, that is to say, at the period of production
and that of consumption, that metallic money is
necessary, and cannot be supplied by a substitute.
The producer, be he a farmer or manufacturer, must
pay his labourers in coin, just as the consumer must
pay the retail-dealer in coin for what he requires for
his consumption. This part of circulation cannot be
effected in paper currency without the greatest incon-
veniencies, without lapsing into the system of paper-
money, or conventional money, of which both the
OF POLITICAL ECONOMY.
871
defects and calamitous consequences have been pointed
out, and without endangering alike commercial credit,
production, and wealth.
In the intermediate stages of circulation between
production and consumption metallic money is per-
fectly useless, and finds a convenient and useful
substitute in commercial credit supported and liqui-
dated by deposit-banks and banks of circulation.
Private credit bears little analogy to commercial
credit. It resembles it only in one single point. Both
circulate the produce of labour; but that produce
does not follow the same direction, has not the same
destination, nor does it give the same results.
The produce which commercial credit circulates
is destined for consumption; and when it has reached
the consumer, commercial credit has finished its course,
and there remains no vestige either of its deeds or of
its results.
The produce which private credit circulates is
that which, having reached the consumer, has been
economised, accumulated, and kept in reserve, through
the passion of amassing, through the fear of want, or
through the desire of greater comforts. These savings
circulated by private credit are employed in two ways.
Some, but the smallest number, serve merely to restore
the level of consumptions, and degenerate therefore
into a simple expenditure; the others are turned to
undertakings, speculations, and more or less successful,
but almost always beneficial, improvements.
When private credit throws these savings into the
hands of prodigals and spendthrifts, it augments their
expences, advances their ruin, and consequently serves
B B 2
372
ON THE VARIOUS SYSTEMS
merely to restore the proportion between production
and consumption. It has the same effect as if there
had been no saving; as if every one had consumed his
whole income, his whole share in the national pro-
duce; and viewed in this light, it affords no benefit,
and deserves neither consideration nor favour.
But when those savings are employed in under-
takings, speculations, and improvements, they increase
the sum of labour, ameliorate the condition of the
labouring class, and favour population. They are, it is
true, restored to consumption, as in the former case;
but their consumption leaves an equivalent behind in
an augmented population and increased produce of
labour. They are of course the true source, or rather
the most powerful lever of prosperity and wealth; and
private credit, which is the agent, the promoter of such
beneficial results, deserves all the attention and bene-
volence of governments.
This twofold employment of the savings put into
circulation by private credit, ought to warn banks of
circulation not to meddle with the operations of pri-
vate credit. Whether the funds thrown into circu-
lation by private credit go into the hands of spendthrifts
or speculators, the banks are immediately forced to
convert them into metallic money; because they are
destined to consumption or to labour, and both, as has
been observed, can only be paid in coin. As banks of
circulation are chiefly established to save the use of
coin, they evidently go astray from their destination
when they suffer themselves to be voluntarily or
fictitiously entrapped into the operations of private
credit.
OF POLITICAL ECONOMY.
373
There are however some banks especially devoted to
private credit. Such are the banks of Scotland, such
was the land-bank (banque hypothécaire) of Paris,
and such are all lombards (monts de piété, lumber-
offices). But these establishments have no affinity
whatever with banks of circulation. They can only
be considered as associations of capitalists, who circulate
private savings, and whose operations are limited to
the lending of their own and borrowed capitals. When
they issue notes their stock in specie must always be
nearly in equal proportion to the amount of notes
issued. They afford no other advantage than that of
concentrating private credit, and giving it a greater
influence, stability, and activity. These advantages
are, no doubt, valuable, but not to be compared with
those resulting from commercial credit.
Though the utility of private credit is so obvious, it
yet has not made the same progress as commercial
credit; and the reason lies in particular circumstances,
which it is necessary to detail.
Most religions have taught, some even have ordered,
that private loans should be made gratuitously. They
wished that whatever one individual possesses too much,
should be generously lent to him who wants it, without
any equivalent, without any retribution, and on the
only condition of returning the commodity that is
lent. Undoubtedly this doctrine is worthy of the sen-
timents of humanity and charity, which all religions
endeavour to awaken in the heart of man: but, it
must be confessed, it ill agrees with human passions,
with the interest of nations, and the prosperity of
empires. Hence it has no other effect than to deprive
374
ON THE VARIOUS SYSTEMS
mankind of the invaluable advantages of private credit,
and to render useless for all what some have too much.
This consequence, which the progress of knowledge
renders every day more obvious, has been but feebly
remedied by the laws. They have not authorized
any equivalent or price of loans which religion pro-
hibited; they have only limited that equivalent or
price, as if the contract of lending differed in its
nature from other civil contracts; as if an individual
could be induced to strip himself of what he has saved,
without an equivalent that pleases or suits him; as
if the price of equivalents was not always proportioned
to the mass of surplusses or savings. But let us leave
to time the care of giving to these considerations the
persuasive power which is denied to reason.
Let us
await from the general interest, which is every day
better felt and better known, a solid triumph over the
errors or pusillanimity which still obstruct the pro-
gress of private credit, and oppose a fatal resistance
to its success.
The denial or limitation of equivalents is not the
only obstacle which private credit encounters; it meets
with one more serious and less easily overcome in the
difficulty of re-payment, in the unpopularity which
assails the creditor when he is obliged to enforce pay-
ment by a legal process, in the benevolence of the
laws, and in the bias of courts of justice in favour of
the borrower.
The preference granted to the debtor over the
creditor is assuredly astonishing, and its motive cannot
easily be guessed; I think however I have discovered
it, and I hope I shall be pardoned for developing it at
$
OF POLITICAL ECONOMY.
375
some length; not because it may interest curiosity,
but because it will render more sensible the defects
of the system, which has obtained an unaccountable
ascendancy.
The Romans, being confined within a very limited
territory in the early stages of the republic, derived
great part of their subsistence from plundering the
harvest of their neighbours. The uncertainty and ine-
quality of the booty rendered extremely precarious
the revenue of a great number of citizens, who could
not escape from misery and despair but by borrowing
the surplus of their fellow-citizens. The conditions
of the loan were rarely generous, and yet the laws
enforced its restitution with the utmost severity. These
laws were even more than severe, they were atrocious;
emanated from a ferocious, covetous, and indigent
people, as a necessary consequence of their economi-
cal situation, they perhaps favoured their political
designs, and promoted the general interest which
their character and their manners taught them to for-
ward at any price.
As debtors had no means of paying their creditors
but their share in the booty taken from the enemy,
the more the penalties against inexact or insolvent
debtors were severe and terrible, the greater must
have been their exertions in battle to insure the victory
to their country and to avoid the punishment which
awaited them if their countrymen should be van-
quished. Thus, in civil transactions apparently
little connected with political views, we recognize
that national spirit of the Romans, which from vic-
tory to victory led them on to the conquest of the
'
376
ON THE VARIOUS SYSTEMS
world, and which has been considered by all ages as
the result of the conceptions and combinations of
genius, while in its principle it was but the result of
dire necessity, which sometimes proves as beneficial
to nations as to individuals.
It must however be acknowledged, that the seve-
rity of the laws against debtors frequently occasioned
disasters. It fomented numerous seditions, caused
strong commotions in the state, and shook it in its
very foundations. In those critical moments, the
Romans were forced to sacrifice the rights of the cre-
ditors to public peace and to the safety of the state.
But it is singular that those laws were neither abro-
gated, nor modified, and underwent no alteration
whatever as long as the Romans needed to conquer in
order to exist.
When Rome, become mistress of the world, passed
under the yoke of the emperors, her laws respecting
private credit experienced the changes which her new
situation required. The emperors, whose interest was
different from that of the republic, neglected no
means to lower the power of the patricians, whom
they distrusted, and to conciliate the affection of the
common people, and interest them as it were in their
dominion. Their views were perfectly seconded by
the abrogation of the old laws respecting private cre-
dit; it deprived the patricians of means which had
not a little contributed to their wealth, their power
and their influence over the multitude, and it restored
to the common people the independence which they
had been robbed of by those laws. It was then that
• maxim, apparently dictated by humanity, but really
OF POLITICAL ECONOMY.
377
partial, that the cause of the debtor is the most
favourable, took its rise; and it may easily be sup-
posed that from that instant private credit vanished or
manifested itself only with precautions and simula-
tions calculated to balance the favour shewn to the
debtor. Every page of the Roman code of laws
exhibits a struggle between the law and the creditor,
and the efforts of the legislator to protect the debtor
against the arts and devices of his creditor.
When the nations of modern Europe became ac-
quainted with and adopted the Roman law, or
introduced its spirit into their customs, they were
exactly in the same situation as the Romans under the
emperors. The feudal barons oppressed the people
and balanced the authority of the monarch. Kings
were therefore as interested in lowering the feudal
barons, as the emperors in weakening the patricians;
and the same interest induced the kings, as it had
done the emperors, to cultivate the affection of the
people. The maxim, that the cause of the debtor is
the most favourable, necessarily crept into the code
of modern nations, from the same motive which had
introduced it into the Roman law. Hence it is found
in almost all codes of laws, even in those which do
most honour to human reason, and which by the
purity of their motives are best calculated to forward
the happiness of man and the improvement of the
human race.
But a maxim excellent for times of oppression and
robbery, in oligarchical governments and under the
sway of a small number of wealthy individuals, is no
longer suitable to a social order built upon the equality
1
378
ON THE VARIOUS SYSTEMS
of civil and political rights, which recognizes labour as
the source of comforts, the circulation of its produce as
the promoter of public prosperity, and general wealth
as the basis of strength and power. In this system
every one labours, economizes, and lends his savings
merely for equivalents that please and suit him, and
only as far as he is sure to be put in possession of
those equivalents at the time when the commodity
which he has lent is to be restored to him. The
limitation of the equivalent and the difficulty of having
the loan returned are as many obstacles to private
credit, to individual savings, to the undertakings
which these savings promote or favour, to the increase
of population and produce, and to the progress of
national wealth.
Let governments remove obstacles so unworthy of
the present state of knowledge, so injurious to their
glory, so averse to their power. Let them allow the
lender and borrower to stipulate what conditions they
think fit; let them watch over the performance
of their stipulations; and, above all, let the execu-
tion of the law be stripped of the delays and costs
with which it is obstructed, and which often render
its execution impossible; and private credit will take
a rapid flight and be the parent of incalculable
benefits.
Public credit in many respects resembles private
credit, and might truly be pronounced a mere branch
of it. Both circulate private savings, and neither can
obtain these savings but by offering an equivalent
agreeable or suitable to the lender, and insuring him
the restitution of his property: but they differ in so
OF POLITICAL ECONOMY.
379
far as the savings put in circulation by private credit
contribute almost all to increase the mass of productive
labour; while those circulated by public credit con-
tribute almost all to a mere additional expence, and
of course serve only to increase consumption. A dif-
ference which has already been noticed and appre-
ciated.
However, it must be confessed, that whenever the
necessity of additional expence is obvious, public
credit affords the least burthensome resou ce of all
those that could be devised to pay for that expence.
After having attentively followed credit from its
source, in its various branches, and up to its most
minute ramifications; after having seen it, like a
bountiful river, carrying every-where activity, fer-
tility, and abundance, freeing circulation from the
costly use of coin, and reserving it for the undertakings
of industry; after having witnessed the extensive
means of power and grandeur, not over-burthensome
to the people, and perhaps connected with their pros-
perity, which credit affords to government; we ask,
with a sort of inquietude, why so many advantages
have been so ill appreciated by recommendable wri-
ters; how enlightened governments could ever endanger
them by frequent and multiplied failures; why some
able men persist in seeing nothing in those failures
but private interests injured and private fortunes
deranged, and think such misfortunes unconnected
with public interest? Am I deviating from truth,
when I suppose this fatal error to proceed from the
hatred which was always manifested in France towards
capitalists and those who were called monied men?
380
ON THE VARIOUS SYSTEMS
When they were indebted for their wealth to the pro-
fitable contracts which they entered into with govern-
ment, and to their grinding the people; there might
have been some colour of justice in considering a
national bankruptcy as a sort of reprisals, as a kind
of retaliation which they had deserved. Their mis-
fortune was applauded by the same motives which
induce the stupid Mussulmen to bless the grand-signor,
when he confiscates the treasures of the pasha by
whom they have been stripped and ruined. Had the
results of such unjust proceedings been attended to, it
would undoubtedly have been seen that the conse-
quences of the bankruptcy which ruined French
capitalists, and of the confiscation which ruined the
Turkish pashas, fall upon all classes of the people,
and are tantamount to the most burthensome taxes.
But passion docs not reflect; it only seeks to satisfy
itself, without considering the good or ill that is to
result from it. Passion does not perceive that
national bankruptcies impede private savings; that
they arrest or suspend their circulation, and deprive
labour of the capitals through which it prospers; that
they obstruct the circulation of produce, or burthen it
with the enormous cost of the use of coin, and aug-
ment by as much the price of consumptions; which
augmentation is equivalent to a tax ; and finally, that
they reduce governments to the necessity of raising
contributions beyond the faculties of the contributors,
which is the utmost degree of public misery.
It is under the impression of these obvious and
manifest consequences that I am warranted in observing,
that bankruptcies are, in the present state of social
*
OF POLITICAL ECONOMY.
381
mechanism, a calamity more disastrous than wars and
bad seasons. These last misfortunes at least may be
repaired, and quickly disappear where credit has not
been impaired, and when nations enjoy all their facul-
ties, their means, and their power. But the loss of cre-
dit is irreparable, and destroys even the consolations of
hope. May the picture of these dreadful results pro-
tect credit against fresh attacks, consolidate it by new
measures, keep it unshaken among the nations that
have known how to preserve it, restore it to those
that had lost it, and establish it among those by whom
it never was enjoyed! May credit, by its vast combi-
nations, accelerate their private prosperity, and cause
them all to share in the benefits of general wealth!
CHAP. V.
Which Trade is the most beneficial to National
Wealth?
WHETHER the home or the foreign trade is most
beneficial to national wealth, is one of the most
important, most difficult, and most controverted
questions of political economy.
At first sight, the problem appears to offer no diffi-
culties. The most advantageous trade to nations, as
to individuals, must be that which causes the produce
of a country to be sold at the highest, and foreign pro-
duce to be purchased at the lowest possible price. It
seems that it is to this twofold end, that every trade
382
ON THE VARIOUS SYSTEMS
must tend; and that a country has attained its object
when that end is accomplished. It is even difficult to
conceive that the smallest doubt can be raised on this
point, and the question viewed in any other light.
Indeed, it was long considered in that light only by
the most esteemed writers on political economy.
66
Prudence," says D'Avenant, "is generally wrong
when it pretends to guide nature. The various pro-
ducts of different soils and countries is an indication
that Providence intended they should be helpful to
each other and mutually supply the necessities of one
another." *
The benefit of trade does not consist in the profit of
the home-merchant, but in the clear gain the nation
acquires through the exchange of its raw and manu-
factured produce for the produce of other countries.
Elsewhere he remarks," that the foreign trade is
the basis of the home-trade, that it causes consump-
tion, and increases population in all countries where it
flourishes and is encouraged." A great part of our
domestic trade depends upon our foreign commerce;
and we must sink in one, as the other decreases.
Finally, he says, in another place,
in another place," it is an unde-
niable truth, that a rise in the value of a commodity
of a penny per pound, proceeding from foreign ex-
pence, does more enrich the body of the nation than
a rise of three-pence per pound occasioned only by our
own consumption." +
Sir James Stuart observes, that "when foreign
* Vol. i. page 104.
Vol. ii. page 150.
+ Ibidem, page 385.
OF POLITICAL ECONOMY.
383
trade ceases, the internal mass of wealth cannot be
augmented." *
"A nation," says Forbonnais, "gains the amount
of its sales to foreigners, and loses the amount of the
purchases it makes abroad."
Lastly, Montesquieu adds to these opinions a
reflection which is entitled to notice.
"The nations of the same climate," says he,
"having nearly the same productions, do not stand
so much in need of trading with each other as those of
a different climate. Hence the trade of Europe was
formerly less extensive than it is at present."
"As foreign trade is carried on with benefit,"
observes Beccaria," that is, as it receives a greater
quantity of values, it serves as a more powerful
incentive, and is more efficacious to increase the
sum of productions. Besides, it burthens the sub-
jects of other countries with a considerable part of the
taxes paid to the state.”+
Were I to collect the opinions of all the writers
who have sanctioned, supported, or adopted the sys-
* Inquiry into the Principles of Political Economy, book ii.
chap. 26.
But I have not been able to trace this passage in the
quoted chapter. In the 24th chapter of the same book, of the
edition of 1805, it is said: "When foreign trade is at an end,
the number of inhabitants must be reduced to the proportion of
home subsistence.”—T.
+ Elémens du Commerce, chap. i.-I do not quote this opinion
as correct, but as a proof of the system of the best writers on
commerce.
Element. di Econom. Publ.-Genovesi, Carli, Verri, Pal.
mieri, and Corniani, speak nearly in the same terms respecting
foreign trade.
384
ON THE VARIOUS SYSTEMS
tem favourable to foreign trade, I should never have
done.
Dr. Quesnay is the first who attempted to combat
that system.
"In a free concurrence of foreign trade," says he,
"there is but an exchange of equal value for equal value,
without either loss or gain on either side, and a nation
cannot have a more advantageous commerce than its
home-trade."*
Elsewhere he adds, "it would be necessary first to
enrich the foreign purchasers, to extend the sale of
your manufactured produce abroad, and to enrich
yourselves in your turn by this trade at the expence of
foreigners, &c. Foreign trade is but a last resource to
nations, for which their home-trade is not sufficient
profitably to dispose of the productions of their
country."
Adam Smith has, like Dr. Quesnay, combated the
system favourable to foreign trade, and extolled the
home-trade as the most beneficial to national wealth;
but his opinion has been influenced by motives not
only different but even opposed to those of Dr.
Quesnay.
"That trade," observes Adam Smith, "which, with-
out force or constraint, is naturally and regularly carried
on between any two places, is always advantageous,
though not always equally so to both. By advan-
tage or gain," he adds, "I understand, not the increase
of the quantity of gold and silver, but that of the ex-
changeable value of the annual produce of the land and
* Physiocratic, Observation 5.
+ Physiocratie, page 345.
- OF POLITICAL ECONOMY.
385
labour of the country, or the increase of the annual reve-
nue of its inhabitants.” *
Thus Adam Smith is of an opinion directly opposite to
that of Dr. Quesnay concerning the nature and effects
of foreign trade. He acknowledges that this trade is
useful, and yields profits to the nations that devote
themselves to it: but he pretends that these profits
are in no proportion with those resulting from the
home-trade; and he grounds his opinion on the follow-
ing argument:
"The capital which is employed in purchasing, in
one part of the country, in order to sell in another, the
produce of the industry of that country, generally re-
places, by every such operation, two distinct capitals
that had both been employed in the agriculture or
manufactures of that country; and thereby enables
them to continue that employment. When it sends
out from the residence of the merchant a certain value
of commodities, it generally brings back in return at
least an equal value of other commodities. When both
are the produce of domestic industry, it necessarily
replaces, by every such operation, two distinct capitals
which had both been employed in supporting produc-
tive labour, and thereby enables them to continue that
support. The capital employed in purchasing foreign
goods for home-consumption, when this purchase is
made with the produce of domestic industry, replaces
too, by every such operation, two distinct capitals: but
one of them only is employed in supporting domestic
industry. The capital which sends British goods to
*Wealth of Nations, London, 1805, vol. ii. page 211.
C C
?
386
ON THE VARIOUS SYSTEMS
Portugal, and brings back Portugese goods to Great-
Britain, replaces, by every such operation, only one-
British capital. The other is a Portuguese capital.
Though, therefore, the returns of the foreign trade of
consumption should be as quick as those of the home-
trade, the capital employed in it will give but one half
of the encouragement to the industry or productive
labour of the country.
"But the returns of the foreign trade of consump-
tion are very seldom so quick as those of the home-
trade. The returns of the home-trade generally come
in before the end of the year, and sometimes three or
four times in the year. The returns of the foreign
trade of consumption seldom come in before the end of
the year, and sometimes not till after two or three
years. A capital therefore employed in the home-
trade will sometimes make twelve operations, or be
sent out and returned twelve times, before a capital
employed in the foreign trade of consumption has
made one.
If therefore the capitals are equal, the one
will give four-and-twenty times more encouragement
and support to the industry of the country than the
other."*
This doctrine of Adam Smith is, no doubt, very
plausible, and discovers much sagacity; hence it has
seduced all who have written after him on subjects
connected with political economy. All have adopted
it unreservedly and indiscriminately, and I must con-
fess that the unanimous approbation with which this
doctrine has been crowned, has made me carefully
* Wealth of Nations, vol. ii. pages 63, 64,
1
OF POLITICAL ECONOMY,
387
weigh the motives that induced me to doubt its cor-
rectness: but after having seriously meditated on the
subject, I thought that private considerations ought
not to prevent my stating my doubts on this impor-
tant point of political economy, and I flatter myself
that, were I even mistaken, my error will find grace
before the most enthusiastic adherents of Adam
Smith, because they will be convinced that I have
only yielded to the love of truth and to the interests
of the science.
In order to be certain whether, as is asserted by
Adam Smith, the capital employed in circulating the
raw and manufactured produce of a country supports
four-and-twenty times more national labour when that
circulation takes place at home than when the produc-
tions are sent abroad, we must fix the amount of that
capital, follow its operations, and endeavour to ascertain
its results.
Let us suppose that the capital of the trade which
replaces the capital destined to support the labour of a
country, amounts to one-thousand millions of French
livres, and that the stock which commerce devotes
to circulate this one-thousand millions amounts to two-
hundred millions; the whole capital which supports
the labour of the country will, in this hypothesis,
amount to twelve-hundred millions. As soon as com-
merce circulates the produce of the soil and industry
of a country, the labour of the country has been per-
formed; and it matters very little to that labour,
whether its produce be consumed abroad or at home;
both consumptions restore to the labour of the nation
the one-thousand millions destined for its support.
CC 2
388
ON THE VARIOUS SYSTEMS
Under the supposition that this one-thousand millions
is consumed at home, it is re-imbursed by the national
income; when it is consumed abroad it is re-imbursed
by the income of the foreign country: for, abroad, as
at home, consumption can take place only by means
of an equivalent especially reserved for the labour, the
produce of which has been consumed. In both cases,
therefore, no part of the one-thousand millions destined
for the support of national labour undergoes the
smallest diminution.
As for the two-hundred millions employed in the
labour of circulating the produce, it matters not whether
it is paid for the circulation abroad or at home; in both
cases, the amount is repaid by the national or foreign
consumers, and consequently it always remains entire
with regard to the labour of the country.
It therefore appears quite clear, that the capital
destined to support the labour of a country cannot be
impaired, whether its produce be consumed at home
or abroad; and in this sense Dr. Quesnay was right,
when he said that in the foreign trade there is neither
loss nor gain on either side.
But if the matter be considered in another point of
view; if we ask whether the consumption of the pro-
duce of the soil and industry of a country be most.
advantageous to public and private wealth, when it
takes place at home, or when it takes place abroad;
the nature of the question is altered; it then becomes
of the greatest interest, and affords results much more
useful and much more productive for the science.
When the produce of national labour is consumed
in the country, its consumption is not very active,
OF POLITICAL ECONOMY.
389
because, as Montesquieu observes, people of the same
climate have nearly the same productions, and find in
them none but common and ordinary enjoyments :
consumption never goes beyond their wants, because the
productions are not capable of exciting their desires,
gratifying their sensuality, or flattering their vanity.
All that can be wished for of such a consumption is,
that it shall regularly absorb the produce of national
labour. In such a state of things, it is very fortunate
for the nation, if its wealth continue stationary, as it is
more likely to be retrograding than progressive,
When, on the contrary, the produce of national
labour is consumed abroad, the returns, which consist
of new, various, and more abundant productions, are
generally sought after, their consumption is rapid,
labour and industry redouble their efforts to procure
them, and both private and public wealth make an
astonishing progress.
Moreover, the returns for the exported produce are
always more considerable than that produce; that is,
the foreign country gives a greater quantity of produce
than it receives, and this surplus consequently increases
the capital destined for the support of national wealth.
The characteristic of foreign commerce is to offer to
all nations the produce which suits them best, and
consequently to make them pay dearer for it than what
it is worth in the place where it is produced. Hence
it follows, that foreign commerce affords every nation
sure means of selling dear the produce of its own
labour, and purchasing cheap the produce of foreign
labour. This phenomenon has been discovered by
Adam Smith, and he explains it thus.
390
ON THE VARIOUS SYSTEMS
"Between whatever places foreign trade is carried
on, they all of them derive two distinct benefits from
it. It carries out that surplus part of the produce of
their land and labour for which there is no demand
among them, and brings back in return for it some-
thing else for which there is a demand. It gives a
value to their superfluities, by exchanging them for
something else, which may satisfy a part of their wants
and increase their enjoyments. By means of it, the
narrowness of the home-market does not hinder the
division of labour, in any particular branch of art or
manufacture, from being carried to the highest per-
fection. By opening a more extensive market for
whatever part of the produce of their labour may exceed
the home-consumption, it encourages them to improve
its productive powers, and to augment its annual pro-
duce to the utmost, and thereby to increase the real
revenue and wealth of the society." *
It is not only by procuring a sale to the surplus
produce of the labour of a country that foreign trade
succeeds in selling dear the home-productions, and
purchasing the foreign produce cheap. The same effect
would take place, if it were possible for nations to
trade with the whole produce of their labour. The
produce sold abroad is always higher in price than in
the place of its production, and consequently foreign
trade always sells dear and buys cheap.
Lastly, another advantage resulting from foreign
trade, which has not been noticed by Adam Smith, is
this. It invites all nations to share in the fertility of
* Wealth of Nations, vol. ii. page 175.
[
OF POLITICAL ECONOMY.
3gr
all soils, in the improvement of every branch of
industry, and in the progress of general civilization.
The enjoyments of any particular people are no longer
limited by the sterility of its climate, by the aukward-
ness or inexperience of its labourers, nor even by the
defects of its political institutions. The fertility of
any soil, the improvement of any branch of industry,
the goodness of any political institution, become as it
were common to all individuals, to all nations, to the
whole family of the human race. This sharing in the
general abundance banishes poverty from all countries,
or at least no nations are left in poverty but those
which do not know how to avail themselves of the soil
on which they are placed, or whose industry is
checked by the carelessness or ignorance of their
government.
That Adam Smith should have thought it more
advantageous for a country to consume the produce of
its labour than to sell it abroad, is so much the more
surprizing, as he teaches the direct contrary when the
question is of purchasing abroad.
"It is," he says,
"the maxim of every prudent
master of a family, never to attempt to make at home
what it will cost him more to make than to buy.
The tailor does not attempt to make his own shoes,
but buys them of the shoe-maker. The shoe-maker
does not attempt to make his own clothes, but employs
a tailor. All of them find it for their interest to
employ their whole industry in a way in which they
have some advantage over their neighbours, and to
purchase with a part of its produce whatever else
they have occasion for.
392
ON THE VARIOUS SYSTEMS
"What is prudence in the conduct of every pri-
vate family, can scarcely be folly in that of a great
kingdom. If a foreign country can supply us with a
commodity cheaper than we ourselves can make it,
better buy it of them with some part of the produce of
our own industry." *
If it be the interest of a nation to purchase from a
foreign counry when that country seils cheaper; how
can its interest be injured by selling to the foreign
country when it purchases dearer What difference
is there between purchasing cheap from a foreign
country and selling dear to that country? It is nat
easy to discover any difference.
Does not the capital which purchases the produce
of foreign industry, replace a foreign capital, as well as
in the case of selling national produce to a foreign
country? Is not the labour of the foreign country
supported by national capital in one case as in the
other? If, in the case of selling to a foreign coun-
try, the capital of the merchant replaces a foreign
capital, his capital also replaces a foreign capital when
he purchases the produce of the foreign country. If,
by selling to the amount of twenty millions of the
produce of home-industry, the capital of the mer-
chants who import in return foreign commodities to
the amount of twenty millions, exchanges twenty
millions of national capital for twenty millions of
foreign capital, the same merchants, when they pur-
chase the produce of foreign industry to the amount of
twenty millions, exchange alike twenty millions of
* Wealth of Nations, vol. ii, pages 191, 192.
OF POLITICAL ECONOMY.
393
national capital for twenty millions of foreign capital.
The two cases are perfectly parallel; and it is only
through an inconceivable inattention that Adam Smith
has applied to each a different doctrine *.
*
If he supposed that, in the case of purchasing
foreign commodities, the returns of the national
capital are quicker than in the case of selling the pro-
duce of national labour to foreign countries, he still
laboured under a manifest error.
Whether foreign countries bring the produce of
their industry, or national merchants go to fetch it
from the spot where it is produced, the result is
always the same; and in both cases the returns are as
slow as in the case of selling to a foreign country.
If national merchants fetch the produce of foreign
industry, they export the produce of national indus-
try to pay for it; and the length of the voyage out
and home is the same as when the foreign trade imports
the produce of foreign industry, and exports the
produce of national industry; consequently, selling
to a foreign country and purchasing in a foreign
country are both alike subject to the inconveniency of
a slow return of capital.
But does that inconveniency really exist, or is it not
rather delusive and imaginary?
The capitals employed in the home-trade may, it is true, sti-
mulate national industry in a double degree to what those employed
in foreign trade do: but they cannot set so great a quantity of
labour in motion, because the home-consumption is limited, whilst
that of the foreign markets is unbounded. This reflection of an
Italian author is, I think, as true as sagacious. See Palmieri's
excellent work, Della Publica Feliçita,
+
394
ON THE VARIOUS SYSTEMS
The general labour of a country does not depend
on the celerity or slowness of the returns of commer-
cial capitals; credit supplies their absence; and, pro-
vided they bring back a more abundant foreign
produce than the national produce exported, national
labour loses nothing of its activity and productiveness.
Labour is not interested in the quickness of the returns,
but in the consumption of its produce; and whenever
that consumption experiences no delay, labour pre-
serves all its activity. Commerce always easily
replaces the capitals of labour, when it finds a sale
for its produce. The credit which it gives to the eon-
sumers, affords safe resources to replace the capital of
labour. It can negociate the documents of the credit
it has given in a thousand ways, and, by discounting
its bills, accelerate the return of its capital according
to the wants or exigencies of labour *.
National labour therefore is never a sufferer from
the slowness of the returns of the capital destined for
its support; it only suffers from the slowness, diffi-
culty, or insufficiency of the consumption of its
produce, and from its reduced price or depreciation.
When the produce of labour is depreciated, or sold
very cheap, the wages of labour afford but a scanty
pittance to the labourers, the profit of stock is incon-
*The Italian author whom I quoted in the preceding note,
observes again on this head, that if the home-trade, by the rapidity
of its returns, allows the same capital to be employed several times
which foreign trade allows to be employed only once, foreign trade
employs a greater quantity; and this greater quantity of capital
employed compensates for the slowness of its returns, and yields
profits much more considerable.
OF POLITICAL ECONOMY.
395
siderable; land yields a poor rent, or even none at
all; labour languishes, industry pines, and national
wealth decays. That the produce of national labour
is consumed at home, and that the capital of the home-
trade always replaces two national capitals, is of little
importance; national wealth is not improved, nor is
the condition of the people rendered less miserable
by the circumstance.
But when the produce of national labour is sold at
a high price, the labourer then receives ample wages,
the profit of stock is great, the rent of land consi-
derable, national industry flourishes, opulence is pro-
gressive, and the wealth of the state becomes the
immoveable basis of its power: whether this high
price of the produce of national labour be paid by
foreign countries, is of no moment; its effects are not
less certain nor less prosperous.
The question reduces itself simply to this: does
the foreign or the home trade procure the most
advantageous price to the produce of national labour?
And I think it has been sufficiently answered in favour
of foreign trade. Consequently, all nations are in
my opinion powerfully interested in giving to foreign
the preference over the home trade.
Consistently with his principles, Adam Smith
assigns the last place to the carrying trade, the
capital of which is merely employed in replacing
the capitals which support the labour of foreign coun-
tries.
But his opinion is directly opposite to that of
D'Avenant, whose knowledge and information on
396
ON THE VARIOUS SYSTEMS
subjects connected with political economy are entitled
to the highest consideration.
<<
Freight," says D'Avenant," is not only the
most politic, but the most national and most certain
profit a country can possibly make by trade."*
Such a difference between two justly esteemed wri-
ters deserves to be investigated.
And first it ought to be observed, that the assertion,
that the capital employed in the carrying trade
replaces only foreign capitals destined to support the
labour of a foreign country, is not correct. This
capital supports also the labour which builds and fits
vessels out; it pays the wages of the sailors, the
commission for warehouses, and all the advances to
which it gives rise. It is the origin and principle of
the transit trade, which is so profitable in all its
branches, because it pays considerable wages, and
maintains a great number of individuals at the expence
of the industry of other nations.
Notwithstanding these numerous advantages, I do
not think that the carrying trade is the most benefi-
* Vol. ii. page 275.
The author forgets that Adam Smith himself observed, that,
"when the carrying trade of any particular country is carried on
with the ships and sailors of that country, that part of the capital
employed in it which pays the freight is distributed among and puts
into motion a certain number of productive labourers of that coun
try." (Wealth of Nations, vol. ii. page 68.) But Adam Smith
did not enter much into the subject, because Great Britain had no
carrying trade at the time he wrote, and this is also the probable
reason why he neglected mentioning the transit trade.-T.
OF POLITICAL ECONOMY.
397
éial, or that it ought to be favoured at the expence of
the foreign trade of consumption.
Why does a nation employ its capitals in one labour
preferably to another? Because it has a decided
superiority in this labour; and this superiority ba-
lances the advantages which other nations have in
other branches of industry. The benefits of the car-
rying trade are therefore relative. They depend on
the situation of the country, on the manners of the
people, and on their taste and knowledge. Such cir-
cumstances are local, and cannot easily be transferred
from one country to the other.
Every nation has advantages in some kind of
industry. It ought to study to improve them with-
out envying those advantages which other nations
enjoy in other branches of industry, and without
neglecting those which it may attain without incon-
venience, and in which it may keep up the com-
petition.
In short, we ought to recollect what D'Avenant says,
with as much sagacity as judgment: "The various
produce of different soils and countries is an indication
that Providence intended that they should be helpful
to each other and mutually supply the necessities of
one another,"
Thus it appears certain, that foreign trade is more
favourable to private and public wealth than the home-
trade. Nations ought therefore studiously to exert
themselves to place foreign trade on a solid and
immovable basis, and eagerly seek for the means best
calculated to raise it to the highest pitch of
fection.
per-
398
ON THE VARIOUS SYSTEMS
The means hitherto employed consist in privileged
companies, colonies, and treaties of commerce with
foreign powers. The efficacy of these different means
is disputed by our best writers, and forms a problem
which is not easily solved. I shall endeavour to give
it a full investigation and to reduce it to a proposition
so plain that the advantages and inconveniencies of
the different theories on this important point of poli-
tical economy may at least be appreciated.
CHAP. VI.
Of Corporations and privileged Companies.
COMMERCE, or the general circulation of the produce
of labour, in which wealth is so strongly interested,
has not escaped the attention of modern governments;
and what must appear very extraordinary is, that the
mode of conducting it has been nearly the same at first
in all countries. Every-where the home-trade was at
first entrusted to privileged individuals, and afterwards
to corporations regulated by statutes and general and
private laws. Every-where privileged companies have
been exclusively allowed to pursue the most productive
branches of foreign trade: but it must be acknow-
ledged, that the uniformity of a method establishes
neither its necessity, nor its utility and advantages.
The interests of princes, temporary wants and per-
sonal considerations, were generally the motive or the
pretence of such concessions.
OF POLITICAL ECONOMY.
399
Experience and reason have long ago pointed out
the defects, inconveniencies, and calamities of a
restricted commerce. It has been equally reprobated
by all writers, without exception; and if it be still
found among some enlightened nations, it is because
it is in some degree become a part of the political
system, and is identified and confounded with the
right of property. But it is every day modified, every
day it is forced to capitulate with public opinion, by
which it is hooted, and governments themselves pro-
long its existence merely because they are obliged to
yield to the circumstances of the times, which excuse
any thing and oppose the best intentions.
It is not therefore with the view to ascertain the
truth of the principles, that I shall inquire into the
influence of corporations and privileged companies
upon the circulation of the produce of general labour;
but I think it will not be useless rapidly to state the
powerful considerations which imperiously demand
the suppression of a method of commerce so fatal to
general wealth.
Corporations and exclusive companies, as their
proceedings are similar, afford also the same results.
They give to a certain number of privileged indivi-
duals the right of purchasing of the producer to sell to
the consumer. They consequently limit the number
of buyers and of sellers; which circumstance gives to the
privileged buyers and sellers the faculty of selling dear
and purchasing cheap. But to purchase cheap of the
producer is to discourage production, and to sell dear to
the consumer is to discourage consumption. Thus it is
400
ON THE VARIOUS SYSTEMS
hardly possible to conceive a method of commerce
more prejudicial to wealth.
Besides, corporations and privileged companies
give to circulation a constant and uniform motion,
which is not easily changed and improved. They
oppose an insuperable obstacle to the progress of
knowledge, to the reflections of experience, and to
the discoveries of genius. Every individual is con-
demned to perform the task which he has learnt; and
it is only with great difficulty that he can quit
the sphere of the knowledge he has acquired.
Science becomes an obstacle to science, and arts
advance to old age without emerging from infancy.
Finally, the profits which the right of selling dear
and purchasing cheap insures to corporations and
privileged companies, attract to that kind of labour
larger capitals than what would have gone to them of
their own accord, and reduce the quantity of those
which would have been employed in other branches
of labour. The excess of capitals in privileged em-
ployments, and their scarcity in other labours, neces-
sarily raises their profits, and the high rate of profit of
stock is fatal to the progress of industry and wealth.
"Besides all these bad effects," says Adam Smith,
"necessarily resulting from a high rate of profit,
there is one more fatal, perhaps, than all these put
together. The high rate of profit seems every-where
to destroy that parsimony which in other circum-
stances is natural to the character of the merchant.
When profits are high, that sober virtue seems to be
superfluous, and expensive luxury to suit better the
OF POLITICAL ECONOMY.
401
affluence of his situation. The owners of the great
mercantile capitals are necessarily the leaders and
conductors of the whole industry of every nation; and
their example has a much greater influence upon the
manners of the whole industrious part of it, than
that of any other order of men." *
Thus every thing contributes to demonstrate, that
the circulation of the produce of general labour is
defective when it is effected by corporations and pri-
vileged companies.
A modern French writer thinks, that the privilege of
a company is justifiable when it is the means of open-
ing a new trade with distant or barbarous nations. It
then becomes a sort of patent, the advantage of which
covers all the risks of a hazardous undertaking and the
costs of a first experiment. The consumers cannot
complain of the dearness of the produce of those dis-
tant countries; were it not for the monopoly, it would
be much dearer, or it could not be had at all. But, like
patents, the privilege ought to last only for the time
required completely to indemnify the undertakers for
their advances and risks. This time once elapsed,
such a privilege would be nothing but a wanton gift
made to the privileged individuals at the expence of
their fellow-citizens, who hold from nature the right of
providing themselves with commodities wherever they
can, and at the lowest price possible."+
This exception appears at first sight plausible, advan-
tageous, and no-wise inimical to the principles of com-
* Wealth of Nations, vol. ii, page 482.
* Traité d' Economic Politique, par Say, livre i. chap. 2.
DD
402
ON THE VARIOUS SYSTEMS
merce.
But when examined more closely, it will be
seen that there is not any branch of foreign trade
that, if this doctrine were admitted, would be secure
against a monopoly, and the privilege of which might
not easily be justified. Indeed this kind of privileges
is almost always founded upon the advantage of open-
ing a new trade with distant nations, upon the risks of
a hazardous undertaking, or upon the necessity of an
indemnity. All privileges therefore would be just and
necessary but in such cases, it is not the interest of
the privileged individuals that ought to be considered;
it is the interest of the circulation of the produce of
labour. But this circulation is essentially endangered
by any kind of privilege. It is checked alike by the
low price of the produce and the dearness of the con-
sumption, by the higher rate of profit, and every
obstacle by which it may be obstructed.
Should it however happen, that one or several indi-
viduals had opened, at their own risk, a road
unknown to commerce and of evident utility; it
would be proper for government to grant them not
only an indemnity, but a reward proportioned to their
services. This measure, conformable to justice and
to the spirit of civilized societies, would afford useful
encouragements, turn to the advantage of commerce, and
be free from the inconvenience of exclusive privileges.
Before the guardian principles of commerce were
ascertained, the immense extent of capital required
for certain commercial enterprizes, the necessity of
harmonizing their various branches, the permanent
establishments which they demanded, the risks to
which they were exposed, and the slowness of the
OF POLITICAL ECONOMY.
403
returns, served as pretences for the creation of a num-
ber of privileges, and have since protected them
against the blows which have been aimed at them.
It is on such a foundation that almost all European
nations have created monopolies or exclusive compa-
nies for the trade of the East Indies, of Africa, Ame-
rica, and of the East and North of Europe.
But experience has long since manifested the inuti-
lity of these privileges; and it is now generally
known, that any trade carried on by a company may
be carried on much more advantageously by private
individuals. It is particularly with regard to the trade
with the East Indies that this truth has been made
most evident. The proofs have been accumulated in
a vast number of separate tracts; and among all those
which I could quote, I shall appeal to the evidence of
a member of the French board of trade, a man deeply
learned on those subjects.
"that,
"It is notorious," said Mr. de Gournai,
the direction of a company being very costly and
burthened with many expences foreign to trade, a
company can only engage in trades that yield high
profits, such as cent. per cent, or eighty per cent.
All trades whose profits are less, are neglected by
trading companies; they cannot undertake them.
But as nothing restricts commerce more than a high
rate of profit, it is not surprizing that countries so exten-
sive as China and the East Indies, do scarcely employ
annually twenty vessels of the East-India Company."*
* Mémoires de l'Abbé Morellet sur la Compagnie des Indes
en 1769.
DD 2
404
ON THE VARIOUS SYSTEMS
Let us therefore conclude, that privileges for the
circulation of any branch of national and foreign pro-
duce, is contrary both to the true principles of poli-
tical economy and to the progress of wealth.
CHAP. VII.
Of Modern Colonies..
MODERN colonies, in whatever light they may be
viewed, have nothing common with the colonies of the
ancients but the name.
The Greeks and Romans had no other object in
establishing colonies, than to open a vent to an over-
increased population, the wants of which exceeded the
means of the society, and which, soured by misery,
might become an instrument of disorder, favour civil
commotions, and endanger the tranquillity and safety
of the state. The object of these colonies was there-
fore to avoid poverty, which is always fatal to the tran-
quillity and power of states.
Modern colonies have a totally different object.
They are an extension of the territory of the mother-
country, the means of increasing its population,
wealth, and power; and they accomplish this impor-
tant end by the fertility of their soil, and the variety
and novelty of their productions, which render them
universally desirable, and, above all, by their abun-
dance and cheapness, which place them within the
reach of every one.
OF POLITICAL ECONOMY.
405
Brought into the market of Europe, these produc-
tions afforded a new equivalent to the produce of its
soil and industry, raised its price, and necessarily
augmented its production. They therefore increased
the wealth of Europe, not only with their own value,
but also with the value of all the commodities which
they caused to be produced to serve as their equiva-
lent. The results of this double improvement are
incalculable.
It is true, that the population of Europe has almost
entirely created the population of the New World;
that its capitals have paid for the clearing and culti-
vating of its valuable soil: but how advantageous and
profitable has this employment of capital proved to
Europe! It is, no doubt, impossible to ascertain the
precise amount of these advantages; but the most
superficial estimation enables us to judge of their
extent and importance.
The number of Europeans who have peopled the
New World, cannot be estimated higher than one
million. This population, according to the most
enlightened political arithmeticians, would have been
doubled in Europe in five hundred years, and conse-
quently would have multiplied only at the rate of two
thousand individuals a year, which, in the space of
two centuries, would have augmented the population
of Europe by four hundred thousand individuals.
The population of the New World, which is of
European origin, amounts at least to twelve millions;
which supposes that the one million of individuals
who passed from Europe into the New World have
406
ON THE VARIOUS SYSTEMS
multiplied at the rate of fifty-three thousand three
hundred individuals a year, consequently in a pro-
portion twenty-six times superior to that which would
have taken place, if that one million of individuals
had remained in Europe.
The progression of the capitals which Europe sent
to the New World has not been less rapid, nor less
extraordinary.
Supposing that every European who went over to
the New World carried with him a capital of three-
hundred French livres (about 127. 10s, sterling), the
totality of the capitals conveyed from Europe to
America, in the space of two centuries, would amount
to three hundred French millions, (12,500,000l. ster-
ling). As this transmission was effected gradually, it
is probable that Europe has not been totally deprived
of it for more than a century. These three hundred
millions employed in Europe would not have produced
above ten per cent per annum, and consequently
would only have increased the capital of Europe by
three-thousand millions.
The same three hundred millions employed in the
clearing and cultivating of the lands of the New
World, and in the working of its mines, have created
a capital of more than five-and-twenty thousand
millions.
According to the most particular information derived
from persons intimately acquainted with the subject,
the lands that have been cleared in the United States
amount to thirty-nine millions of acres. Besides
having subsisted above six millions of individuals,
OF POLITICAL ECONOMY.
407
these lands furnished, in 1804, an exportation of corn
amounting to forty-two millions of dollars, or above
two hundred millions of French livres.
Supposing that the home-consumption does not
exceed the amount of the corn exported, thirty-nine
millions of acres must have produced four hundred
millions of livres, and may therefore be valued at,
at least
8,000,000,000
Dwelling-houses, 1,225,000 in num-
ber, cannot be estimated at less
than
Household furniture, machines, and
implements of labour may be rated,
2,000,000,000
without exaggeration, at, at least, 1,000,000,000
Horses, 1,200,000 in number, must
be worth at least
Heads of horned cattle, 2,950,000 in
number
120,000,000
212,400,000
Metallic currency in circulation stated
at 17 millions of dollars, making, in
French livres, about
80,000,000
The produce of the French West-
Indies amounted, in 1787, to 218
millions, the capital of which is .. 4,000,000,000
Their houses, buildings, cattle, and
machines, household-furniture, and
coin in circulation, amounted at
least to
The produce of the English posses-
sions in America have been rated at
1,000,000,000
6
16,412,400,000
408
ON THE VARIOUS SYSTEMS
1
Brought forward
above 500 millions: but the par-
ticular circumstances of the times
have alone been able to give them
that immense increase.
A well-informed French author, with
whose accuracy and veracity I am
particularly acquainted, estimated
it, in 1788, at only 159,040,573 li-
vres; and I shall not rate it
higher. The capital of this pro-
duce is
The houses, buildings, cattle, imple-
ments and machines, and the circu-
lating coin of the English possessions
in America, cannot be taken at less
than
The mines of South America have,
since their discovery, yielded more
than one hundred millions annually;
and estimating their produce only
16,412,400,000
3,150,000,000
1,000,000,000
at that sum, they form a capital of 2,000,000,000
The other productions of South Ame-
rica cannot be rated at less than fifty
millions, and give of course a capi-
tal of
1,000,000,000
23,562,400,000
* The Aurora newspaper of New York, August the 8th, 1807.
+ Traité d' Economie Politique et du Commerce des Colonies,
par Mr. Page.
OF POLITICAL ECONOMY.
409
Brought forward
Finally, the houses, buildings, cattle,
implements, machines, household-
furniture, and circulating coin of
23,562,400,000
South America must certainly exceed 2,000,000,000
Total livres 25,562,400,000
This immense result, compared to that which the
employment of the same capitals would have yielded
in Europe, not only proves to demonstration the utility
of the colonization of America, but also furnishes an
additional proof of the error into which Adam Smith
has been betrayed, when he set it down as a principle,
1st, that agricultural labour is the most productive in
any country; 2dly, that capitals are so much more
conducive to national wealth, when they are first
employed in the cultivating of the national soil, and
afterwards in the support of that industry the produce
of which is consumed at home, and, lastly, in the
home-trade; 3dly, that the home-trade is the most
advantageous to any country. Had Europe followed
this doctrine; had she employed in the cultivation of
her soil, in her particular industry and home-trade, the
three hundred millions which she sent to America, they
would have increased her capital only by three thou-
sand millions of French livres, whilst employing them
in cultivating the soil of and trading with America has
raised that capital to above five-and-twenty thousand
millions of livres, or one thousand millions sterling.
Europe therefore is infinitely richer through this
mode of employing her capital, than she would have
been through that recommended by Adam Smith.
410
ON THE VARIOUS SYSTEMS
Facts in this instance support the principles, and
tend to demonstrate alike that private and public
wealth does not result from the direction of labour,
capitals, and commerce, to a particular spot, but from
their direction to the soil, industry, and commerce,
which yield the most abundant produce, the consump-
tion of which is most certain, and whose exchangeable
value is most considerable.
As wealth consists in the surplus of produce above
consumption, it is the interest of every individual, of
every nation, of the whole world, to cultivate the most
fertile soils which yield the most considerable net
produce, to favour the industry of the country whose
productions cost least and possess the greatest value,
and to encourage the least expensive and most econo-
mical commerce. The more the surplus of the pro-
ductions of the soil, industry, and commerce, are
considerable, the more they increase general wealth,
afford resources to private capitals, and contribute to
develope individual faculties.
The advantages which nature or social institutions
have conferred on some countries are not prejudicial to
the countries that are deprived of those advantages;
they may, on the contrary, furnish them with useful
means of prosperity and wealth. The abundance of
the produce of America has fertilized the greatest part
of the soil of Europe, created or at least accelerated
the progress of her industry, and laid the foundation
of her immense commerce. The sugar, coffee, cotton,
and tobacco of America have encouraged in Europe
the growing of corn and rearing of cattle, the working
of mines and improving of fisheries, the growth of the
OF POLITICAL ECONOMY.
411
1
manufactures of linen, silks, hardware, woollen cloth,
jewellery, household-furniture, and arms, and the per-
fection of navigation and commerce. The assertion
therefore is correct, that Europe is grown rich with
the wealth of America; and the result will constantly
and every-where be the same. The characteristic of
wealth is to spread, to multiply in its progress, and to
swell in proportion to the extent of the ground it has
gone over.
All doctrines that preach local labour,
local industry, and local commerce, stop the circula-
tion of wealth, stint its growth, and limit its extent.
In short, the progress of general wealth is so much the
more rapid, when it is the result of the concurrence of
general labour, of all capitals, and of universal com-
merce; and it is so much slower when wealth is the
result of private labour, and of the capitals and com-
merce of an individual nation.
But if it must be acknowledged, and if Adam
Smith himself has confessed, that Europe has derived
great advantages from the colonization of America, it
does not appear equally certain that nations with colo-
nies have shared more largely in those advantages than
those nations that have no colonies.
"The particular advantages," says Adam Smith,
"which each colonizing country derives from the
colonies which particularly belong to it, are of two
different kinds; first, those common
common advantages
which every empire derives from the provinces sub-
ject to its dominion; and, secondly, those peculiar
advantages which are supposed to result from provinces
of so very peculiar a nature as the European colonies of
America.
412
ON THE VARIOUS SYSTEMS
"The common advantages which every empire
derives from the provinces subject to its dominion
consist, first, in the military force which they furnish
for its defence; and, secondly, in the revenue which
they furnish for the support of its civil government.-
The European colonies of America have never yet
furnished any military force for the defence of the
mother-country. The military force has never yet
been sufficient for their own defence; and in the dif
ferent wars in which the mother-countries have been
engaged, the defence of their colonies has generally
occasioned a very considerable distraction of the mili-
tary force of those countries. In this respect, there-
fore, all the European colonies have, without exception,
been a cause rather of weakness than of strength to
their respective mother-country.” *
This assertion of Adam Smith does not appear
quite correct. The provinces subject to the same
dominion in general contribute to the support of the
military force and civil government of the country by
their pecuniary contributions; and the colonies of
America pay such contributions, not only for their own
defence and their civil government, but also for the
defence and civil government of the mother-country.
They are not, it is true, direct contributions; and
for that reason have not the appearance of contribu-
tions. But they are not less so in reality; and whe-
ther it be by taxes on the consumption of the colonies,
or by taxes on the produce of the colonies at its impor-
tation in the ports of the mother-country, or, lastly,
*IVealth of Nations, vol. ii. pages 417, 448.
OF POLITICAL ECONOMY.
413
by the monopoly of colonial trade, the wealth of the
colonies does effectually contribute to the defence and
civil government of the mother-country as all the other
wealth of the mother-country does.
:
Adam Smith asserts, it is true, that the monopoly
of colonial trade is of little benefit to the mother-
country but this circumstance is perfectly indifferent,
since the monopoly is not the less burthensome to the
colonies; and hence it is not fair to conclude that it
ought to count for nothing in the catalogue of the
advantages which the mother-country derives from
colonies. How many other burthens laid upon the
wealth of the mother-country are not more beneficial
to the state; and yet no one ever attempted to main-
tain that the individuals subject to those burthens
do not contribute to the defence and civil government
of the empire!
But how far is Adam Smith warranted in asserting
that the monopoly of colonial trade, so prejudicial to
the colonies, is of no benefit to the mother-country?
This fact is entitled to an attentive consideration,
because it affords instructive information concerning the
nature and effects of monopolies.
66
"The exclusive trade of the colonies," says Adam
Smith, as it diminishes, or at least keeps down
below what they would otherwise rise to, both the
enjoyments and the industry of the countries which
do not possess it; so it gives an evident advantage to
the countries which do possess it over those of other
countries.
"The advantage, however, will perhaps be found
414
ON THE VARIOUS SYSTEMS
to be rather what may be called a relative than an
absolute advantage; and to give a superiority to the
country which enjoys it, rather by depressing the
industry and produce of other countries, than by
raising those of that particular country above what they
would naturally rise to in the case of a free trade.
"In order, however, to obtain this relative advan-
tage in the colony-trade, in order to execute the invi-
dious and malignant project of excluding as much as
possible other nations from any share in it; England,
there are very probable reasons for believing, has not
only sacrificed a part of the absolute advantage which
she, as well as every other nation, might have derived
from that trade, but has subjected herself both to an
absolute and to a relative disadvantage in almost every
other branch of trade.
"But in an employment of capital in which the mer-
chant sold very dear and bought very cheap, the profit
must have been very great, and much above the ordinary
level of profit in other branches of trade. This supe-
riority of profit in the colony-trade could not fail to
draw from other branches of trade a part of the capital
which had before been employed by them. But this
revulsion of capital, as it must have gradually increased
the competition of capitals in the colony-trade, so it
must have gradually diminished that competition in
all those other branches of trade; as it must have
gradually lowered the profits of the one, so it must
have gradually raised those of the other, till the profits
of all came to a new level, different from and some-
what higher than that at which they had been before.
OF POLITICAL ECONOMY.
415
"This double effect of drawing capital from all
other trades, and of raising the rate of profit somewhat
higher than it otherwise would have been in all trades,
was not only produced by this monopoly upon its first
establishment, but has continued to be produced by it
ever since.
"But whatever raises in any country the ordinary
rate of profit higher than it otherwise would be,
necessarily subjects that country both to an absolute
and to a relative disadvantage in every branch of trade
of which she has not the monopoly.
It subjects her to an absolute disadvantage: because,
in such branches of trade, her merchants cannot get
this greater profit, without selling dearer than they
otherwise would do both the goods of foreign coun-
tries which they import into their own, and the goods
of their own country which they export to foreign
countries. Their own country must both buy dearer
and sell dearer; must both buy less and sell less;
must both enjoy less and produce less, than she other-
wise would do.
"It subjects her to a relative disadvantage; because,
in such branches of trade, it sets other countries,
which are not subject to the same absolute disadvan-
tage, either more above her or less below her than
they otherwise would be. It enables them both to
enjoy more and to produce more in proportion to
what she enjoys and produces. It renders their supe-
riority greater, or their inferiority less, than it other-
wise would be. By raising the price of her produce
above what it otherwise would be, it enables the mer-
416
ON THE VARIOUS SYSTEMS
chants of other countries to under-sell her in foreign
markets, and thereby to justle her out of almost all
those branches of trade of which she has not the
monopoly."
These reflections, which are extremely sagacious
and uncommonly just, clearly shew the inutility of
the efforts of monopolies to make the balance of trade
turn to their advantage. The advantages which a mono-
poly obtains in the branches of trade of which it has
possessed itself, are compensated by the disadvantages
which it experiences in the other branches which it
has been forced to relinquish; the counterpoise of
general interest restores the equilibrium which it seeks
to destroy; and, after all, if it be malignant, if it
stop the progress of wealth, it derives no benefit from
the harm it does. May this lamentable result en-
lighten monopolizing nations concerning the useless
crimes of which they render themselves guilty towards
other nations, and recall them to sentiments more con-
genial with their true interests! Were they even to
open the ports of their colonies to the commerce of
all nations, they still would find numerous advantages
in the possession of territories of immense extent, of
invaluable fertility, the productions of which cannot
answer the demand, and which productions, by their
variety and novelty, as well as by their plenty, insure
to them infinite advantages in the balance of general
commerce.
* Wealth of Nations, vol. ii. pages 449, 450, 452, 453, 457,
458, 459.
+
OF POLITICAL ECONOMY.
417
Let us, therefore, conclude, that the monopoly of
colonial trade is a method of commerce as defec-
tive as that of privileged companies and corporations,
and ought to be universally condemned for the interest
of public and private wealth.
CHAP. VIII.
Of Treaties of Commerce.
HAD nations at all times possessed correct notions of
the circulation of the produce of labour or commerce,
they never would have thought of confining it within
the extent of a country, and frequently within a sepa-
rate district of the same empire.
But almost all having at first imagined that it was
advantageous for them to insulate themselves, to
refuse communicating with other nations, and to keep
their means and their resources undivided; it hap-
pened that, in proportion as political economy made
any progress, enlightened nations availed themselves
of every circumstance calculated to open a market for
their produce among other nations, and to introduce
new means of exchange into their own country.
Accordingly, treaties of commerce have been en-
tered into by certain nations for the mutual exchange
of the produce of their labour. Are such treaties
favourable, or detrimental to the progress of public
and private wealth?
E E
418.
ON THE VARIOUS SYSTEMS
Į
The principles established in this work render the
solution of this question extremely easy.
When treaties of commerce are limited to the
establishing of a trade between two countries, which
before had no dealings with each other, such treaties
are evidently beneficial to both countries, and must
accelerate the progress of their labour, industry, and
wealth.
But when these treaties are exclusive; when, while
they allow the circulation of the produce of the
labour of the two nations, they exclude the circula-
tion of the produce of other countries, or only tole-
rate it on burthensome conditions; they are less bene-
ficial, because they establish a monopoly which must
lower the price of productions with regard to the pro-
ducers, and raise it with regard to the consumers; and,
consequently, they discourage production by diminish-
ing consumption. The trade, under such circumstances.
is not very profitable; yet it is more so than if the
treaty had not taken place at all.
All questions, therefore, concerning a trade effected
by commercial treaties are of the same nature as those
concerning monopolies, and receive the same solution.
It is a constant truth, that the limits imposed to trade,
whatever may be their nature, are more or less fatal,
and that trade is the more profitable and advantageous,
the less it is confined and obstructed, and the more it
is general.
OF POLITICAL ECONOMY.
419
CHAP. IX.
Of Exchanges and the Balance of Trade.
ALL nations have endeavoured to ascertain their
share in the advantages derived from the circulation of
the produce of general labour, their proportion of trade
to that of other nations, and the extent of relative and
absolute power gained through that circulation. Their
inquiries were not dictated by an idle curiosity, or
an ambitious ostentation; they were instigated by the
hope of discovering rules to be directed in by their
commercial concerns with other countries. It was sup-
posed that, by restricting these concerns with nations
to which commerce is profitable, and multiplying
them with those to which it proves disadvantageous,
greater benefits would be derived from trade. A
particular attention was therefore bestowed upon the
balance of trade, and upon the exchange with dif
ferent places and different countries.
But experience, that great crucible of error and
truth, has taught the most superstitious that they
were running after vain illusions; that the information
to which they attach so much importance, is con-
cealed under an impenetrable cloud; and that, after
all, any commerce between two nations is always
advantageous to both, though in unequal degrees.
It appears, at first sight, that an accurate register of
EE 2
420
ON THE VARIOUS SYSTEMS
all the commodities exported, with the designation of
their destination, and of those imported, with the
designation of the place of their origin, ought to afford
every information that can possibly be desired con-
cerning the nature and effects of foreign trade in a
given country. But it ought to have been remem-
bered, that such registers state only the material
quantity of the goods exported and imported, and
that their declared value is never conformable to their
true value. It was, however, supposed, that truth
might be approximated within a certain distance: but
experience has shewn, that such valuations differ
about seventy per cent. from the true value; and
hence it is evident, that any calculation on such
grounds is impossible. But the same has happened
on this subject which generally takes place in such.
cases. The impossibility of ascertaining by the balance
of trade the rate of profit derived from foreign com-
merce, has led to the belief that such balances of trade
are good for nothing. This inference appears as
unreasonable as the hopes which had been conceived.
Although the balance of trade cannot give the exact
results of the circulation of the produce of every
country, it may be of service to judge of its accele-
ration or obstruction, to lead an attentive and enligh-
tened observer to discover the causes of either, and
to suggest the means which may prevent its impedi-
ments and increase its beneficial effects. I therefore
think the balance of exports and imports of great
importance; it may afford much valuable information
concerning the progressive, stationary, or retrograde
state of national wealth.
*
OF POLITICAL ECONOMY.
421
The subject of exchanges is involved in still more
inaccuracy, obscurity, and fallacy, than the balance
of trade.
Adam Smith has so clearly discussed this matter,
that I cannot do better than quote what he states on
the subject.
"When," says he, "the exchange between two
places, such as London and Paris, is at par, it is said
to be a sign that the debts due from London to Paris
are compensated by those due from Paris to London.
On the contrary, when a premium is paid at London
for a bill upon Paris, it is said to be a sign that the
debts due from London to Paris are not compensated
by those due from Paris to London; but that a
balance in money must be sent out from the latter
place, for the risk, trouble, and expence of exporting
which, the premium is both demanded and given.
"But several causes destroy this consequence.
"1. We cannot always judge of the value of
the current money of different countries by the
standard of their respective mints. In some it is less
worn, clipt, and otherwise degenerated from that
standard. But the value of the current coin of
every country, compared with that of any other
country, is in proportion not to the quantity of pure
silver which it ought to contain, but to that which it
actually does contain.
"2. In some countries, the expence of coinage is
defrayed by the government; in others, it is defrayed
by the private people, who carry their bullion to the
mint; and the government even derives some revenue
422
ON THE VARIOUS SYSTEMS
1
from the coinage. The money of the country which
defrays the expence of coinage is therefore more
valuable than that of the country which does not
defray that expence, because the workmanship adds
to the value; consequently the premium for a bill
may be merely sufficient to compensate the expence
of the coinage.
66
"3. In some places, as at Amsterdam, Hamburgh,
Venice, &c. foreign bills of exchange are paid in
what they call bank-money; while in others, as at
London, Lisbon, Antwerp, Leghorn, &c. they are
paid in the common currency of the country. What
is called bank-money, is always of more value than
the same nominal sum of common currency: there-
fore the premium paid by London and Lisbon for bills
upon Hamburgh and Amsterdam may merely com-
pensate the difference in the value of the currency in
which the bills are to be paid.
4. The ordinary state of debt and credit between
any two places is not always entirely regulated by the
ordinary course of their dealings with one another;
but is often influenced by that of the dealings of
either with many other places. If it is usual, for
example, for the merchants of England to pay for the
goods which they buy of Hamburgh, Dantzic, Riga,
&c. by bills upon Holland, the ordinary state of debt
and credit between England and Holland will not be
regulated entirely by the ordinary course of the
dealings of those two countries with one another."*
* Wealth of Nations, vol. ii. pages 221, 222, 223, 224, 227.
OF POLITICAL ECONOMY.
423
In whatever light, therefore, the rate of exchanges
may be viewed, it is evident that it gives but fal-
lacious indications of the state of foreign commerce.
There is, then, at present no certain way of
acquiring any positive information in that respect;
all is conjecture, and of course uncertain. Perhaps
it is even useless to attempt it, since it is undoubted
that foreign commerce is constantly advantageous to
all countries, and the question between them is only
about the greater or less advantages they derive from
it. But if the exact statement of its imports and
exports be almost indifferent to a nation, it is not so
with regard to its home trade, which comprizes the
annual produce of its labour and the consumption
of that produce. "If the exchangeable value of the
annual produce exceed that of the annual consump-
tion, the capital of the society increases in proportion
to this excess. The society, in this case, lives within
its income, and what is annually saved out of its
income, is naturally added to its capital and employed
so as to increase still further the annual produce. If
the exchangeable value of the annual produce, on the
contrary, fall short of the annual consumption, the
capital of the society must annually decay in propor-
tion to this deficiency. The expence of the society
in this case exceeds its income, and necessarily
encroaches upon its capital. Its capital, therefore,
must necessarily decay, and, together with it, the
exchangeable value of the annual produce of its
industry.
"This balance of produce and consumption is
entirely different from what is called the balance `of
}
424
ON THE VARIOUS SYSTEMS
trade*, or balance of imports and exports. When
the former is advantageous, the latter is always
favourable; and when the balance of produce and
consumption is unfavourable, it is not in the power
of a beneficial balance of trade to check or ward off
its pernicious influence."
Adam Smith advances in this respect an assertion
which it is proper to investigate, in order to ascertain
the nature and difference of the two balances.
66
He thinks that the balance of produce and con-
sumption may be constantly in favour of a nation,
though what is called the balance of trade be generally
against it. "A nation," he says,
may import to
a greater value than it exports for half a century, per-
haps, together; the gold and silver which comes into
it during all this time may be all immediately sent
out of it; its circulating coin may gradually decay,
different sorts of paper-money being substituted in
its place, and even the debts which it contracts in the
principal nations with whom it deals may be gra-
dually increasing; and yet its real wealth, the ex-
changeable value of the annual produce of its lands
and labour, may, during the same period, have been
increasing in a much greater proportion. The state
of the North-American colonies and of the trade which
they carried on with Great Britain before the American
war, may serve as a proof that this is by no means an
impossible supposition."
This seems a strange phenomenon. How is it to
* Wealth of Nations, vol. ii. page 260.
+ Ibidem, page 261.
OF POLITICAL ECONOMY.
425
be credited, that a country which annually exports
commodities inferior in value to what it imports,
which, we will suppose, purchases abroad goods to
the amount of ten millions, and exports produce
amounting only to five millions, which of course
contracts every year a debt of five millions; how is it
to be credited, I say, that such a country should cover
this excess of expenditure abroad with an equal or
superior excess of its income at home?
The phenomenon is, however, explained in the
simplest manner.
The excess of foreign produce imported into a
country above the productions exported is not always
consumed in the country as part of the national
income, but as part of the circulating capital destined
to augment the fixed capital which produces a reve-
nue. These five millions are consequently a loan
borrowed from foreigners, to increase the annual
labour, to embark in undertakings the abundant pro-
duce of which does more than cover the loan and the
interest or profit due to the creditors. In this instance
alone, it is true that an unfavourable balance of trade
is not a proof of declining wealth, and may even prove
not injurious to the progressive prosperity of a
country.
Were the excess of imports above exports consumed
as a revenue, there is no doubt but this excess of con-
sumption would ultimately occasion the ruin of the
country.
And this consideration enforces still more the neces-
sity of endeavouring to find out a way to know the
balance of annual income and annual consumption,
426
ON THE VARIOUS SYSTEMS
Is there any such way that can be relied upon as
certain and positive?
There is none. We must as yet be contented with
mere conjectures built upon an augmented population,
and particularly upon the increase of the industrious
classes and towns, upon the good condition of agri-
cultural buildings, upon the number of acres cleared
or inclosed, and upon the facility with which the
public contributions are collected.
To those conjectures some add those resulting from
the rate of interest of money: but this conjecture is,
in my opinion, erroneous and delusive.
A high rate of interest is not always a proof of the
declining wealth of a country; on the contrary, it is
a proof of its prosperity when this prosperity is pro-
gressive. The interest of money must always be very
high in countries whose prosperity is progressive,
because its agriculture and manufactures, increasing
with its population, are always requiring fresh capitals,
the demand for which necessarily keeps the rate of
interest very high.
"the
A low rate of interest may likewise not be an
infallible sign of the wealth of a country being pro-
gressive. "A low rate of interest," says Swift,
usual sign of the wealth of a state, may also be a
sign of misery, when no one, for instance, wants to
*In the mercantile system there is a very simple way for nations
to judge at all times of their population and prosperity; they need
only to ascertain from time to time the numbers of their manufac.
turers.-Discours Fondamental sur la Population, par Herren-
schwand.
OF POLITICAL ECONOMY.
427
borrow, because there is neither industry nor com-
merce in the country."
To this observation of Swift's it might be added,
that the case is exactly the same with a mere agri-
cultural nation, whose industry has made little pro-
gress, and whose commerce is confined to the
home-trade; or even with a flourishing nation, the
industry of which is stopped, and which is deprived
of its foreign trade by extraordinary and prolonged
circumstances. Surely, under these different suppo-
sitions, the rate of interest might be very low, and
wealth yet be on the decline.
It is therefore without any foundation that a low
rate of interest has hitherto been ranked among the
signs that indicate the progressive, stationary, or retro-
grade condition of national wealth; this criterion is
imperfect, insufficient, and incapable of affording any
correct information. The signs which we have
pointed out are also merely conjectural; yet they may
lead to truth.
+ Short View of the State of Ireland, vol. i.
.
428
ON THE VARIOUS SYSTEMS
CHAP. X.
Conclusion of the Fourth Book.
THE circulation of the produce of labour effected by
commerce has its principle in the passion for enjoy-
ment, which men gratify by interchanging the pro-
duce of their labour, industry, talents, knowledge,
and genius. This circulation is more productive in
proportion as it is less confined, more extensive, and
more general. When it extends only from the
country to the neighbouring towns, and from the towns
to the country, it is slow, weak, and languid, because
the produce which it offers to the consumers is cal-
culated only for the most ordinary wants of life. It
gains in animation, activity, and usefulness, when it
pervades every district, every town, every city, and the
metropolis of every country, because it then circu-
lates productions more numerous, more various, better
calculated for the conveniency, comforts, and peculiar
enjoyments of every country. It attains the highest
pitch of grandeur and power, when in its course it
embraces all climates, all countries, and all nations,
because it then distributes to every consumer the pro-
duce of all soils, the productions of all kinds of industry,
all the riches of nature and labour, and excites every
desire, flatters every taste, and gratifies every caprice
and every fancy.
Commerce, in its various stages, bestows upon the
OF POLITICAL ECONOMY.
429
different produce of labour a value constantly relative
to the demand of the consumers and to the abundance
or scarcity of the commodity. This value is always
proportioned to the extent of the commerce, to the
number of consumers, and to the variety of produc-
tions: but in fixing this value, which is sometimes
uncertain and frequently arbitrary, commerce generally
gives to every producer the equivalent of what his
production has cost him. Were this indispensable
condition not fulfilled, re-production would be at a
stand, and circulation would lose its activity, and
perhaps entirely cease. This condition once performed,
commerce observes no other law in the distribution of
equivalents, but the demand for and the abundance.
or scarcity of the commodity: and this law is always
fluctuating, always uncertain, and consequently
always unequal. But this inequality obstructs neither
the activity nor the range of the circulation; it only
affects the rate of profits; and a small profit is always
preferable to none.
Notwithstanding these advantages and the general
interest which it must inspire, the circulation of the
produce of labour would have met with but an
indifferent success, had it not been for the assistance
of a preferred produce, which every producer wil-
lingly takes at all times in exchange for its produce,
because he is certain that the partiality or predilec-
tion which he entertains for that produce is common
to the producers of all countries.
When money has that indispensable and necessary
character; when it consists in a produce universally
preferred, and for which all other productions are
430
ON THE VARIOUS SYSTEMS
willingly exchanged; when public authority contents
itself with guaranteeing, as it were, this preferred
commodity against the frauds, adulterations, and
deteriorations to which it may be liable, money
becomes the most active agent, the most powerful
spring, and the most useful instrument of circulation.
But it is especially by giving rise to credit that
metallic money renders the greatest service to circula-
tion. As soon as it has established credit metallic
money appears in circulation merely to regulate the
march and to insure the results of credit. Even the
liquidation of credit is frequently effected without the
aid of metallic money. Banks, when confined to the
liquidation of commercial credit, supply the place
of coin most successfully, or at least derive but a
feeble and trifling assistance from the metallic cur-
rency of the country.
The different methods of circulating the produce
of labour, such as corporations and privileged com-
panies, the monopoly of colonial commerce, exclusive
commercial treaties, and every combination that has
been contrived to give another direction to the course.
of commerce, when it is supposed unfavourable or less
beneficial, or to enlarge it when supposed to be favour-
able, are as many obstacles which restrict and skackle
the progress of commerce, and are equally fatal to
public and private wealth.
In short, nations ought never to forget that the cir-
culation of the produce of labour is always beneficial,
and that the only way to reap all its benefits is
to render commerce safe, free, easy, and general.
OF POLITICAL ECONOMY.
431
BOOK V.
ON THE
VARIOUS SYSTEMS CONCERNING THE
NATIONAL INCOME AND CONSUMPTION.
CHAP. I.
Of the National Income.
ALL systems of political economy agree in making
the national income consist in the produce of annual
labour. The spontaneous productions of the soil, of
mines, and of the waters, are not very considerable,
and require besides a certain portion of labour to be
gathered and brought to market; they must, of course,
be ranked among the produce of labour.
Income is either private or public. But these two
denominations are merely two different manners of
viewing income; they neither alter its nature nor its
quantity. All authors, on subjects connected with
political economy, unanimously teach, that the
national încome is composed of the private income of
the members of the nation.*
* Sir William Petty-George King-Mr. Hooke-Sir William
Pulteney-Adam Smith-Dr. Becke-Physiocratic, page 113.-
Philosophie Rurale, page 150.
1
432
ON THE VARIOUS SYSTEMS
One noble author alone thinks that this opinion,
"though universally prevalent, must be deemed false
and unfounded by every man who considers the sub-
ject, after having formed and familiarized himself to
an accurate and distinct opinion of the nature of
value."
"It must appear," says the Earl of Lauderdale,
"that a commodity being useful or delightful to man,
cannot alone give it value; that to obtain value, or to
be qualified to constitute a portion of private riches,
it must combine with that quality the circumstance of
existing in a certain degree of scarcity. Yet the
common sense of mankind would revolt at a proposal
for augmenting the wealth of a nation by creating a
scarcity of any commodity generally useful and neces-
sary to man.
"Let us for a moment suppose it possible to create
as great an abundance of any species of food as there
exists of water; what would be thought of the advice
of a man, who should cautiously recommend, even at
the moment of the pressure of scarcity, to beware of
creating this boasted abundance? For, however flat-
tering it might appear as a remedy for the immediate
evil, it would, inevitably, diminish the wealth of the
nation. Yet, ridiculous as this opinion might appear,
as every thing which partakes of the abundance of
water or air must at once cease to possess value; it fol-
lows that, by occasioning such an abundance, the sum
total of individual riches would most certainly be
diminished to an extent equal to the total value of that
species of food, the value of which would by this
means be destroyed.
OF POLITICAL ECONOMY.
433
"At present, the capital of the national debt of
Great Britain amounts nearly to five hundred millions
sterling. We have seen, and know, that war, even in
the course of the first year, may sink the value of this
capital twenty per cent. ; that is, that it may diminish
the mass of individual fortunes one hundred millions;
and thus impose upon any man, who made up the
account of public wealth on the principle that an
accurate statement of it was to be derived from adding
together the fortunes of individuals, the necessity of
saying that one hundred millions of our wealth had
vanished.
But this is not all. The value of many things
sinks at the same time. In the value of land in par-
ticular, we have seen a considerable diminution, which
would create the necessity of a further reduction in
this statement of public wealth. Yet the surface of
the national territory remains unaltered; the landlord
receives the same rent; the stock-holder is paid the
same interest; and there is no one thing on which a
man can lay his hand as an article of national wealth,
which does not appear to retain the same qualities that
rendered it either useful or desirable.
"If we could further suppose nature to bestow on
any community, or art to procure for them, such an
abundance, that every individual should find himself
in possession of whatever his appetites could want, or
his imagination wish or desire, they would possess
the greatest degree of national wealth; though under
such circumstances it is impossible that any commodity
could obtain the attribute of value: for, like water
and air, all commodities that partake of their abun
F F
434
ON THE VARIOUS SYSTEMS
dance, must at once be divested of value, or of the possi-
bility of constituting any part of individual riches."*
I shall not follow the noble Earl in the very exten-
sive developements which he has given to his opinion;
they would add nothing either to the distinctness or
demonstration of his thoughts, and would not render
the question, which he has started, either more dif-
ficult or more important, as the most simple reflection
is sufficient to resolve it.
The produce of general labour, whether in the
hands of individuals, where it forms private income,
or diffused all over the country in the shape of national
income, is partly consumed by the producers, and
partly exchanged, with the view of the objects obtained
in exchange being consumed either by the producers
or other classes of consumers.
If the produce consumed in the place of its pro-
duction be abundant, its plenty contributes alike to
public and private wealth, and establishes no differ-
ence between those two sorts of wealth.
If, on the contrary, that produce be rare, its scar-
city impoverishes alike the individual and the public,
and public and private wealth is equally a sufferer.
With regard to the produce exchanged by the pro-
ducers, if the exchange takes place with a foreign
country, its abundance turns to the benefit of the
foreigners, who purchase it with the same values
which they used to give for it, unless the foreign
* An Inquiry into the Nature and Origin of Public Wealth,
and into the Means and Causes of its Increase, by the Earl of
Lauderdale, chap. ii. pages 43, 45, 48.
OF POLITICAL ECONOMY.
435
country should have been favoured with a like abun-
dance in its own produce; because, in that case,
plenty is equally beneficial to the foreigners and
the natives, and in both cases private and public
wealth remains the same.
If, on the contrary, the produce exchanged with
the foreign country is scarce, the foreigners are suf-
ferers by this scarcity. They give the same quantity
of produce in return as in the times of plenty, because
their produce could not find any other employment;
and if the harvest has been as bad abroad as at home,
then the two countries suffer alike by this common
scarcity; and in both cases, public and private wealth
either continues in the same situation or undergoes the
same alteration.
Finally, if the exchange of national produce take
place at home, its plenty becomes beneficial to the
consumers without any loss to the producers, because
the latter always receive the same value which they
usually received from the consumers. But, in a case
of scarcity, the loss is to the consumer, yet without
any benefit to the producer; because the consumer
can only give him the usual value: consequently, there
is, in both cases, neither loss nor profit for private
and public wealth.
It must, however, be acknowledged, that when
either abundance or scarcity is excessive and extraor-
dinary, it is more or less fatal to the producer or to
the consumer: but in no instance does such an event
produce any difference between public and private
wealth. If, in the case of excessive plenty, the
wealth of the producer be diminished, that of the
FF 2
436
ON THE VARIOUS SYSTEMS
consumer is augmented; the one gains what the
other loses; and public wealth, which consists of
individual riches, experiences no change from the
loss of the producers and the gain of the consumers,
The case is the same when the latter are losers, and
the producers gainers; the loss and the gain, with
respect to general wealth, is compensated, and the
situation is the same as if there had been neither loss
nor gain in all private exchanges.
If, therefore, we regard merely the merit of the
difficulty started by Lord Lauderdale, I have, perhaps,
assigned too much importance to the solution of the
difficulty but if it be viewed in all its consequences,
it will be seen that it was my duty to neglect no
means to prevent the noble Earl's opinion gaining any
credit. Though the identity of public and private
wealth be undoubted, and the danger of drying up
the source of the former by bearing too hard upon
the latter be imminent, yet private wealth has not
always met with the regard to which it is entitled ;
what, then, would be the consequence, if any, even
the smallest doubt, were ever entertained concerning
that identity; if a source could be assigned to public
wealth, different from that of private riches; and if
governments should persuade themselves that the
decay of public wealth is no-wise injurious to private
riches, or that private riches may be impaired without
injuring national wealth? Apprehensions of this kind
can never be realized, when governments are fully
convinced of the identity of public and private
wealth; and there is something extremely consolatory
and beneficial in this opinion, which must not be
OF POLITICAL ECONOMY.
437
suffered to be shaken, and must be vigorously defended,
because it is on this truth that the maintenance of
social order, the progress of public wealth, and the
amelioration of the condition of mankind are, in some
degree, depending.
The produce of annual labour, whether it be
viewed as private or national income, is distributed
in the shape of wages of labour, profit of stock, or
rent of land.
The French economists were well aware that this
distribution ought to take place according to regular
and general laws; but instead of seeking for these
laws, they created them conformably to the system
which they had adopted.*
Adam Smith was better informed, or more fortu-
nate.
He discovered these laws in the very nature
of things.
He states that the distribution of the national
income is naturally regulated by the progressive,
stationary, or retrograde state of national wealth.
When wealth is progressive, more produce of the
annual labour is distributed in wages of labour, profit
of stock, and rent of land. When wealth is station-
ary, a smaller quantity of that produce goes to the
labourers as wages, and to the land-holders as rent;
and the profit of stock remains as before. When
wealth is retrograde, the wages of labour sink so low
that they are scarcely adequate to supply the most
urgent wants of the labourers; rents also suffer a con-
siderable diminution; but the profits of stock expe-
* Physiocratie; Tableau Economique.
438
ON THE VARIOUS SYSTEMS
rience, on the contrary, a rise corresponding with the
decline of national wealth. Not to be struck with
the justness and truth of these laws, and to withhold
a tribute of praise and admiration from the mind that
discovered them, is equally impossible.
To these general and fundamental rules of the dis-
tribution of the produce of annual labour, Adam
Smith has added some particular ones for the wages of
different labours, the profit of different capitals, and
the rents of every different kind of soil.
I have already explained his doctrine concerning
the wages of different labours, (book ii. chap. 7,) and
the profit of different capitals, (book iii. chap. 5.) I
shall therefore confine myself to a few observations on
that part of his doctrine which relates to the rents of
land, of which I have not hitherto had an opportunity
to speak.
The writers on political economy are not agreed
upon the causes which establish the rent of lands.
The French economists derive it from the original
advances of the land-owner in clearing the land and
putting it into a state of cultivation.
Adam Smith has combated this opinion with argu-
ments drawn from the circumstance that land-owners
demand a rent even for unimproved land; that
those improvements are sometimes made by the
stock of the tenant; and that land-owners sometimes
demand rent for what is altogether incapable of human
improvement.
He therefore regards the rent of land, considered
as the price paid for the use of the land, as a
monopoly-price, which is always determined by what
OF POLITICAL ECONOMY.
439
is left to the farmer after he has paid the wages of
labour and deducted the customary profit of stock.*
This first point being once established, Adam
Smith displays all the sagacity of his mind to class,
according to general rules, the lands which always
afford a rent, those which sometimes may and some-
times may not afford rent, and those which do not
afford any rent. He has even endeavoured to class.
the different kinds of cultivation, according as they
produce food, clothing, materials for dwellings, or
articles that satisfy fancies and caprices: but his rules.
are overloaded with so many exceptions, they depend
on so great a number of circumstances, and may be so
easily criticized, that the impotence and inability of
his efforts are felt at every page, at every line. We
see that he is struggling in vain against the force of
things, and that he cannot establish generalities where
nature has dealt in individualities.
individualities. Thus, after
having laid it down as a principle that the rent of
wheat-lands regulates in Europe the rent of all other
cultivated lands, he is forced to acknowledge that, in
many cases, meadows, vineyards, olive-grounds, mines,
quarries, and even forests, yield a higher rent than
wheat-lands. It is true that he has again attempted
to generalize the particular cases. But these uncertain
classifications were hardly worth the trouble which
they cost him, since the rent of all lands, whatever be
the mode of cultivating them, is always limited to that
portion of produce which remains after deduction of
the wages of labour and profit of stock; and since
* Wealth of Nations, vol. i. pages 250, 251.
440
ON THE VARIOUS SYSTEMS
this portion is more or less considerable according as
the state of wealth is progressive, stationary, or retro-
grade. Beyond these rules there is nothing but
doubt, obscurity, and uncertainty. These are the
bounds of the science.
The laws then which regulate the distribution of
the annual produce of labour in the shape of
wages of
labour, profit of stock, and rent of land, are plain and
positive, and can no longer be mistaken.
Of all the authors that have recommended a strict
attention to those laws and developed their advantages,
none, I think, have done it more successfully than the
Earl of Lauderdale and Count Verri.
Commerce," says the latter, "is so much the
more active, as wealth is more equally distributed and
diffused among a greater number of individuals. We
see indeed, that in countries where wealth is badly
distributed, where a naked and famished multitude
afford a striking contrast with a small number of indi-
viduals overflowing with riches, the dealers in foreign
and national commodities are few, and the prices of
goods so high that little is exported. The annual
re-production is reduced exactly to the absolute neces-
sary. The soil where generations of oppressors and
oppressed succced each other, is barren or unculti-
vated; every thing withers, every thing is dead, until
an enlightened legislator has the inclination and the
power to point out the true road, and to cause it to be
followed.*
*Della Econom. Polit. § 6.
OF POLITICAL ECONOMY.
441
The Earl of Lauderdale presents the same opinion
in a stronger and still more striking light.
"The distribution of wealth," says the noble Earl,
"not only regulates and decides the channels in which
the industry of every country is embarked, and of
course the articles in the production of which it excels;
but a proper distribution of wealth insures the increase
of opulence by sustaining a regular progressive demand
in the home-market, and still more effectually by
affording to those whose habits are likely to create a
desire of supplanting labour, the power of executing
it." To support this opinion, Lord Lauderdale quotes
a passage of Bacon, which proves that this vast and
profound genius had a glimpse of every useful truth.
"Above all things," said Bacon, "good policy is
to be used, that the treasure and monies in a state
For, otherwise, a
be not gathered into few hands.
state may have a great stock, and yet starve. And
money is like muck, not good except it be spread." *
Lord Lauderdale has not contented himself with
rendering sensible the advantages of the distribution
of wealth and of its circulation through all classes of
civilized society; he has carried his views farther, and
inferred, from the present tendency of all nations to
favour this circulation, that the industry which is
employed in supplying the wants of the multitude,
must always prosper more and more, whilst that which
labours only for the luxury, pomp, and vanity of the
higher and opulent classes, must insensibly decline.
This consequence, which affords to his Lordship
*Lord Lauderdale's Inquiry, chap. 5, page 349, 353.
442
ON THE VARIOUS SYSTEMS
an opportunity of congratulating his country for the
useful direction it has given to its industry, points out
to other nations the conduct which they ought to pursue
to increase or preserve their wealth.
Thus the public and private income consist of the
annual produce which is distributed in the shape of
wages of labour, profits of stock, and rents of land;
and this distribution is regulated by the progressive,
stationary, or retrograde state of national wealth. The
observation of these laws is of the utmost importance
to the progress of wealth, and forms one of the funda-
mental principles of political economy.
CHAP. II.
Of Consumption.
CONSUMPTION bears a necessary and indispensable
proportion to the national income; but that proportion
has not yet been invariably fixed.
The French economists think that consumption
ought to be equal to the income, and allow no eco-
nomy but in that part of the annual income reserved
for the land-owners as the net produce of their lands*.
Adam Smith, on the contrary, teaches that con-
sumption ought to be inferior to income; it is on the
surplus of income that he chiefly founds the progress
of national wealth. He even goes so far as to say,
Physiocratic, Tableau Economique.
OF POLITICAL ECONOMY.
443
that "parsimony, and not industry, is the immediate
cause of the increase of capital.” *
Finally, some authors condemn economy, regard
consumption as the measure of re-production, insi-
nuate that income proportions itself to expenditure,
and that people are the richer the more they spend.
Whence it follows, that luxury, that superlatively
extravagant consumer, is the most powerful spring of
wealth; a consequence this, which renders the theory
a little suspicious, and obliges us to investigate it with
careful attention.
When an individual consumes more than his income,
the surplus must be taken from his capital, which is
gradually diminishing, and the diminution of which
diminishes his income in the same proportion. If his
expence exceed his income every year, a time must
come when that individual, having neither income
nor capital left, is obliged to labour for his subsistence,
or to be indebted for his maintenance to public charity.
What is true of one individual, is equally so of
several individuals, and even of a whole nation. If,
which is impossible, all the individuals composing a
nation should spend every year more than their income,
the period might be foretold when they would be
absolutely ruined; or when the population would
be so much diminished, that, on the same soil on
which there stood formerly great cities, numerous
towns, and numberless boroughs and villages, there
would scarcely be seen a few scattered villages and
some wretched hamlets.
*Wealth of Nations, vol. ii. page 14.
444
ON THE VARIOUS SYSTEMS
Those who are unacquainted with the progress of
wealth, and do not understand how it is formed or
how it is destroyed, find some difficulty in conceiving
this result of expenditure above income: but it may
easily be rendered obvious and evident even to the
most ignorant.
The surplus consumed beyond the individual
income is taken from that portion of the annual pro-
duce reserved for the advances of labour, or, in other
words, from the fixed and the circulating capital.
Deprived of this portion of capital, the merchant suf-
fers his vessels, his waggons, his warehouses to decay,
and no longer circulates the same quantity of mer-
chandize; the manufacturer does not keep his
machines, his tools, his work-shops in repair, he no
longer selects his raw material with the same care, and
employs no longer the same number of hands; the
farmer witnesses the decrease of his cattle, the decay
of his farm buildings, of his plantations, of his
ploughs, of his implements and instruments of hus-
bandry, and can no longer bestow the same manure.
and the same labour upon his fields; lastly, govern-
ment suffers national monuments, high roads, canals,
harbours, and public establishments, to go to ruin.
The communications are interrupted, the various
districts of the country are isolated and impoverished
through this isolated state; the annual produce is
successively diminished, so that, at no very distant
and much less remote period than is generally sup-
posed, the cattle destined for agriculture and the
conveyance of commodities disappear, public and
private buildings tumble in ruins, the soil is left
OF POLITICAL ECONOMY.
445
uncultivated, the population has perished or emigrated,
and the traveller who had seen that country in a high
state of cultivation, well peopled, and rich, and beholds
it again poor, uncultivated, and as it were uninha-
bited, is afraid of having lost himself, and does not
know to whom to apply to calm his fears and his
uneasiness. Numerous are the examples which the
history of antiquity and the middle age affords of such
dreadful catastrophes. What is become of the power-
ful empires of Asia; of that wealthy and populous
Egypt, still famous for its monuments and its ruins;
of the innumerable republics of Greece; of the opu-
lent cities of Asia Minor? There is no vestige remain-
ing of their wealth, of their power, and of their gran-
deur. Their destruction and ruin are generally
attributed to the evils of war, the ravages of time,
national calamities, and a number of political and
moral causes: but it would be easy to shew that all
these causes would have been transitory, of short dura-
tion, and rapidly remedied, if the burthens laid upon
the people by their lawful governments, or by blind
or improvident conquerors, beyond their annual
income, had not deprived them of the means of
repairing by their industry the evils inflicted by the
ravages of war and the imbecility of their governors.
The excess of consumption above income may
therefore occasion the ruin of nations, as it does the
misery of individuals.
It is true that, in the mercantile system, when the
generality of the people obliged to labour experience
every day the difficulty of providing for their subsis-
tence, and know how to appreciate the advantages of
446
ON THE VARIOUS SYSTEMS
economy and capital, there is no danger that great
numbers will addict themselves to a fatal dissipation,
rush into misery, and dig the precipice which is to
engulph public and private prosperity. All wish to
turn to advantage what they have economized, and
wealth is formed, maintained, preserved by the labour,
and increased, extended, and consolidated by the eco-
nomy of all. The dilapidation of private individuals
is as little injurious to national wealth, as the penurious
avarice of a few is detrimental to its progress. The
power of general labour repairs private errors, nearly
in the same manner as the plentiful harvest of one
province covers the losses which bad seasons occasion
in some districts.
But this advantage, it must be acknowledged, is
peculiar to the mercantile system of modern nations,
and is not to be found in any other system.
In the economical system of the nations of anti-
quity, among which there were but idle men and slaves
who performed the general labour, prodigality, profu-
sion, dissipation, and luxury, were equally prejudicial
in a moral and economical respect.
Luxury, by destroying the fortunes of the first
families of the state, ruined the patricians, and con-
verted aristocratical governments into oligarchical
and monarchical governments into despotical ones; or
if it gave birth to new fortunes besides those of
the patricians, aristocracy degenerated into democracy,
or monarchy into aristocracy; so that the division of
large fortunes essentially altered the political system of
the state.
On the other hand, luxury, by scattering the for-
OF POLITICAL ECONOMY.
447
tunes of the first families of the empire, afflicted the
people with the lamentable sight of decayed patricians
stripped of wealth and credit, it vitiated public morals,
broke the bonds of civil and political dependence,
caused the inequality of conditions to disappear, cor-
rupted private manners, and destroyed every notion
of order, consideration, and respect.
Finally, by absorbing the capitals of a great num-
ber of families, luxury diminished the quantity of
labour which they would have supported, weakened
the national income, and impoverished the state.
Such capitals, by being scattered among a number of
individuals, instead of encouraging them to labour,
frequently incited them to a greater consumption, and
consequently contributed to increase the general
misery.
It is therefore very justly that all the authors of
antiquity recommended economy, nay, honoured par-
simony; and imputed to luxury the decay of morals,
the ruin of private fortunes, and the loss of the state.
In such an order of things, avarice was a virtue, and
luxury a sort of public crime.
In the middle age, under the feudal system, at a
time when the state was divided among great and
petty land-owners and bondmen, and when the poli-
tical constitution was purely aristocratical, it was
thought necessary to guard against the dissipation of
large fortunes, which were justly considered as the
basis of the state. This gave rise to the laws of pri-
mogeniture and entail, and others which it is useless
to enumerate here. But these political laws, by pre-
serving fortunes in families, impoverished all the
448
ON THE VARIOUS SYSTEMS
individuals of the nation. They enriched a few at the
expence of all, and created general misery to establishı
a few private fortunes. What luxury could ever have
been pregnant with greater calamities!
However, every enlightened individual who was
initiated in the mystery of that legislation, justly lifted
his voice against luxury, and condemned it with as
much severity as the nations of antiquity.
Inheritors of their doctrine, our political, moral and
economical writers have almost all re-produced it in
their writings; and though this doctrine be no longer
applicable to our manners, to our interests, to our
politics; though it be as fatal to us as it was beneficial
to the people for whom it was designed, it still pre-
dominates in our books; and all that the boldest
innovators have dared to advance is, that luxury
becomes prejudicial only when it deprives the prodigal
of the means of performing his individual, domestic,
and social duties. Will men then never cease to judge
of the present by the past, and of the future by their
fears; will they not at length perceive that, whatever
may be the circumstances that have led modern
nations to the mercantile system, their political,
moral, and economical condition has no conformity
with and bears no relation to that of the nations of
antiquity and the middle age? If those nations were
interested in condemning private luxury, the moderns
have nothing to dread from it, and need not take any
measures to repress or
repress or to guard against luxury.
Wherever wealth proceeds from general labour, there
is no danger that it will be dissipated by the private
luxury of a smaller or greater number of individuals.
OF POLITICAL ECONOMY.
449
The general tendency of commercial nations can never
be towards dissipation, luxury, and magnificence.
But that which is not to be apprehended from
individuals, may be done by governments; and it is
in this respect only that wealth may run some risk.
The revenue of governments generally consists of
contributions levied upon individuals. If, either
from a love of luxury and magnificence, or from the
passion of conquests, or from a bad economical system,
or from a vicious administration, these contributions
are raised to an excessive height, the efforts of the
individual members of the nation, to repair by their
labour and economy the evil of an excessive expendi-
ture of government, must prove abortive. If this
expenditure, coupled with that of the individual
members of the nation, exceeds the annual produce
of the national labour, the aggregate of the nation is
placed in the same predicament as an individual who
spends more than his income. Capitals are swallowed
up, labour is left to pine, its produce is diminished,
population reduced, and the impoverished nation
declines, and is perhaps exhausted to such a degree
that it is no longer ranked among free and independent
powers.
Though it be therefore of little importance in the
mercantile system, whether some individuals consume
above their income or not, both the prosperity and
the safety of the state require that the totality of the
nation should not consume more than the portion of
the annual produce reserved for general consumption.
To suppose that, the more there is consumed, the
more is produced, is, as has been well observed by a
G G
450
ON THE VARIOUS SYSTEMS
modern writer, to suppose" that it is as easy to pro-
duce as to consume;" that the powers of labour are
inexhaustible, and its produce unlimited. Such a
monstrous doctrine could proceed only from absolute
ignorance of the causes of the formation and preser-
vation of wealth; which ignorance ought to be com-
pletely dispelled by the progress of political economy,
and the propagation of its salutary and conservatory
tenets.
Individuals and nations cannot possibly consume
more than their income without exposing them-
selves to certain ruin; they ought not even to con-
sume as much as their income. Whenever they
do so, their condition becomes precarious, and
national wealth is endangered by the many accidents
of life, national calamities, and all the evils which
are continually assailing the human race. Every
national calamity inflicts an injury upon capital,
affects labour, diminishes its produce, impoverishes
the nation, and, in proportion as it is serious and last-
ing, influences its power and the grandeur of its
destinies.
A distinction ought however again to be made
between individuals and the state.
Although the expenditure of individuals should
fully absorb their income, it not only is not prejudi-
cial to national wealth, but may even contribute to
its increase. The desire of comforts, the relish of
enjoyments, and the love of pleasure, are powerful
incitements to labour, and induce the labourer to mul-
tiply the produce of his labour; and in that case it
may truly be affirmed, that he labours more in pro-
OF POLITICAL ECONOMY.
451
portion as he consumes more, and that he is so much
the richer, as his expences are more considerable. In
this instance, those few economical and moral writers
are perfectly right, who praise luxury, and attribute
to it a large share in the increase of modern wealth,
and even in the civilization of individuals and nations.
A modern French writer opposes this system, and
asserts that consumption is not a cause, but an effect;
that, in order to consume, it is necessary to purchase;
and that people purchase but with what they have
produced *.
This opinion, if it were correct, would completely
overthrow the mercantile system, which this author
has however praised and extolled throughout his
work. We must therefore regard it as a mere mis-
take proceeding from inattention. Yet it must be
refuted, because it attacks the fundamental principles
of the science.
The mercantile system rests on the interchange of
the produce of general labour; but the progress of
this interchange would have been slow and perhaps
even uncertain, if it had always been considered as
necessary that the exchanged produce should really
exist at the time of the exchange, and if people could
have procured what they had not, merely with what
they had. But through a combination peculiar to the
mercantile system, people obtain what they have not,
with the mere promise of furnishing another produce
not yet existing. The simple promise of giving a
commodity at some future time is equivalent to the
* Jean Baptiste de Say; Traité d'Econ. Pol. Paris, 1803.
GG 2
452
ON THE VARIOUS SYSTEMS
actual delivery; hope is invested with all the prero-
gatives of reality; and, what is not one of the least
remarkable phenomenons of this system, hope is not
deceived, and the promised commodity is generally pro-
duced, because it has been promised. Strip the
mercantile system of credit, enforce the actual reali-
zation of every purchase and sale, and, from that
instant, more than half of the produce of labour will
remain on hands without finding a consumer; from
that instant, more than half of the labourers will
starve, and the annual produce will be diminished by
half.
The same author adds, in support of his opinion,
that the best way of opening markets to the existing
produce is to multiply and not to destroy them.
This pompous paradox gives to political economy
a mysterious and transcendent appearance little
calculated to gain it friends among men of intellect, or
to place it within the reach of attentive and studious
inquirers.
He who wants to consume the commodity produced
by another, must undoubtedly give an equivalent for
it; he does not obtain it for nothing. But must he
have that equivalent ready, when he demands or gets
the commodity of another; or, to use the very words
of the author whom I am refuting, "is the quantity
of the commodities demanded, determined by the
quantity of commodities in existence ?" Undoubtedly
not. The quantity of the produce in request may
just as well be determined by the quantity of commo-
dities which are expected and intended to be pro-
duced; and provided their production takes place at
OF POLITICAL ECONOMY.
453
the appointed time, the interchange is as perfect as if
the objects produced after the exchange had existed at
the instant when the exchange took place.
When a manufacturer employs one thousand pounds
in the establishment of his manufacture; when a
merchant purchases goods to the amount of ten thou-
sand pounds; when a ship-owner loads his vessel with
merchandize amounting to twenty thousand pounds in
value; every one of them perhaps has not effects
amounting to the tenth part of the commodities.
entrusted to him, and which he may consume or dis-
sipate at his pleasure; and yet, if the proceeds of the
manufacture, of the trade, and of the venture, pro-
duce the equivalent of the values consumed, the
result is precisely the same as if the commodities
produced after the exchange had existed at the time
of the exchange.
Should it be objected that the manufacturer, the
merchant, and the ship-owner, are not consumers,
but mediators between the producer and the con-
sumer, and that the interchange of which they are
the agents is only completed by the return of the
equivalents of the commodities exchanged; I observe
that frequently these equivalents arrive but six months,
twelve months, or two and sometimes three years,
after the consumption; often even the commodities
consumed have served to produce their equivalent,
and had they not been advanced, the equivalent
would never have existed. There is therefore no
necessity that the quantity of commodities in request
be equal to the quantity of commodities actually pro-
454
ON THE VARIOUS SYSTEMS
duced. It is almost always proportioned to the
quantity of produce expected, and provided this
expectation be not disappointed, (and in general it is
not disappointed,) wealth proceeds as rapidly and
as safely in its growth, as if the. quantity of com-
modities in request were equal to the quantity of com-
modities in existence.
But if individuals may consume not only up to
their actual income, but even up to that which they
may obtain through additional labour, the case is not
the same with government. When its expenditure,
collectively with that of the nation, equals or exceeds
the produce of general labour, all the calamities may
be dreaded which result from the equality of con-
sumption with production, and, above all, from the
excess of consumption above production. Whatever
be the authority of government, whatever be the
attachment of the nation to its government, and
whatever plans may be devised, it is not absolutely
certain that the contributors to the public expences
will proportion their efforts to the magnitude of the
burthen, that the produce will be equal to the
increased consumption, that the balance will be in
favour of the produce, or even that the equilibrium
will be restored by additional labour or more economy.
It is to be feared, on the contrary, that excessive
contributions will discourage the contributors, and
that they will labour less in proportion as they have
more to pay. In short, wealth in this critical situation
runs so much greater risks, as the evil is certain and
the remedy unknown,
OF POLITICAL ECONOMY.
455
It is therefore the interest and duty of governments
not to suffer the public expenditure to exceed that
portion of general produce which is over and above
individual and private consumption. On their mode-
ration depends the wealth of modern nations. Govern-
ments alone can paralyse it, or give it an unlimited
impulse. Let them beware of checking the private
and general efforts of labour, the universal tendency
of all individuals to produce, to preserve, and to
amass; and wealth will be unbounded, and their
power will increase abroad and at home in the pro-
portion of national wealth.
A nation cannot be styled rich and flourishing,
unless its private and public expences be inferior to
the produce of general labour, or unless it have every
year a surplus left; and its wealth is so much the
larger, as this surplus is more considerable.
Whenever the private and public consumption of
a nation is inferior to the annual produce of general
labour, the surplus is employed by every class of
labourers in extending their labour, and in increasing
and improving its produce,
The farmer devotes his surplus to augment his
stock of cattle, to bestow more manure and more
labour upon his lands, to inclose and to fence his
fields, to keep in good repairs the buildings destined
to store his produce, and to improve the engines, tools,
and implements of husbandry.
The manufacturer gives a greater perfection to his
machines, bestows more care upon the selection of
raw materials, and, by giving higher wages to his
456
ON THE VARIOUS SYSTEMS
labourers, he makes them work more, and obtains a
larger and a better produce.
The merchant enlarges his speculations, extends
his correspondence, explores new markets, and sells
more.
All these ameliorations can only be effected by
additional labour. But this surplus of simultaneous
labour must be acquired in the first instance through
the existing labourers, and it cannot be obtained but
by offering them higher wages. The first effect of
the annual surplus of income above consumption, or
of the growing wealth of a country, is therefore a
rise in the wages of labour.
This rise in the wages of labour would go higher
every year with the annual surplus, and would be
unbounded, if the number of labourers was not
increased. But it is in the nature of things, that as
soon as a labourer finds his situation rendered com-
fortable by high wages, he seeks to share his comforts
with a wife, and their union is blessed with children
in proportion to their comforts. Thus the dispro-
portion of the number of labourers to the demand
occasions high wages, and these high wages, in their
turn, restore the proportion between the labourers
and labour; and at the end of a certain time, increas-
ing wealth has no other effect than to increase popu-
lation.
If such be the inevitable effect of an annual surplus
left to itself, if it have the double property of raising
the wages of labour and increasing the population,
two inexhaustible sources of wealth and power;
OF POLITICAL ECONOMY,
457
it is much to be deplored, that such salutary effects
are so frequently disturbed, obstructed, or impeded,
by numberless political, economical, and adminis-
trative regulations.
There are then fixed and positive laws which
determine the true proportion of consumption to
income. Whenever private and public consumption
exceeds the national income or the total produce of
general labour, capitals are exhausted, industry pines,
produce is diminished, the wages of labour sink, the
population decays; nations are impoverished, and
frequently leave no vestige of their existence but in
the pages of history and in the monuments of their
ruin.
When private and public consumption is equal
to the produce of general labour, individuals possibly
may not be sufferers, they may enjoy a happy and
tranquil existence, and population and wealth may
even attain some splendour.* But this prosperity is
precarious, dependent on every passing event; the
least shock is sufficient to precipitate such a colossus
from its slender foundation, to destroy the golden
*The author even says: "Et il ne seroit pas étonnant que l
population et la richesse s'élevassent á une très-grande splendeur?”
But if a nation consume exactly as much as it receives, it grows
neither richer nor poorer: and it is difficult to conceive how popu-
lation and wealth can attain any splendour, when they are running
the most imminent risk of retrograding. Wealth cannot be
increased without receiving an addition, and it cannot rise to splen-
dour without being increased.-See Boileau's Introduction to the
Study of Political Economy, page 350.-T.
458
ON THE VARIOUS SYSTEMS
statue resting on feet of clay, to hurl a flourishing
people from the pinnacle of grandeur, and to bend
their necks under the yoke of a conqueror.
Individuals and natious enjoy a solid and permanent
prosperity only when private and public consumption
does not absorb the general income; when the surplus
produce, that is annually accumulated, is not diverted
from its destination by the political constitution of
the country, or the economical and administrative
measures of government, nor concentrated in some
favoured classes, or among a few privileged men; wŁen,
being left to the individual by whom it has been saved,
it augments the sum of labour, raises the wages of
labourers, increases population, developes industry,
multiplies wealth, and places public power on the
immoveable basis of population and wealth.
Adam Smith has inquired whether there be one
kind of consumption more proper, more profitable,
and more favourable to the wealth and power of
nations; and he demonstratively shews, that property,
expended in durable commodities, or in accumulating
goods that have a lasting value, is more beneficial to
private economy, and of course to the increase of
public capital, than that which is expended in com-
modities as frivolous as trinkets and all the trifling
ornaments of our garments and furniture.
It ought, however, to be remembered, that though
it may be advantageous to wealth that the expences of
individuals and nations should preferably be directed
to solid and lasting commodities, it may yet not be
indifferent to the individual character and manners of
OF POLITICAL ECONOMY.
459
nations, and perhaps to the general prosperity of the
world, that the tastes of nations be various, that their
enjoyments be multiplied, and that they be anxious
to partake of the treasures of all soils, and of the
produce of all labour, industry, and commerce. Though
riches are means of prosperity and power, they yet
are not the sole object and end of man in his indi-
vidual and social capacity; and I think it is enough
for political economy to point out the road to wealth;
the care of applying wealth to the uses most con-
ducive to the happiness of individuals and nations
must be left to morals and politics.
460
ON THE VARIOUS SYSTEMS
BOOK VI.
CONCLUSION OF THE WORK.
THE Various systems of political economy, thus ana-
lysed, approximated, and discussed, form a focus of
knowledge which sheds a most brilliant light on the
science, brightens the path into the labyrinth of
public and private wealth, and affords a glimpse of
the end towards which it ought to be directed. The
science has not yet, it is true, attained that degree of
certainty and evidence which precludes all doubts and
controversy among the learned, yet it is sufficiently
advanced to prescribe rules of conduct that no coun-
try can neglect without rendering herself tributary to
the nations by which they are observed, without
losing part of her natural and acquired advantages,
and without descending from the rank which she
ought to hold among other powers.
Political economy is peculiarly entitled to atten-
tion and consideration, because wealth, the sources of
which it studies and investigates, has been, at all
times, among all nations, and under all governments,
the constant object of the desires and ambition, of
the efforts and combinations of all. And is this to be
wondered at? Wealth has always been the basis,
1
OF POLITICAL ECONOMY.
461
and frequently the measure of private regard, of
social distinctions, and of the absolute and relative
power of empires. As wealth, among the people of
antiquity and the middle age, was wrested from weak-
ness by force, from slaves by their masters, from the
vanquished by their conquerors, from a large number
of subjugated nations by a domineering people; as it
was concentrated in one metropolis, and became the
exclusive patrimony of some privileged families, it
proved the direct and immediate cause of the troubles
and disorders which successively agitated the domi-
neering people, of the revolutions which shook their
empire, and of the convulsions which occasioned
their decline and fall. The innumerable calamities
with which wealth was pregnant, have not escaped
the attention of ancient and modern moralists and
politicians, and inspired them with violent prepos-
sessions against it. They imputed to wealth every
vice, every evil, every crime, in which it had shared;
and even went so far as to suppose it incompatible with
good morals, with the stability of empires and the
prosperity of nations.
But the history of modern wealth, far from con-
firming this severe judgment, has refuted its errors
and dissipated its illusions. Created by general labour,
modern wealth has been as productive of prosperity
as that of antiquity and the middle age had been
productive of misfortunes, crimes, and misery. Mo-
dern empires are all indebted to wealth for their inde-
pendence; for the security of their governments; for
the stability of the civil power, that guardian angel
of individual safety, private prosperity, and public
462
ON THE VARIOUS SYSTEMS
liberty; for the progress of sciences and literature´;
for the improvement of the arts, the diffusion of
knowledge, and the immense advantages of general
civilization.
Undoubtedly, such benefits have not been obtained
nor continued for the space of three centuries without
some inconveniency, and without a mixture of errors,
abuses, and excesses. Every thing is abused: but if
such be the condition of the human race, that they
may only pretend to the least unfortunate existence,
it must be confessed that the economical system,
which derives wealth from general labour; which,
through private and individual labour, circulates that
wealth among all the individuals and classes of the
community; which, through commerce, extends its
circulation to all nations, and makes it the basis of
their mutual prosperity and relative power, is much
more favourable to the developement of all faculties,
all talents, all virtues, all social combinations, and
foreign relations, than that which sought for wealth
in violence and oppression, and in the misery of man-
kind; and it is through an obvious mistake that the
two sorts of wealth are assimilated, and accused of
the same effects and the same calamities.
According to the economical system of modern
nations, wealth consists in the surplus of the produce
of the annual labour above the annual consumption ;
and nations cannot grow wealthy but by a great
application to labour and an extreme attention to
economy in consumption.
in consumption. Labour and economy are
the true supports of modern wealth.
Labour creates the elements of wealth, and every
OF POLITICAL ECONOMY.
463
species of labour is eminently possessed of this
faculty: but productiveness is neither the same nor
alike in every kind of labour, and does not always
proceed alike in its developements.
Sometimes it requires but the efforts of a single
species of labour; sometimes it employs the concur-
rence of several kinds; at others, it acts only through
the moral influence of one sort of labour upon the
other. Sometimes the produce of labour exceeds the
wants of the labourers, and sometimes it is only
equivalent to the wages necessary for their support.
Amidst that variety of forms and proceedings under
which the productive faculty of labour displays and
conceals itself, it has not always been distinctly per- .
ceived. Its tract has sometimes been lost, and it has
been excluded from certain labours, or attributed to
others under certain restrictions. The doctrine of
productive and unproductive labour has made much
noise, fills a large space in the history of political
economy, and counts still some partisans; but the
progress of the science has stripped it of all its im-
portance.
Any labour, whatever it may be, contributes phy-
sically or morally to production; it produces, or causes
other labours to produce, more than they would have
done without its concurrence, or without its influence,
and in either of these respects it co-operates alike in
general production. An unproductive labour could
not exist, or could only enjoy a precarious existence.
Every one would be eager to shake off a burthen borne
with reluctance. But labours that are not imme-
464
ON THE VARIOUS SYSTEMS
diately and directly productive, must not be con-
founded with barren and unproductive labours.
Labours that are not productive in themselves, but
through their concurrence with another labour, are as
productive as the labour with which they concur. It
would, indeed, be difficult to deny productiveness to
the labour of the inventor and constructor of a plough,
which procures to the husbandman a harvest tenfold
of what he would have obtained through his sole
manual labour.
The case is the same with labours calculated for
our entertainment, which, by the enjoyments they
afford to the different classes of labourers, induce them
to bestow more attention, application, and care, on
their labours, in order to obtain a more considerable
produce.
Surely the surplus of produce duc to the two men-
tioned kinds of labour, that are reputed barren and
unproductive, is their work, their property, and con-
stitutes them as productive as the labours to which
productiveness is exclusively ascribed. Wealth is
only interested in the totality of produce, and not
in the manner of producing it; and with regard to
wealth, any labour that increases the sum of produce
is necessarily productive.
The erroneous doctrine of unproductive labour
owes its rise to the fear of impoverishing the produc-
tive labours, by their paying wages to other labours.
It has been supposed that such wages being taken
from the funds destined for their support, might
prove prejudicial to the developement of their faculties,
OF POLITICAL ECONOMY.
466
and perhaps impair their strength; but this fear is
imaginary.
All salaries, when paid freely and voluntarily, are
the price of a service requested and received by him
who pays for that service; whether the service be
necessary, useful, or agreeable, is of little consequence;
so long as it is demanded, its price is re-produced by
more labour and a greater re-production. Unless a
nation ruin itself by its diversions, (which is impro-
bable,) it necessarily creates all the produce that is to
pay for the pleasures which it voluntarily provides for
itself. It is even to the necessity of raising its pro-
duce to the level of such salaries that general labour
is indebted for its progress, society for its prosperity,
and private and public wealth for its indefinite ex-
tension.
Far from restraining the developement of the
labours calculated for amusement, they ought to
be favoured, encouraged, rewarded; because this is
the only way of giving them the greatest intensity,
of increasing the population of the country, carrying
wealth to the highest pitch, and attaining the highest
degree of power to which civilized societies can arrive.
It is a delusion to suppose that labours, calculated to
amuse, ought only to be maintained by the surplus of
other labours; they would not exist, if they were to
wait for that tardy and uncertain event; they ought
to precede, to produce this surplus, and use it to re-pro-
duce it and increase its force. Useful labours would
stop at the produce necessary for their support, if
they were not stimulated by amusements; and it is
only by striving to obtain that surplus of labour to
НИ
466.
ON THE VARIOUS SYSTEMS
which amusements give birth, that nations can arrive
at opulence.
Let it not be supposed, however, that all amuse-
ments indiscriminately have the effect of stimulating
productive labours and obtaining a larger produce.
They have this effect only when they are paid freely
and voluntarily; the re-production of its price is the
absolute condition of the free and voluntary request
of the service. When labours are paid by constraint,
it is to be apprehended that their forced wages will
not be re-produced; that they are taken from the
produce necessary for the support of the labours by
which they are paid; that these labours will suffer
from a limited supply of their wants; that production
is diminished in proportion to their privations; and that
wealth, attacked in its source, will be rapidly exhausted.
Except this case, which deserves a peculiar atten-
tion, the price paid for amusements by productive
labour, is the creator of wealth, and can alone insure
its indefinite progression.
The French economists were evidently mistaken,
when they thought that agricultural labours ought to
be encouraged and amusements restricted; and that
nations are more or less provided with the conve-
niencies and necessaries of life according as the num-
ber of those who are employed in useful labour is
proportioned to that of those who are not so em-
ployed. The labours calculated to amuse are pro-
ductive like useful labours, and the produce of general
labour is always in the compound ratio of both. None
therefore ought to be excluded or preferred; they ought
all to be encouraged.
OF POLITICAL ECONOMY.
467
A much more serious difficulty, and the solution
of which is much more important to the progress of
political economy, is to know which kind of labour
is the most productive. All labours are undoubtedly
productive, but they are not all productive in the
same degree. It is therefore useful to determine
which is the most productive.
There is no doubt that the most productive labour
is always that labour, the produce of which is most
abundant, cheapest, and most easily and most gene-
rally sold. Is there any produce eminently possessed
of that quality, and can it be had any where at plea-
sure? I think not. Every country has its peculiar
advantages, which other countries may envy, but of
which it cannot be dispossessed. Were nations rea-
sonable and alive to their true interests, they would all
direct their labour exclusively to the produce which
they can obtain in greatest plenty, at the lowest price,
and which is sure to find a ready sale every where,
because all other countries are deprived of it, or can-
not raise it but at a greater expence and of an inferior
quality. Were the general labour to follow this
direction, wealth would rapidly attain the greatest
possible expansion; all nations would share in it in
proportion to their natural or acquired advantages,
and none would have any reason to complain of its
share when conformable to the nature of things and
founded upon the eternal laws of necessity.
I
But nations are very far from giving to their labours
a direction which would be useful and profitable to
all. Strongly attached to the system of monopolies, of
reciprocal exclusions, high duties, and privileges, they
HH 2
468
ON THE VARIOUS SYSTEMS
impede the circulation of the produce of foreign
labour, even when it is most advantageous; they con-
demn themselves to consume none but the produce of
national labour, though the most expensive, the least
favoured by nature, or least improved by industry;
and they deny themselves the incalculable advantages
which each would find in the exchange of its produce
for the universality of the produce of other nations.
But even when nations persist in this wrong path into
which they have been betrayed by error, they ought
to prefer the labours of manufactures and commerce
to those of agriculture; because manufactures and
commerce are less exposed to chance and more sus-
ceptible of improvement; by varying and multiplying
enjoyments, they offer a gradual encouragement to
agriculture, and have a salutary influence upon general
labour. In investigating the causes of the wealth of
nations, men have been more anxious to determine
the proper and particular effect of each labour taken
separately, than to discover its co-operation with gene-
ral labour. Calculations extremely ingenious have
been resorted to for the purpose of ascertaining the
quantity of the produce of each separate labour, as if
it did determine the sum of wealth; and the circum-
tance has been overlooked, that it influences wealth
only up to its value, which is determined by the com-
petition of all other productions, by the want which
the commodity supplies, and the demand there is for
it. No attention has been paid to the true promoter
of all labours, to the enjoyments which all men
desire, and to the influence 'which these enjoyments
upon labour in
labour in general: on the contrary, amuse-
have
}
OF POLITICAL ECONOMY.
469
ments, to which we are indebted for those enjoyments,
have been stigmatized as unproductive. Men have
flattered themselves with arriving at wealth by priva-
tions sooner than by enjoyments; and the necessaries
of life have been supposed a safer guide than super-
fluities. To commit a greater mistake is impossible,
and how the genius that has carried the torch of light
into the dark recesses of political economy could be
betrayed into this mistake, is inconceivable : but there
are truths which are not perceived before all errors are
dissipated, and which derive the brilliancy of their
evidence from the truths by which they are preceded
and surrounded. Had it not been for the discoveries
derived from particular inquiries into the labours of
agriculture, manufactures, and commerce, and into
useful labours and those that are not so, we should
feel little disposed to believe in their reciprocal influ-
ence upon general labour, and we should reject the
consequence were not its premises demonstrated. Let
us, therefore, beware of arraigning the founders of
the science for not having reached the goal; let us not
forget, that it was they who pointed it out to us, and
that it is only through their assistance that we attain
it; and whilst we reap the fruits of their efforts, let
us pay them that tribute of admiration and gratitude
to which they are intitled.
Though all private labours are contributing to pro-
duction and wealth, they are yet subject to the influ-
ence of several causes which accelerate or retard their
progress, and favour or endanger their success.
In agricultural labours, concentration of labour, or
large farms, increase the power of the farmer, econo-
470
ON THE VARIOUS SYSTEMS
mize the expences of cultivation, and multiply its
produce; in manufactures, on the contrary, the divi-
sion of labour abridges, facilitates, and improves labour.
But in all kinds of labour, the slavery or bondage of
the labourers, apprenticeships, and corporations, which
restrain the choice of labour; and the keeping of wages
below the natural rate, discourage the labourer, cause
labour to languish, and oppo-e an insurmountable
obstacle to the developement of its faculties, to its
prosperity and power; in short, it is on the liberty of
the labourer, on the freedom of selecting his labour,
and on the wages of labour being fixed by competi-
tion alone, that the progress and success of general
labour are depending.
When labour has produced the elements of wealth,
economy superintends their consumption, saves the
surplus of the non-consumed produce, accumulates it,
forms it into capital stock, and seeks the most advan-
tageous employment for this capital. It devotes one
part to procure the raw materials of all labours and
the advances necessary to the labourer, before the pro-
duce of their labour is put up to sale. The funds
applied for these purposes form the circulating capital.
Another part is employed in the amelioration and
enlargement of the existing labours, and in new
undertakings, and the funds thus directed to the
increase of labour form the fixed capital. A third
and last part is reserved for extraordinary consump-
tions, occasioned by the unforeseen necessities of
private individuals and governments, and these funds
form the reserved capital stock which is absorbed by
private or public loans; so that all the produce which
OF POLITICAL ECONOMY.
471
economy saves from ordinary consumption, returns
into circulation by extraordinary consumption, which
restores the equilibrium between consumption and
production.
Some philosophical inquirers are afraid of the share
which economy necessarily has in the formation of
wealth. The term economy, which the vulgar con-
founds with avarice, and constantly connects with
notions of privation, makes them suppose that wealth
is obtained only by privations; and hence they dis-
dain riches as too painful and difficult to acquire: but
their error arises from the wrong idea they attach to
the word economy. In its proper signification, it
merely means order, moderation, and the proper
direction of necessary, useful, and even agreeable
expences; a vigilant severity against profusion and
prodigality, and a just proportion between the ordi-
nary expenditure and the ordinary income. The dif-
ference between avarice and economy is striking: the
miser, like the economist, saves the surplus of his
produce above his consumption: but the miser con-
verts that produce into precious metals, which he
buries under ground, and which, from that instant,
become useless to him and to all others; the econo-
mist, on the contrary, employs that surplus in more
extended labour, the produce of which he shares with
the labourers.
The economist is, therefore, as useful to his fellow-
creatures as the miser is useless and detrimental to
them; and wealth is as much indebted to the wise
moderation of the former, as it suffers by the mise-
472
ON THE VARIOUS SYSTEMS
rable parsimony of the latter. It is certain that, with-
out economy, there is no capital stock; and without
capital there is no improvement or increase of labour,
and no resource for the unforeseen necessities of indi-
viduals and nations.
Some very enlightened philosophers think that
the unforeseen necessities of individuals and nations
ought to be preferably supplied out of the produce
destined for ordinary consumption: but experience
has shewn that it is much wiser to supply them at first
from the stock accumulated by economy and reserved
for extraordinary expences; and barely to levy upon
the stock destined for ordinary consumption a slight
tax, which, being continued for a long space of time,
suffices to pay the interest due to the capitalist, and
to extinguish the capital by means of a sinking fund.
This way of providing for extraordinary exigencies
leaves to labour all its resources, all its faculties, all
its power; the produce of which the labourer is
stripped by the tax, is probably recovered by greater
efforts, attention, and activity; and the tax thus
proves a clear gain to the state; or if the times be so
hard, that the tax cannot be recovered by more
labour and a greater economy, its burthen will be
lighter for being laid on for a greater number of years
and for absorbing a smaller quantity of the funds
necessary to re-production.
In short, the system
founded upon the extinction of public debts by means
of a sinking fund, has generally prevailed, and pro-
mises still greater success, should governments apply
it to all extraordinary expences beyond the regular
OF POLITICAL ECONOMY.
473
expenditure of the public service. The utility and
advantages of such a plan shall be developed some-
where else.
Finally, theorists are not yet agreed concerning the
most useful employment of capital. The most gene-
ral doctrine is that it ought to be preferably applied
in agricultural labour: but I do not think this theory
well founded. The prosperity of agriculture is neces-
sarily subordinate and dependent on the progress of
manufactures and commerce; to begin by creating an
abundant agricultural produce before the existence of
the industrious classes, by whom it is to be consumed,
is to invert the natural order of things.
The most usefully employed capitals, and the most
profitable labours, are those which are devoted to
manufactures and commerce.
In the very dawn of political economy, the influ-
ence of commerce upon wealth was better felt than
known, more praised than studied, more admired
than investigated. It was supposed that a country
grows rich in proportion to the quantity of gold and
silver accumulated by a favourable balance of foreign
trade. This system is at present so discredited, that
it must be regarded as an antiquated error, barely
worthy of being mentioned in the history of the
science.
The French economists, who first discovered this
fallacy and successfully attacked it, had not, however,
any much more correct notions of commerce. They
limited its power to the conveyance of the produce
of labour from the producer to the consumer, and to
the fixing of its value by general competition. To
474
ON THE VARIOUS SYSTEMS
reduce,commerce to a material, and, as it were, mecha-
nical conveyance of goods, is stating only part of its
functions, undervaluing its services, confining its
influence, and misunderstanding its true property.
This depreciating system has met with but an epheme-
ral success, and can only mislead those who em-
braced their doctrine with too much credulity or too
much levity.
Adam Smith has rendered an important service to
that part of the science, not only by refuting the
errors with which it was obstructed, but particularly
by ascertaining the fundamental principle of com-
merce, its direction, its effects, and its results. In
his opinion, commerce began by the exchange of the
produce which the producer could not or would not
consume, for another produce that was more agreeable
to him, or that better suited his conveniency. This
first exchange led all producers to perceive that the
interchange of the produce of their private labour
afforded the means of selecting, among the productions
of general labour, those which they thought it most
advantageous or most gratifying to consume. In pro-
portion as this truth was generalised by experience,
any labour was considered as a branch of general
labour, any produce as a portion of the universal
produce, and the total mass of produce as the stock
of general consumption. By circulating the produce
of labour from the country to the towns, from the
towns to distant nations, and from every part of the
globe throughout the world, individuals, hordes,
tribes, communities, and nations, shared in the advan-
tages of all climates, of all soils, of all countries, of
OF POLITICAL ECONOMY.
475
all manufactures, and the inhabited world became, in
the eyes of the philosophical observer, an extensive
work-shop, a grand manufacture, where the industry
of men prepares all objects of consumption, and an
immense market where mankind supply their wants.
Such is the origin and such the end of the commercial
system conceived by Adam Smith.
This system would be perfect and would form one
of the most beautiful parts of political economy, had
not Adam Smith derived it from causes unconnected
with and absolutely independent of it.
Adam Smith thought that commerce, by receiving
its impulse and motion from the interchange of that
produce which the producers will not or cannot con-
sume, depends on these labours, on their increase, on
their progress, and on their success. Hence he
assigned to commerce a rank inferior to that of all
other productive labours, and unconsciously made it
descend from the eminent rank to which he had ele-
vated it. His error is so much the more to be
deplored, as, by stripping commerce of the conside-
ration which is its due, it impedes its success and its
prosperity.
Commerce undoubtedly owes its existence to the
interchange of the produce which the producers will
not or cannot consume: but this interchange is only
effected by commerce, by the capital, the talents, and
the genius of merchants. Commerce is not only the
instrument of the interchange of commodities; it is
its promoter, its instigator, and frequently its sole
cause. It is by constantly exhibiting to all producers
fresh enjoyments, by exciting their desires, flattering
J
476
ON THE VARIOUS SYSTEMS
their taste, or gratifying their appetite, that com-
merce stimulates them to labour, developes their
industry, keeps them in continual activity, and forces
them as it were to augment the mass of their produc-
tions, and to give them infinite variety and the highest
degree of perfection. Far from being the mere
instrument of productive labours, and entitled to rank
only after them, commerce is the agent of general
production, diffuses its benefits by the equivalents
which it affords to every producer in exchange for
his produce, and deserves to be considered as the
most bountiful source of public and private wealth.
It matters little whether the interchange be more
favourable to one of the parties than to the other;
they both recover, in the equivalent which they
receive, whatever the equivalent they give cost them.
Were it not for this condition, the interchange would
not take place at all, or would soon cease. The inter-
change between fellow-subjects, as well as between
natives and foreigners, can never be detrimental to
any one; and the least favourable exchange still yields
an agreeable commodity for one that is not so: it is
therefore the interest of all nations to protect, to encou-
rage, to favour commerce. It keeps the mass of
wealth up even when it does not augment it; and it
prevents the decline of national wealth, even when it
cannot effect its increase. The obstructions, restraints,
and prohibitions, to which commerce has almost
always been exposed, with the view to save it from
the losses that were apprehended, or to obtain greater
benefits from it, are false measures, fatal alike to pube
lic and private wealth,
OF POLITICAL ECONOMY.
477
Commerce, however, cannot pervade the whole range
of exchanges but by means of an equivalent which suits
every one, and which every one prefers to the pro-
duce he wishes to exchange. A gold and silver currency
is eminently possessed of this prerogative, and it owes
it neither to the conventional agreement of mankind
nor to the authority of governments, but simply to the
valuable qualities of the metals of which it is com-
posed: no other value can supply the place of a me-
tallic currency, because no other commodity possesses
the properties which money requires.
When the monetary equivalent is of gold and sil-
ver, when its numeric or nominal value approximates
as near as possible its commercial value, and when
its divisions are in an exact proportion, all the opera-
tions of commercial interchange are easy and safe,
and commerce may securely indulge in its combina-
tions, speculations, and enterprises.
It is not even necessary that the metallic. money
should be the actual instrument of the commercial
interchange; it is faithfully represented, and its place
is frequently successfully supplied by credit. This is
the reason why banks, which, after all, do nothing
but liquidate and extinguish by compensation the
demands of commercial credit, employ so little money
in proportion to the vast extent of their operations.
The case is not the same with public and private
credit. Both terminate almost all their operations,
and cannot extinguish their engagements but with
the help of money. Great care ought to be taken
not to apply to these two kinds of credit measures
which are so beneficial and so well appropriated to
commercial credit.
478
ON THE VARIOUS SYSTEMS
The success of every kind of credit depends also
on the freedom of stipulations, and on the facility
and certainty of their performance. Both the private
and public interest are little consulted, when through
a misplaced pity the debtor is favoured to the pre-
judice of the creditor, and when a failure in public or
private engagements is considered as a mere transitory
evil without any influence on general prosperity.
Whatever injures either commercial or public and
private credit, stops the circulation of capital, causes
money to be hoarded, paralyses the interchange of
the produce of labour, restrains production, and leaves
labourers without work. Credit ought not to be placed
under the protection of justice or loyalty; it is the
interest of public and private wealth which ought to
be its safeguard.
Assisted by a gold and silver currency, by credit
and banks, commerce encounters no obstruction but
the difficulty of taking the direction most beneficial
and most favourable to the progress of wealth. Is the
preference to be given to the home-trade before the
foreign trade of consumption? This is one of the
most controverted, and, no doubt, one of the most
important questions of political economy.
Reason seems to counsel that interchange of produce
which affords most enjoyment to all parties and insures
them the most profitable equivalents. The foreign
trade of consumption combines these two advantages
in a greater degree than the home trade.
The home trade affords to the natives none but
ordinary, common, and almost identical productions,
little calculated of course to excite desire, to flatter
taste, and to gratify fancy. It does not go beyond
OF POLITICAL ECONOMY.
479
those wants, the extent of which is extremely limited,
and consequently never can produce wealth, which
consists in what is superfluous.
The foreign trade deals less with what is wanted,
than with what is superfluous. In exchange for the
home-produce, it affords the productions of all coun-
tries, which, from their variety, their novelty, and
their quantity, prove more attractive, lay stronger
hold of the imagination, and promise greater enjoy-
ments; and it is by the continual offer of these
enticing commodities that foreign trade keeps all
labours in constant activity, favours their progress,
obtains a larger produce, increases its surplus, and
continually augments the mass of wealth.
The home-trade imparts to the national produce a
value but nearly equal to what its production has
cost; and as, in all countries, the faculties of labour
are almost uniform, because they are limited by the
climate, the state of industry, the wisdom of the
laws, and the knowledge of government, they give
few advantages to certain labours over others. Thus
it is not easy for individuals to grow rich, and almost
impossible for the state to rise to opulence.
The case is not the same with regard to foreign
trade. The national produce is always sold at the
highest price, and the foreign produce purchased at
the lowest, for this simple reason; the produce of the
labour of one country is exported to another, only
because it fetches a higher price in the country into
which it is imported, than in the country from which
it is exported. The foreign trade therefore constantly
imparts the greatest possible value to the home-pro-
480
ON THE VARIOUS SYSTEMS
duce. For an opposite reason, the foreign produce is
always bought at a low price, since it is its cheapness
that induces it to be imported. From this continual
vibration of the balance of foreign trade, private indi-
viduals must of course derive great opportunities of
making their fortune, and it becomes an inexhaustible
source of wealth for the state.
pro-
But perhaps I shall be asked, how it happens that
the foreign trade sells dear and purchases cheap with-
out any loss accruing to either country? This phe-
nomenon is explained by the nature of things, by the
greater or smaller fertility of different climates, by a
more or less advanced state of industry, arts, and know-
ledge, and by the predominant or inferior wisdom of
laws and governments, in short, by the concurrence
of all the causes which accelerate or retard the
gress of civilization in any country. The produce
exported from a country, because it is cheap in that
country, owes that advantage merely to the circum-
stance that the climate is more favourable to its pro-
duction, that industry has made a greater progress,
that capitals are cheaper, that the laws are better
adapted to the faculties of labour, or that government
has adopted better measures for the circulation of its
produce abroad and at home. It is to all or to some
of these advantages that any country is indebted for
the superiority of its produce over that of other coun-
tries, and it is to the attention of commerce to pur-
chase only the favoured produce of a country, that all
countries are indebted for the advantage of selling dear
and purchasing cheap, without any loss accruing to
any country. All, on the contrary, are gainers of the
OF POLITICAL ECONOMY.
481
difference between high and low prices, or rather all
share in the favours which nature has showered upon
various climates, and in the advantages which industry
has procured to certain countries; and it is from the
very inequality of this share, that all countries derive
the most powerful means of wealth and opulence.
The calculations of Adam Smith to give the preference
to the home before the foreign trade, though ever so
ingenious, cannot overturn a theory founded on the
nature of things, on the experience of ages, and on
the general opinion of all nations and all governments.
But how and by what method ought the foreign
trade of consumption to be conducted? by privileged
companies, by a colonial monopoly, or by commercial
treaties stipulating exclusion, or more or less favour?
All these methods, which time and custom have
recommended, are not more commendable for it; and
it will constantly be true, that the trade which is not
carried on upon principles of liberty and equality is
the least profitable, and that a nation loses, in the
branches which it is forced to abandon, whatever is
gained in those that are preferably or exclusively cul-
tivated. The balance of profits is always tending to
an equilibrium, or at least it vibrates only in favour of
the best and cheapest produce. What pains mankind
might have spared themselves, had they known that
the freest trade is always the most useful, and that its
profits are certain and permanent only as far as they
are not a loss to any one! Such is ultimately the true
object of the commercial system.
After the produce of the annual labour of every
country has been reduced to its true value by its inter-
↓
I I
482
ON THE VARIOUS SYSTEMS
change with the produce of all countries, it has no
longer any influence upon wealth but with regard to its
distribution and consumption.
The national produce is distributed to the land-
owners in the shape of rents, to the capitalists as
profits of stock, and to all those who participate
directly or indirectly in labour in the shape of wages.
This distribution is more or less favourable to the
progress of public and private wealth, according as
stipulations in all private contracts are more or less
free, and more or less faithfully performed. All mea
sures that alter the direction of this distribution, that
infringe upon its natural proportions, that, either
directly or indirectly, raise or lower the rent of land,
the profits of stock, and the wages of labour, oppose
more or less obstacles to wealth, and may even prove
absolutely fatal to its existence.
Independently of the distribution of the produce of
labour to the land-owners, the capitalists, and the
labourers, a certain portion must be taken from this
produce for government and the servants of the state;
which portion also has a great influence upon wealth.
I have developed its principles, its effects, and its
results, in my work on the Public Revenue *.
The consumption of the produce allotted to each
individual by the rents of land, the profits of stock,
and the wages of labour, is subject to two laws, which
* Should the present work on the various systems of political
economy be favourably received in its English dress, no exertion
shall be spared to procure the Essay on the Public Revenue which
is here alluded to, and to give a faithful translation of it.-T.
OF POLITICAL ECONOMY.
483
are still controverted, but the wisdom and utility of
which are obvious.
1. The consumption of the annual produce must be
inferior to the total quantity of that produce. Eco-
nomy ought to save part of it for the support and
increase of capital stock, for unforeseen wants, for a
progressive population. This saving acts as a safe-
guard against the blasts of fortune, and is a certain
pledge of grandeur and prosperity.
To suppose, with some authors, that consumption
is the measure of production, is a fallacy. Undoubt-
edly, whatever is not consumed, is not re-produ-
ced: but all that is consumed, is not always re-pro-
duced. If to produce, it were enough to consume,
wealth would be the lot of all men and of all nations ;
for all have the power, and, most assuredly, the will to
consume: but as no one can consume any commodity
without giving an equivalent for it to the producer,
it follows evidently that consumption is re-produced
only up to the equivalent which it leaves behind;
it therefore is not the necessary and absolute law
of production, it is only its uncertain and indeter-
minate cause, against which there is no possibility
of guarding but by limiting and restricting it below
production.
This restriction is not so difficult as is commonly
supposed; it takes place of itself, and by the sole
force of things. Hence luxury, that subject of so
many moral, political, and economical contentions,
has so little importance in the economical system of
modern nations.
In this system, the laborious classes cannot main-
I I 2
484
ON THE VARIOUS SYSTEMS
tain themselves without re producing the equivalent
of their consumption; they consequently cannot
addict themselves to luxury without endangering their
existence; and the magnitude of the danger prevents
their exposing themselves to it.
The classes that live upon the rents of land and
profits of stock cannot easily be ruined by luxury;
its greatest excesses attack only a few private fortunes,
and gives little concern to national wealth; luxury
may even, in some degree, be favourable to national
wealth, because it encourages the labouring classes, by
increasing their means of labour, economy, and for-
tune; by admitting them to share in the profits of
stock and rents of land, and by affording them an
opportunity to rise into the rich and idle classes.
This mixture of classes is perhaps not advantageous to
certain political systems. Aristocratical states and
even some monarchical governments may feel its dan-
gerous effects, and be shaken by it: of this, modern
history affords more than one instance; but wealth
is no sufferer by it, on the contrary, it may even
derive great advantages from such a mixture.
would be interesting to investigate, whether aristocra-
tical and certain monarchical states can do without
wealth, resist its influence, or turn it to their safety:
but it would require a volume to do justice to the
inquiry; and I have but a few lines to add to my
observations on the theory of wealth.
It
But although the consumption of the produce allotted
to private individuals is of little consequence to wealth,
the case is not the same with regard to that portion of
produce which constitutes the public revenue. As
OF POLITICAL ECONOMY.
485
it is taken from private income, and almost entirely
consumed without leaving any equivalent after its
consumption, it must be proportioned to the surplus
of produce left to individuals after their necessary
and indispensable consumption; otherwise it would
exhaust private savings, arrest the progressive increase
of capitals, render wealth stationary, and perhaps
occasion its decline and ruin.
As long as the consumption of public and private
revenue does not absorb the totality of the produce of
general labour, wealth is progressive, nations prosper,
and empires are advancing to the highest degree of
power and splendour.
2. Consumption is more or less useful to the
progress of wealth, according as it is directed to solid
and lasting enjoyments, or to caprices and fancies,
which leave no value behind. When, in seeking for
the pleasures of life, men have a taste for conveni-
encies and comforts, consumption conveys even to
the abodes of mediocrity the advantages and enjoy-
ments of opulence; the garments and household fur-
niture which have served the rich, scrve again the
less fortunate classes; and the enjoyments of wealth
are, as it were, communicated to the whole nation.
How far it is possible to inspire a nation with that
desirable disposition, is not easily ascertained: but
nothing can more powerfully contribute to it, than the
encouragement given to manufactures more useful than
elegant, more within the reach of the multitude than
reserved for the opulent classes, more calculated for
the wants of all than for the fancy of a few. As
wealth is created through the labour of the multitude,
486
ON THE VARIOUS SYSTEMS
it also derives its greatest means of increase from the
conveniencies, from the pleasures, and even from the
enjoyments of the multitude.
In the economical system of modern nations, gene-
ral labour is the spring of wealth, and general economy
the only way of increasing the funds and the resources
of labour, of developing its power, its faculties, and
its genius, and of giving it a constant and unlimited
progression. The general interchange of the produce of
labour, by affording to the labouring classes new, varied,
and inexhaustible enjoyments, stimulates their activity,
excites their industry, encourages their efforts, and raises
their efforts to the highest degree of energy and intensity;
and the extent of a more or less beneficial consumption
of the totality of productions extends or narrows the
bounds of wealth and opulence.
it
Wealth, in the modern system of political eco-
nomy, is the work of all men, of all nations, and, as
were, of the whole human race; the reward of all
individual efforts, and the end of private and general
ambition. When all are rushing to the same end, the
rights of all are respected, the interests of all attended
to, and the conveniencies of all consulted. All
advance by the side of each other without elbowing,
without injuring, without crushing each other. All
are benefited by their reciprocal efforts, and all owe
their successes to their general co-operation. To this
admirable system civilization is indebted for its pro-
gress; and when better understood, it will prove its
most vigilant safeguard and its firmest support.
ANALYTICAL INDEX
OF THE
CONTENTS.
PLAN OF THE WORK.
Various defuitions of Wealth, 2; Sources of Wealth, 4; Mean
of contributing to the increase of Wealth, 5. The variety of
Systems has produced Incredulity and Superstition, 6. Affinity
of Political Economy with the science of Government and Legis-
lation, 8. Civilization connected with the study of Political
Economy, 12. Division of the Work, 13. Introduction: on the
nature of Wealth, 15; the passion for Wealth is universal, 18;
it is the promoter of Industry, 19; it originally caused Domestic
Servitude and Civil and Foreign Wars, 21; among the Per-
sians, 23; Spartans, 24; Athenians, 25; Carthaginians, 26;
Romans, 27; nations of the Middle Age, 30; Arabs, 32.
Among the Moderns the passion for Wealth has been directed to-
wards Labour, Industry, and Commerce, 34; at Venice, Genoa,
Pisa, Florence, in the Hanseatic Towns, the Cities of Spain,
France, and Germany, 35; among the Portuguese and Spaniards in
Hindostan and America, 36. Different influence of modern and
ancient Wealth, 38. Conclusion of the Introduction, 50.
BOOK I.
VARIOUS SYSTEMS CONCERNING THE SOURCES OF
WEALTH.
The Mercantile System, 52; the Monetary System, 58; the System
of lowering the rate of Interest, 60; the Agricultural System,
63; the System of Labour that fixes and realizes itself in a per-
manent object, 67; the System of the permanent and necessary
equilibrium of Wealth and Poverty, 68: these various Systems
reconciled, 70.
488
ANALYTICAL INDEX.
BOOK II.
OF THE VARIOUS SYSTEMS CONCERNING LABOUR.
Introduction, 73.
CHAP. I.
The productiveness of Wealth is not exclusively reserved to one sort
of Labour, 74;
CHAP. II.
Nor peculiar to some Labours, but common to all, 87.
CHAP. III.
Agricultural Labour is not the most productive of labours, 92;
it limits Accumulation, 94; the distribution of its produce holds
out few encouragements to Industry, Sciences, Arts, and Com-
merce, 95; its produce is insufficient to supply the wants of a
great political power, 96. The Labours of Industry and Commerce
are preferable, because they are susceptible of great subdivision,
give a considerable impulse to general Labour, and favour Accu-
mulation, 103. The resources of Agriculture compared to those
of Manufactures and Commerce, 108: the superiority of the
latter proved by Ilistory, 109; by the authority of Adam Smith,
110; by their mutual advantages and inconveniences, 112.
Manufacturing and trading nations have nothing to fear from the
progress of Industry and Commerce among agricultural nations,
117: their Manufactures and Trade are rather extended by it,
120. Manufactures and trade can alone confer great politica!
power, 126.
CHAP. IV.
The causes which invigorate Labour, are: 1, the division of Labour
in Manufactures, 130; 2, its concentration in Agriculture, or
large farms, 137; 3, and the introduction of Machines, 139.
CHAP. V.
Obstacles to the progress of Labour, are: 1, the slavery of the
Labourer, 145-6.
CHAP. VI.
2. Apprenticeships and Corporations, 154.
CHAP. VII.
3. And Combinations, which lower the wages of Labour below
their natural rate, 158. Conclusion of the Second Book, 181.
ANALYTICAL INDEX.
489
BOOK III.
OF THE VARIOUS SYSTEMS RESPECTING CAPITAL.
CHAP. I.
Wherein do Capitals consist? 162; in Metallic Currency, in the
advancement of Agriculture, or in the first materials of all Labour,
Improvements of the soil, &c. ibid; in the Instruments and Ma-
chines proper to shorten and facilitate Labour, or in the acco-
mulation of the produce of Labour? 163.
CHAP. II.
How are Capitals formed? 165; by economy in the costs of Agri-
cultural Labour, and by the increased price of commodities
through Foreign Trade, ibid; or by the proportion of produc
tive to unproductive Labour, 167; or by economy in Consump-
tion? 168.
CHAP. III.
:
How are Capitals employed? 182: to what kind of Capital does
the Metallic Currency belong? 186 is Paper Credit a part of
Capital? 194. Of the hoarding of Money, 196. Of Capital lent
out at interest, 199. Does the rate of Interest depend upon the
plenty or scarcity of Metallic Currency? 202: is it to be fixed
by Law? 203: is the lending of Capital at Interest profitable or
detrimental to National Wealth? 208. Of Public Loans, or
National Debts, ibid: of a Sinking Fund, 214.
CHAP. IV.
Of the influence of Capitals on the progress of Public Wealth,
230; it is greater or smaller according as Capitals are employed,
231. Which mode of employing of Capital is most favourable to
the progress of Wealth? 233.
CHAP. V.
Of the Profit of Stock, 244: of the causes which regulate that
Profit, 245.
CHAP. VI.
Conclusion of the Third Book, 217,
490
ANALYTICAL INDEX.
BOOK. IV.
OF THE VARIOUS SYSTEMS RELATING TO THE CIRCULATION
OF THE PRODUCE OF LABOUR BY MEANS OF COMMERCE.
Introduction, on the importance of Commerce, 249.
CHAP. I.
Of the causes of the Circulation of the produce of Labour, 253.
CHAP. II.
Of the Value of the Produce of Labour, 255: this Value is regu-
lated, 1st, by the wants of the Consumers and their means of sup,
plying them, 256; 2dly, by the demand for Commodities, and
their abundance or scarcity, 257; 3dly, by Labour, 258; 4thly,
by Land and Labour, 259; 5thly, by the value of Man, 260.
There is no invariable Standard of Value, 264. Money and
Corn are not better calculated than Labour to fix the Value of
things for distant times, 268: there is no fixed Value of things
but up to what their production has cost, 270: beyond this the
Profits on Productions of Labour are unequal, 271: this inequa
lity of Profits is indifferent with regard to the Iome-Trade, 272 :
it is not injurious in the exchange of Home for Foreign produce,
273; except in one particular case, 278.
CHAP. III.
Of the influence of Money and Credit upon the circulation of the
Produce of Labour, 286. Different kinds of Money, 287:
objects of every Monetary System, 288: obstacles which it
encounters: 1, in the nature of things, 289; 2, in the confused
notions of its own nature, 290. What is Money? 295. Is a
Seignorage on Coin advantageous? 297. Is either Gold or Silver
alone to be admitted as Money? 300. Is there a known and
fixed proportion between Money and the Produce which it is
to circulate? 303. Is the abundance of Money favourable or
indifferent to the progress of Wealth? 306. Is a Gold and
Silver Currency necessary to the formation of Wealth? 312.
Does its plenty contribute to the progress of Wealth? 314.
CHAP. IV.
Of Credit and Banks, 319; what is Credit? ibid: three sorts of
Credit, 322: 1, Commercial Credit, ibid. Of the liquidation of
ANALYTICAL INDEX.
491
Commercial Credit by setting off or compensating one debt against
the other, 326, Of Deposit Banks, 329; Bank of Venice, ibid;
Bank of Genoa, or Bank of St. George, 332; Bank of Amster.
dam, 334; Bank of Rotterdam, 337; Bank of Hamburgh,
ibid. Of Banks of Circulation, 338: Bank of England, ibid;
its nature, 340; its extent, 342; its advantages and inconveni-
encies, 346. Number of Banks of that kind in England, 349.
The amount of Commercial Debts liquidated with Bank-notes,
350. Is an abundant Paper Currency favourable to the progress
of Wealth? 351. Of the Banks of Circulation that have
existed in France, 352: Mr. Law's Bank, 353; Discounting
Bank (Caisse d' Escompte), ibid; Bank of Current Accounts,
354; Commercial Bank, 355; Manufacturers' Bank, ibid;
Land Bank, ibid; Bank of France, 356. Which of the two
kinds of Banks is most favourable to the progress of Wealth,
368. 2. Private Credit, 371: Banks of Circulation of no use
to it, 372. Private Credit has made little progress, because it
is opposed by most Religions, 373. The law fixes the rate of
Interest, and favours the Debtor, 374. 3. Public Credit, and
wherein it resembles Commercial and Private Credit, 378.
CHAP. V.
Which Trade is the most beneficial to National Wealth? 381.
Opinions in favour of Foreign Trade, 382; in favour of the
Home Trade, 384: Foreign Trade is the most conducive to
National Wealth, 386. Of the different methods of carrying on
the Foreign Trade of a Country, 398.
CHAP. VI.
1. of Corporations and privileged Companies, 398; this method of
trading is prejudicial to Wealth, 399.
CHAP. VII.
2. Of Modern Colonies, 404: their difference from the Colonies
of the Antients, ibid. This mode of trading is beneficial, and has
been of great service, with regard to population, 405; to capitals,
406; and to Public and Private Wealth, 410. Have Nations
with Colonies shared more largely in these advantages than
Nations that have no Colonies? 411. Of Colonial Monopoly,
413; it is of no advantage to monopolizing Nations, 417,
492
ANALYTICAL INDEX.
63
CHAP. VIII.
3. Of Treaties of Commerce, 417; when are they beneficial? 418.
CHAP. IX.
Of Exchanges, and the Balance of Trade, 419: Balances of
Exports and Imports are neither certain nor positive, 420.
The subject of Exchanges is involved in still more inaccu
racy and obscurity, 421. Difference between the Balance of
Foreign Commerce and that of the Home Trade, 423. Is there
any certain way to know the state of the Home Trade? 426.
CHAP. X.
Conclusion of the Fourth Book, 428.
BOOK. V.
OF THE VARIOUS SYSTEMS CONCERNING THE NATIONAL
INCOME AND CONSUMPTION.
CHAP. I.
Of the National Income, 431. Is there any difference between
National and Private Income? 432: they are one and the same
thing, 434. Of the distribution of the National Income, 437.
CHAP. II.
Of Consumption, 442: ought it to be equal to the Income? ibid.
Of Luxury, 446; among the Ancients, ibid; in the Middle Age,
447; in Modern times, 448. Is Consumption the cause or the
effect of Wealth? 451. Are some kinds of Consumption more
or less favourable to Wealth? 458.
BOOK VI.
Conclusion of the Work, 460.
70
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