THE UNIVERSITY 
 
 OF ILLINOIS 
 
 LIBRARY 
 
 v.Z8 

 
 If* 
 
 t 
 
 THREE LECTURES 
 
 THE COST OF 
 
 OBTAINING MONEY, 
 
 AND ON SOME EFFECTS OF 
 
 PRIVATE AND GOVERNMENT PAPER MONEY; 
 
 DELIVERED BEFORE THE UNIVERSITY OF OXFORD, 
 IN TRINITY TERM, 1929. 
 
 By NASSAU WILLIAM SENIOR, A.M. 
 
 LATE FELLOW OF MAG. COL., PROF. OF POLITICAL ECON. 
 
 LONDON: 
 JOHN MURRAY, ALBEMARLE-STREET. 
 
 MDCCCXXX.
 
 Printed by William Clowes, 
 Stamford Street.
 
 ADVERTISEMENT. 
 
 The statute by which the Professorship of Political 
 Economy was founded, requires the Professor to publish 
 a Lecture every year. In compliance with this requisi- 
 tion, I have selected, from the course delivered in June 
 1829, the portion which appeared to me least unfit for 
 separate publication. As a fragment it is necessarily 
 imperfect : my apology for presenting it to the Public is, 
 the necessity imposed on me by the statute. 
 
 N. W. SENIOR. 
 
 Lincoln's Inn, 
 January 15, 1830.
 
 LECTURE I. 
 
 ON THE COST OF OBTAINING MONEY. 
 
 The average annual wages of labour in Hindostan 
 are from one pound to two pounds troy of silver 
 a year. In England they are from nine pounds 
 to fifteen pounds troy. In Upper Canada and 
 the United States of America, they are from 
 twelve pounds troy to twenty pounds. Within 
 the same time the American labourer obtains 
 twelve times, and the English labourer nine 
 times as much silver as the Hindoo. 
 
 The difference in the cost of obtaining silver, 
 or, in other words, in the wages of labour in silver, 
 in different countries at the same period has 
 attracted attention, though not perhaps so much 
 as it deserves, and various theories have been 
 proposed to account for it.
 
 2 ON THE COST OF 
 
 It has been attributed to the different degrees 
 of labour requisite to obtain the necessaries of the 
 labourer. In Hindostan it has been said, he 
 requires little clothing- or fuel, and subsists on 
 rice, of which he obtains a sufficient quantity with 
 little exertion. But how then do we account for 
 his wages in North America being twenty-five 
 per cent, higher than they are in England, while 
 the labour requisite to obtain necessaries is not 
 much more than half as great in the former 
 country as in the latter ? How do we account for 
 the low amount of wages in silver in China, where 
 the labour necessary to obtain necessaries is pro- 
 verbially great ? 
 
 It has been attributed to the different densities 
 of population. In Hindostan and in Ireland, it 
 has been said, labourers multiply so rapidly, that 
 the market is overstocked with labour, and the 
 price fails from the increased supply. But if this 
 were an universal rule, as the population of Eng- 
 land has doubled in the last seventy or eighty 
 years, wages ought to have fallen, whereas they 
 have doubled or trebled in that interval. They 
 have kept on increasing in North America during
 
 OBTAINING MONEY. 3 
 
 a still greater increase of population. They are, 
 perhaps, twice as high in Holland as in Sweden, 
 though the population of Holland is ten times as 
 dense as that of Sweden. 
 
 It has been attributed to the different pressure 
 of taxation : but taxation is nowhere so light as in 
 America, where wages are the highest. It is, 
 probably, heavier in Hindostan than in England, 
 yet wages are nine or ten times as high in Eng- 
 land as in Hindostan. So that it might seem 
 that wages are highest where taxation is lowest : 
 but, on the other hand, taxation is lighter in 
 France than in England, yet wages are lower, 
 and lighter in Ireland than in France, yet wages are 
 lower still. It appears, therefore, that there is no 
 necessary connexion between taxation and wages. 
 
 It has been attributed to the different rates of 
 profit. The average rate of profit in England is 
 supposed to be about one-tenth, or about eleven 
 per cent, per annum. In Hindostan and America 
 it is higher. We will suppose it to be one-sixth, 
 or twenty per cent, per annum, which is probably 
 far too high an estimate. This difference would 
 account for the labourer, whose wages have been 
 
 B 2
 
 4 ON THE COST OF 
 
 advanced for a year, receiving- nine-tenths of the 
 value of what he produces in England, and only 
 five-sixths in America and Hindostan, or rather is 
 only a different expression of the same fact, but 
 it does not afford even a plausible solution of the 
 present question. 
 
 If the difference in wages were solely occasioned 
 by a difference in the rate of profit, whatever is 
 lost by the labourer would be gained by the capi- 
 talist, and the aggregate value in silver of a com- 
 modity produced by an equal expenditure of 
 wages and profits, or, in my nomenclature, by an 
 equal sum of labour and abstinence, would be 
 every where the same ; and in that case, how 
 could both wages and profits be higher in North 
 America than in England ? 
 
 Taking North America as the standard, and 
 that the value in silver of the produce of a year's 
 labour of one man, his wages having been ad- 
 vanced for a year, is two hundred and eighty 
 ounces of silver, the value in silver in Hindostan 
 and in England, of the produce of a year's labour 
 of one man, his wages having been advanced for 
 a year, would also be two hundred and eighty
 
 OBTAINING MONEY. 
 
 ounces, and as the labourer receives only twenty- 
 four ounces of silver in Hindostan, and only one 
 hundred and eighty ounces in England, the Hindoo 
 capitalist must receive, on the sum advanced by 
 him in payment of wages, a profit of more than 
 two hundred and fifty-six ounces, or above one 
 thousand per cent, per annum ; and the English 
 capitalist more than one hundred ounces, being 
 more than sixty per cent, per annum, which we 
 know to have no resemblance to the fact. If my 
 statements and suppositions as to the average 
 wages of labour, and the average profits of capi- 
 tal in England, Hindostan, and America be cor- 
 rect, a commodity unaffected by any monopoly 
 produced by the labour of one man for a year, his 
 wages having been advanced for a year, must sell 
 in Hindostan for from one pound two ounces, to two 
 pounds four ounces of silver; that is, for from twelve 
 to twenty-four ounces as the wages of the labour, 
 and from two to four ounces as the profit of the 
 capital employed. In England such a commodity 
 must sell for from about nine pounds nine ounces, 
 to about sixteen pounds three ounces. In America 
 for from fourteen pounds to twenty-three pounds 

 
 6 ON THE COST OF 
 
 four ounces. In other words, the same sum of 
 labour and abstinence, or, in other words, the 
 same sacrifice of ease and of immediate enjoy- 
 ment, obtains in America twenty-three pounds four 
 ounces ; in England sixteen pounds three ounces ; 
 and in Hindostan two pounds four ounces. And 
 this difference is the phenomenon to which I am 
 calling- your attention *. 
 
 It has been attributed to the different prices, in 
 silver, of necessaries. Provisions, it is said, are 
 dearer, that is, exchange for more silver in 
 England than in France ; therefore, the labourer 
 must receive more silver to enable him to pur- 
 chase them. But provisions are cheaper in Ame- 
 rica than in England, and yet the labourer re- 
 ceives much less silver in England than in Ame- 
 rica. The productiveness of the worst soil cul- 
 tivated, the period for which capital is advanced, 
 and the rate of profit being given, it is clear that 
 the average price in silver of corn, must depend 
 on the average wages in silver of labour, not the 
 wages of labour on the price of corn. On my 
 hypothesis, that the services of an English la- 
 * See note at the end.
 
 OBTAINING MONEY. 7 
 
 bourer for a year, his wages having" been advanced 
 for a year, are worth about nine pounds nine ounces 
 of silver, the corn produced by him in a year on the 
 worst land, his wages having been advanced for a 
 year, must be worth nine pounds nine ounces of 
 silver, and cannot be permanently worth either 
 more or less. If his wages fall one-half, the rate 
 of profit remaining the same, the corn must be 
 worth four pounds ten ounces and a half. If they 
 double, it must be worth nineteen pounds six 
 ounces. But in all cases, the productiveness of 
 the worst land cultivated, the period for which 
 wages are advanced, and the rate of profit re- 
 maining the same, the average amount in silver of 
 wages must regulate the average value in silver 
 of corn, and not the value in silver of corn the 
 amount of wages. To suppose the contrary, is in 
 fact the vulgar error of putting the cart before 
 the horse, or mistaking the effect for the cause. 
 To use Adam Smith's illustration, " It is not 
 " because one man keeps a coach while his neigh- 
 " bour walks a-foot, that the one is rich and the 
 " other is poor; but because the one is rich he
 
 8 ON THE COST OF 
 
 " keeps a coach, and because the other is poor he 
 " walks a- foot." 
 
 If the population of England should maintain 
 its present rate of advance ; if our numbers should 
 continue to increase at the rate of more than five 
 hundred persons every twenty-four hours, and the 
 absolute prohibition of foreign corn, for which a 
 violent faction is now clamouring, should be con- 
 ceded, there can be no question that even though 
 wages should not rise, the price of corn would ad- 
 vance. The constantly increasing additional quan- 
 tity which must be raised to supply an annual addi- 
 tion of fifty thousand families, would be raised at a 
 constantly increasing proportionate expense. Ac- 
 cording to the theory which I am considering, the 
 wages of the labourer would rise in proportion. 
 For what purpose would they rise? To enable him 
 to consume the same quantity as before, though 
 the whole quantity raised would bear a less pro- 
 portion than before to the whole number of pro- 
 ducers ? On such a supposition wages might be ten 
 guineas a day, and corn ten guineas a peck. Accord- 
 ing to the present administration of our poor-laws,
 
 OBTAINING MONEY. 9 
 
 which allots to each individual a definite quantity of 
 com, to be given by the landlord as relief when not 
 paid by the employer as wages, the whole amount 
 received by the labourer in the two forms of relief 
 and wages might rise, not indeed ad infinitum, but 
 until it had absorbed the whole amount of rent and 
 tithes, — had converted the landlords and clergy 
 into trustees for the poor. And this is the state 
 of things which, under the united influence of corn 
 laws, even such as they are now, poor laws, and an 
 increasing population, seems gradually approach- 
 ing. But in the absence of poor laws, what rea- 
 son would there be for expecting a rise in wages ? 
 Because the labourer would want more? But 
 would the labourer's wants give to the capitalist 
 the power or the will to pay him more? Does 
 the Manchester manufacturer pay his fine spin- 
 ners 30s. a week, and his coarse spinners 15s. be- 
 cause the fine spinner eats twice as much as the 
 coarse spinner? He pays the fine spinner 30s. be- 
 cause the produce of his labour is worth 30s., and 
 a further sum equal to the average profit obtained 
 by a manufacturing capitalist, and because, if he 
 were to offer less, other capitalists would engage
 
 10 ON THE COST OF 
 
 his labourers, and his machinery would stand 
 idle. While the labourer's services are worth 30.?. 
 he will receive 30s., whatever be the price of 
 corn. To suppose the contrary is to consider the 
 labourer not .as a free agent, but as a slave or 
 domestic animal, fed not according to his value 
 but his necessities. 
 
 All experience shews that in the case which I 
 have been supposing, the labourer's resource 
 would be, not to raise his wages, but to reduce his 
 expenditure. He must first give up his weekly 
 pittance of animal food. He must drink his tea 
 without sugar, and surrender his pipe, and per- 
 haps his beer. He must sink from wheat to rye, 
 or barley, or oatmeal, and from oatmeal to pota- 
 toes. He must look on the wheat which he would 
 raise, as he now does on the sheep and cattle that 
 he tends, as a luxury beyond his enjoyment. The 
 price of corn is nearly as high in Ireland as in 
 England ; but have the wages of the Irish labourer 
 risen to enable him to consume it ? Did the expor- 
 tation of corn and cattle from Ireland cease even 
 during the rages of famine, and of pestilence occa- 
 sioned by famine ?
 
 OBTAINING MONEY. 11 
 
 The only mode by which I can account for the 
 phenomena which I have been describing is, 
 by supposing that the countries which have the 
 precious metals to dispose of, either as producers, 
 or as having a temporary superfluity at their own 
 current rate of prices, are willing to give more 
 than one-fourth more for the exportable commo- 
 dities produced by the labour of one North Ame- 
 rican in a year, assisted by an advance of capital 
 equal in value to his wages for a given period, 
 than for the commodities produced by the labour 
 of one Englishman, and more than ten times as 
 much as for the commodities produced by the 
 labour of one Hindoo, similarly circumstanced. 
 Or in other words, that the diligence and skill 
 with which English labour is applied enables the 
 English labourer to produce in a year exportable 
 commodities equal in value to those produced in a 
 year by eight Hindoos ; and that the diligence and 
 skill with which North American labour is applied, 
 inferior as they are perhaps to our own, yet by 
 the assistance of the fertile soil which he culti- 
 vates, enable the North American labourer to 
 produce exportable commodities more than one-
 
 12 ON THE COST OF 
 
 fourth more valuable than those produced by the 
 Englishman in a given period, and more than 
 ten times more valuable than those produced by 
 the Hindoo. Or to use a still more concise ex- 
 pression, that labour in England is eight times as 
 productive of exportable commodities as in Hin- 
 dostan, and labour in North America is one-fourth 
 more productive of exportable commodities than 
 in England. 
 
 It is probable that the connexion between the 
 value, in the precious metals, of labour, or, in 
 other words, money wages, and the cost of im- 
 porting the precious metals, may not appear so 
 clear to many of my hearers as it does to myself. 
 But I would ask those to whom it is not evident, 
 Whether England and France and the other 
 countries which use plate and money, without pos- 
 sessing mines, must not annually import a certain 
 quantity of the precious metals to supply the 
 annual wear of plate and money ? Whether they 
 must not obtain this supply directly or indirectly 
 from the countries possessing mines ? Whether 
 the average profits of the capitalists who employ 
 labourers to produce the commodities in return for
 
 OBTAINING MONEY. 13 
 
 which this supply is obtained, must not be the 
 same as the average profits of other capitalists in 
 the same country ? Whether the gold and silver 
 which these capitalists import are not sent by them 
 to the mint to be coined for their own benefit, or 
 exchanged for gold and silver previously coined ? 
 Whether the money thus obtained, after deduct- 
 ing what may be payable as rent, is not divided 
 into two portions, one of which is retained by the 
 capitalists as profit, and the other given to their 
 labourers, as wages? Whether their labourers 
 are likely to receive either more or less than any 
 other labourers in the same country, undergoing 
 equal toils? Whether therefore the wages ob- 
 tained by the labourers, in return for whose labour 
 the precious metals are imported, do not regulate 
 the wages of all other labourers in the same 
 country? And whether the price, or, in other 
 words, the value in gold and silver of all those 
 commodities which are not the subjects of a mo- 
 nopoly, does not depend, in a country not possess- 
 ing mines, on the gold and silver which can be 
 obtained by exporting the result of a given quan- 
 tity of labour the current rate of profit, and, in
 
 14 ON THE COST OF 
 
 each individual case,, the amount of the wages 
 which have been paid, and the time for which 
 they have been advanced? 
 
 In fact the portableness of the precious metals 
 and the universality of the demand for them ren- 
 der the whole commercial world one country, in 
 which bullion is the money and the inhabitants of 
 each nation form a distinct class of labourers. We 
 know that in the small market of every district the 
 remuneration paid to the producer is in proportion 
 to the value produced. And consequently that if 
 one man can by superior diligence, or superior 
 skill, or by the assistance of a larger capital, or 
 by deferring for a longer time his remuneration, 
 or by any advantage natural or acquired, occasion 
 a more valuable product, he will receive a higher 
 reward. It is thus that a lawyer is better 
 paid than a watchmaker, a watchmaker than a 
 weaver, a first-rate than an ordinary workman. 
 And for the same reason in the general market of 
 the world an Englishman is better paid than a 
 Frenchman, a Frenchman than a Pole, and a Pole 
 than a Hindoo. 
 
 It has been shewn in the former Lectures, that
 
 OBTAINING MONEY. 15 
 
 in the mining- countries all prices ultimately 
 depend on the cost of producing the precious 
 metals ; that though the remuneration paid to the 
 miner is not identical with that received by other 
 producers, yet that it affords the scale by which 
 the remuneration of all other producers is calcu- 
 lated. When once experience has ascertained the 
 comparative advantages and disadvantages of dif- 
 ferent occupations, they will continue to bear, as to 
 wages, the same proportion to one another. A 
 fall in the cost of producing silver must raise the 
 wages of the miner. If those of the agriculturist 
 were not to rise in proportion, the miner's wages 
 would be more than in proportion to his sacrifices, 
 and they would be reduced by the consequent 
 competition. And on the other hand, mining 
 would be abandoned, if, when the cost of pro- 
 ducing silver was increased the wages in other 
 employments could be stationary. The mine 
 worked by England is the general market of the 
 world : the miners are those who produce those 
 commodities by the exportation of which the pre- 
 cious metals are obtained, and the amount of the 
 precious metals, which by a given exertion of
 
 16 ON THE COST OF 
 
 labour, and advance of capital, they can obtain, 
 must afford the scale by which the remuneration 
 of all other producers is calculated. 
 
 If this reasoning- be correct, and I have in vain 
 sought for a flaw in it, many important conse- 
 quences must be admitted. 
 
 In the first place it follows that the amount of 
 the income in money of each individual depends 
 on the prosperity of our foreign commerce. If the 
 worst land that can be profitably cultivated in 
 England will produce per acre, at an average, 
 two quarters of corn a-year, after deducting what 
 must be reserved for seed, the proprietor of an 
 estate of one hundred acres, producing at an 
 average, after the deduction of seed, four quarters 
 of corn per acre, is entitled to two hundred quarters 
 as his rent. The value in money of [those two 
 hundred quarters must be the same as that of the 
 two hundred quarters which the farmer retains 
 and divides between himself and his labourers. 
 The value of those two hundred quarters must be 
 equal to the wages of the labourers after deducting 
 the farmer's profit for having paid those wages in 
 advance. And those wages, though not precisely
 
 OBTAINING MONEY. 17 
 
 the same as the wages of the labourers who pro- 
 duce commodities for exportation, must bear a 
 certain proportion to those wages. If the toils 
 undergone by the manufacturer are supposed to 
 be more severe by one-third than those of the 
 agriculturist, the agricultural labourer will at an 
 average receive just two-thirds of the wages of 
 the manufacturer. If the foreign demand for 
 English manufactures be such as to occasion the 
 manufacturer to receive 15s. or about three ounces 
 of silver a week, the agriculturist will receive lOs. 
 or about two ounces of silver a week. We will 
 suppose that the farmer in question employs ten 
 labourers, whose wages are advanced for a year 
 before the produce is sold, and that the average 
 rate of profit is one-tenth, or about eleven per 
 cent, per annum. When wages are 10s. a week, 
 or 26/. a year per labourer, the wages of ten 
 labourers amount to 260/. a year ; making, with 
 the addition of one-tenth for profits 286/., which 
 must be the average price of the two hundred 
 quarters annually retained by the farmer to pay 
 his profit and his labourers' wages. And as the 
 landlord's two hundred quarters sell for the same 
 
 c
 
 18 ON THE COST OF 
 
 price; his rent must also be 286/. a year. But if 
 any improvement in the skill by which English 
 labour is assisted should so raise the value in the 
 foreign market of English manufactures as to raise 
 the wages of manufacturers from 15*. to 30s. 
 a week; the same effect would be produced as if, in 
 a mining country, the cost of producing silver 
 were diminished by one-half. Though the labour 
 of the agricultural labourer would not become 
 more productive than before, yet his wages would 
 also be doubled, or the former proportion founded 
 on the experience of the comparative disadvan- 
 tages of each occupation would not be preserved. 
 The wages of the labourers employed in raising 
 the two hundred quarters of corn retained by the 
 farmer and his labourers would rise from 260/. to 
 520/. a year : the profit on the advance of those 
 wages for a year must rise from 26/. to 52/., the 
 price of the two hundred quarters would be 572/. 
 instead of 286/. ; and the price of the landlord's 
 two hundred quarters would of course also rise 
 from 286/. to 572/. 
 
 In the purchase of English labour and of those 
 English commodities in which no improvement
 
 OBTAINING MONEY. 19 
 
 had taken place, the English landlord would find 
 his income unaltered, however raised in nominal 
 amount. But his power of purchasing- those 
 English commodities, the production of which had 
 been facilitated, would be increased in proportion 
 to that improvement. In the purchase of foreign 
 labour and foreign commodities, his income would 
 be doubled. He would be able to purchase 
 statues, pictures, and wines, which the proprietor 
 of an equal extent of equally fertile land in the 
 countries producing those commodities could not 
 aspire to. He would be able to travel as a Milor 
 Anglais, and drive the French and Italian aris- 
 tocracy from the first floor to the garret, or the 
 entresol. Little imagining that the greater part 
 of the value of what he called his patrimony was, 
 in fact, the creation of the chimneys and jennies of 
 his neighbour, the manufacturer. 
 
 Such, in fact, were the events which actually 
 occurred in this country during the latter part of 
 the eighteenth and the beginning of the nineteenth 
 century. The inventions of Arkwright and Watt, 
 by making English labour ten times, or more than 
 ten times as efficient in the production of export- 
 
 c 2
 
 20 ON THE COST OF 
 
 able commodities, doubled, or more than doubled 
 its value in the foreign market, and reduced to 
 one-half, or less than one-half, the cost in England 
 of obtaining the precious metals. It is true that 
 clinging to the restrictions and prohibitions of our 
 commercial code, we have, as yet, refused the 
 greater part of the advantages which Providence 
 seemed to press on our acceptance ; but cramped 
 as they are, and always have been, by our per- 
 verse legislation, the skill of our manufacturers 
 has, during the last sixty years, more than 
 doubled the rent of land and the income of every 
 class of producers. 
 
 It would be a painful task to trace the steps by 
 which the increasing embarrassments of commerce, 
 occasioned partly by our own adherence to the 
 barbarous policy called protection, and partly by 
 the retaliatory follies of other countries, by dimi- 
 nishing the market for English labour, are now 
 gradually lowering its price, increasing the cost of 
 obtaining the precious metals, and reducing the 
 income of every producer, while the public bur- 
 thens, nominally the same, are, for that very 
 reason, really in a state of constant increase.
 
 OBTAINING MONEY. 21 
 
 It is a lamentable proof of the public ignorance 
 on these subjects, that the general fall of prices, 
 or in other words, the increasing difficulty of ob- 
 taining the precious metals, of which every one is 
 sensible, should, by almost every one, be attributed 
 to some cause of almost ridiculous inadequacy. It 
 has been attributed to our return to a metallic 
 currency, as if the subtraction of twenty millions 
 of sovereigns, or less than four hundred thousand 
 pounds troy of gold, from the ten millions of 
 pounds troy of gold bullion, coin, and plate sup- 
 posed to be in use throughout the world, that is 
 to say, the removal of one-twenty-fifth part, could 
 sensibly affect the value of gold. It has been 
 attributed even to the substitution of gold and 
 silver for the three or four millions of one pound 
 notes lately called in, as if the value of the two 
 thousand millions sterling of gold and silver bul- 
 lion, coin, and plate, supposed to be in use 
 throughout the world, could be materially affected 
 by the subtraction of less than one-five-hundredth 
 part of it. It has been attributed to over produc- 
 tion. We have been told that our agriculturists 
 and manufacturers all produce too much ; as if it
 
 22 ON THE COST OF 
 
 were possible that every body could have too 
 much of everything- ; as if there were a single 
 family that would not like to spend 1000/. a year. 
 It has been attributed, which is nearly the same 
 explanation, to the increased use of machinery, as 
 if it were possible that general embarrassment 
 could be the result of the improved efficiency of 
 labour ; as if all men would be impoverished if 
 their force and their skill were doubled. It has 
 been attributed even to free trade, as if anything 
 approaching to free trade had ever been conceded ; 
 as if free trade were not specifically the cure of the 
 evil of which it is represented as the cause ; as if 
 the allowing every man to exert his industry in 
 the mode which he finds, from experience, to be 
 most productive would diminish its value ; as if 
 we could increase the incomes of the inhabitants 
 of Manchester, by forcing them to turn their 
 bleaching grounds into corn fields, or those of the 
 neighbouring farmers, by forcing them to weave 
 their own shirts. 
 
 We are often told of the artificial state of the 
 country. The vagueness of that expression affords 
 a never-failing refuge to those who are pressed by
 
 OBTAINING MONEY. 23 
 
 reasoning's which they want sense to comprehend 
 or candour to admit. In one sense indeed we arc 
 in an artificial state. We have succeeded in rais- 
 ing to an extraordinary height the value of our 
 industry. We obtain the precious metals at much 
 less than their average cost throughout the world, 
 or even in the most civilized parts of it. This is 
 not only the consequence of a great advantage, of 
 the superior productiveness of our industry, but 
 the cause of many other advantages. It enables 
 us to obtain the products of other countries so far 
 as our legislature allows us to receive them, so 
 far as they are not prohibited on account of their 
 cheapness, not merely at the expense of less labour 
 than it would cost to produce them, but often at 
 the expense of less labour than they cost in the 
 producing countries. While one Englishman can 
 produce calico worth one hundred and fifty ounces 
 of silver in the same time within which five Poles 
 can produce corn worth only one hundred and 
 forty ounces, it must be advantageous to Poland 
 to give for the calico produced by one Englishman 
 the corn produced by five Poles. 
 
 It is probable that if public attention had been 

 
 24 ON THE COST OF 
 
 earlier drawn to these circumstances, if we had 
 sooner and more anxiously inquired into the 
 causes which have enabled us to obtain the pre- 
 cious metals so much more easily than our neigh- 
 bours, our national conduct might have been 
 materially altered. We should have found that 
 these causes are not resolvable into any peculiar 
 local advantages, but principally into our compa- 
 ratively greater and more skilful use of machinery 
 and our better division of labour : and we should 
 have felt that the progressive improvement of our 
 rivals must quickly destroy our superiority if we 
 remain stationary, and diminish it if our advance 
 be less rapid, and that our progress can be main- 
 tained or accelerated only by allowing our in- 
 dustry to flow with perfect liberty into the chan- 
 nels in which it is found to be most productive. 
 
 Unhappily these inquiries were not made. We 
 appear to have considered the comparative cheap- 
 ness of the precious metals a permanent gift of 
 nature, as little susceptible of diminution or in- 
 crease as the warmth of our climate. With more 
 than the rashness of a merchant who in his pros- 
 perity should allow his expenses to equal his
 
 OBTAINING MONEY. 25 
 
 profits, we have subjected ourselves to the obli- 
 gation of perpetual money payments, which we 
 can support only while we continue not merely to 
 outstrip, but to distance the rest of Europe. By 
 encumbering commerce with every sort of vexa- 
 tious restraint; we have done our best to force our 
 own industry into the channels which are least 
 beneficial, and to force the industry of other na- 
 tions into those in which their concurrence is most 
 dangerous. By act of Parliament we have con- 
 verted our customers into our rivals, and then 
 complain of their competition. 
 
 Many economists have maintained that no coun- 
 try can be injured by the improvement of her 
 neighbours. If the continent, they say, should be 
 able to manufacture cottons with half the labour 
 which they now cost in England, the consequence 
 would be, that we should be able to import our 
 supply of cottons from Germany or France at a 
 less expense than it costs us to manufacture them, 
 and might employ a portion of our industry now 
 devoted to the manufacture of cottons, in procur- 
 ing an additional supply of some other commodi- 
 ties. These opinions have such an appearance of
 
 26 ON THE COST OF 
 
 liberality, that I am sorry to dissent from them. 
 But it must be remembered that England and the 
 continent are competitors in the general market 
 of the world. Such an alteration would diminish 
 the cost of obtaining the precious metals on the 
 continent, and increase it in England. The value 
 of continental labour would rise, and the value of 
 English labour would sink. They would ask more 
 money for all those commodities, in the produc- 
 tion of which no improvement had taken place, and 
 we should have less to offer for them. We might 
 find it easier to obtain cottons, but we should find 
 it more difficult to import everything else*. 
 
 The last remark which occurs to me as con- 
 nected with the present subject, is one which I 
 somewhat anticipated in my first course f , namely, 
 the absurdity of the opinion that the generally high 
 rate of wages in England unfits us for competition 
 with foreign producers. It is obvious that our 
 power of competing with foreigners depends on 
 the efficiency of our labour, and it has appeared 
 
 * This reasoning bears materially on the question as to the ex- 
 portation of machinery, 
 t See Lectures on the Mercantile Theory of Wealth, p. 76.
 
 OBTAINING MONEY. 27 
 
 that a high rate of wages is a necessary conse- 
 quence of that efficiency. It is true, indeed, that 
 if we choose to misemploy a portion of our 
 labourers we must pay them, not according - to 
 the value of what they do produce, but according 
 to the value of what they might produce if their 
 labour were properly directed. If I call in a sur- 
 geon to cut my hair, I must pay him as a sur- 
 geon. So if I employ, in throwing silk, a man 
 who could earn three ounces of silver a week by 
 spinning cotton, I must pay him three ounces of 
 silver a week though he cannot throw more silk 
 than could be thrown in the same time by an 
 Italian whose wages are only an ounce and a half. 
 And it is true, also, that I can be supported in 
 such a waste by nothing but an artificial mono- 
 poly, or, in other words, that I shall be under-sold 
 by the Italian in every market from which I can- 
 not exclude him by violence. But do these cir- 
 cumstances justify me in resorting to that violence? 
 Do they justify me in imploring the legislature to 
 direct that violence against my fellow-subjects ? 
 If that violence is relaxed, but not discontinued, 
 have I, or has the consumer, the more right to
 
 28 ON THE COST OF 
 
 complain ? If my estate were water-meadow, I 
 should lose if I were to endeavour to convert it 
 into corn-fields. But surely that is no subject of 
 complaint ; surely it is no reason for prohibiting 
 my neighbours from purchasing corn in any ad- 
 joining parish. To complain of our high wages is 
 to complain that our labour is productive — to 
 complain that our workpeople are diligent and 
 skilful. To act on such complaints is as wise as 
 to enact that all men should labour with only one 
 hand, or stand idle four days in every week. 
 
 Nature seems to have intended that mutual 
 dependence should unite all the inhabitants of the 
 earth into one great commercial family. For this 
 purpose she has infinitely diversified her own 
 products in every climate, and in almost every 
 extensive district. For this purpose, also, she 
 seems to have varied so extensively the wants 
 and the productive powers of the different races 
 of men. The great superiority of modern over 
 ancient wealth depends in a great measure on the 
 greater use we make of these varieties. We an- 
 nually import into this country about thirty million 
 pounds of tea. The whole annual labour required
 
 OBTAINING MONEY. 29 
 
 to purchase and import this quantity does not ex- 
 ceed, probably does not equal, that of fifty thou- 
 sand Englishmen, With our horticultural skill, 
 and our coal mines, and at the expense of about 
 three guineas a pound ; that is to say, by em- 
 ploying- more than one million two hundred thou- 
 sand men instead of less than fifty thousand, we 
 might produce our own tea, and enjoy the pride of 
 being independent of China. But one million two 
 hundred thousand is about the number of all the 
 men engaged in agricultural labour throughout 
 England. A single trade, and that not an exten- 
 sive one, supplies as much tea, and that probably 
 of a better quality, as would be obtained if it were 
 possible to devote every farm and every garden 
 to its domestic production. 
 
 The greater part of the advantage of rather im- 
 porting than growing and manufacturing tea 
 arises, without doubt, from the difference between 
 the climates of China and England. But a great 
 part also arises from the different values of labour 
 in the two countries. Not only the cultivation of 
 the tea-plant, but the preparation of its leaves, 
 requires great labour. The wages of labour are 

 
 30 ON THE COST OF 
 
 so low in China, that these tedious processes add 
 little to the cost of the tea. In England the ex- 
 pense would be intolerable. When a nation in 
 which the powers of production, and consequently 
 the wages of labour, are high, employs its own 
 members in performing duties which could be as 
 effectually performed by the less valuable labour of 
 less civilized nations, it is guilty of the same folly 
 as a farmer who should plough with a race-horse. 
 
 It has been a general remark of political econo- 
 mists, that the home trade of every country is more 
 extensive and more important than its foreign trade. 
 
 As applied to nations of considerable extent, 
 and at the present time, this is probably true. 
 But as a general proposition, as indicating the 
 state of things, such as it may be expected to be 
 in the absence of peculiar disturbing causes, I am 
 satisfied that it is false. In China, a country com- 
 prising probably one-fifth of mankind, and sepa- 
 rated from the rest of the civilized world by vast 
 deserts, or ten thousand miles of sea, the internal 
 trade is necessarily the principal one. It must 
 also be the principal trade in those countries, 
 which, though of moderate extent, and favourably
 
 OBTAINING MONEY. 31 
 
 situated for foreign commerce, perversely refuse 
 her advantages; or, like Spain, submit to them 
 only when inflicted by the smuggler. The home 
 trade is also, at this instant, the principal trade of 
 Great Britain ; but whether necessarily, or na- 
 turally so, may be doubted. 
 
 As the British islands make but a small portion 
 of the globe, and that portion is remarkably uni- 
 form in soil, climate, and produce, it might have 
 been supposed that the market of the whole 
 world would have been more extensive and more 
 varied, than that of England, Ireland, and Scot- 
 land. The communication between the eastern 
 and southern coasts of Great Britain, and the 
 western coast of Europe, and that between the 
 western coasts of England, Ireland, and Scotland, 
 and the eastern coast of North America, is more 
 easy than that between most of our counties which 
 are not absolutely contiguous. The freight of a 
 cask of wine from Oporto to London is rather 
 less than the cost of its carriage from London to 
 Oxford. It might have been supposed that the 
 whole of our trade with those regions, so vast, so 
 accessible, and so varied, producing so much that
 
 32 ON THE COST OF 
 
 we want, and wanting so much that we produce, 
 would be at least equal to the whole trade of our 
 different provinces with one another. That it is not 
 so, is to be attributed to war and mischievous le- 
 gislation ; or, in other words, to crime and to folly. 
 From the conquest to the present time, have our 
 legislators laboured to repel the advantages which 
 our situation and our habits have almost forced 
 upon us. In the earlier periods of our history, 
 when our want was of manufactures, parliament 
 accumulated restriction on restriction, and penalty 
 on penalty, until they had at length prohibited 
 the importation of almost every wrought article 
 then in ordinary use. And that exportation, or 
 at least one sort of exportation, might not be de- 
 stroyed by the absence of importation, they taxed 
 the whole community to raise annually sums 
 which, even now, would be called large, to pay a 
 bounty to exporters of corn ; or, in other words, 
 to pay, on the behalf of the foreign purchaser, a 
 part of the price which he was prohibited from 
 paying in the mode most advantageous to us and 
 to himself. A conduct, of which the curious 
 absurdity could be paralleled only by that of a
 
 OBTAINING MONEY. 33 
 
 nation which should, at the same time, prohibit 
 the importation of subsistence, and endeavour 
 to raise funds to aid the emigration of its inha- 
 bitants. 
 
 After centuries of legislation and poverty, the 
 reformation, the revolution, and the inventions of a 
 few gifted individuals, raised us almost suddenly 
 to be the greatest manufacturers in the world ; 
 and, with our increasing population and pros- 
 perity, the price of corn rose until our former 
 situation was reversed : we became exporters 
 of manufactures, and importers of raw produce. 
 With perverse ingenuity, measures were adopted 
 to meet this alteration in our circumstances. 
 Because it became profitable to import corn, 
 its importation was prohibited ; because we 
 were supposed not to be in want of manufactures, 
 their importation was allowed. It is of great 
 importance, as a part of the history of human folly, 
 to mark that these are the grounds on which the 
 public is generally called upon to approve of the 
 commercial legislation of the last fifteen years. 
 The ground on which the present limited admis- 
 sion of French silks (to take a single instance) is 
 
 D
 
 34 ON THE COST OF 
 
 generally defended, is, that our silk manufacturers 
 can undersell or at least compete with the foreign 
 producers. Those who oppose Mr. Huskisson's 
 measures always expatiate on the quantity that 
 we import, and the low price at which it may be 
 obtained : those who defend them maintain that 
 the quantity imported is trifling, and cannot be 
 obtained at a less price than it could be produced 
 at home. In other words, the measure is defended 
 as useless, and opposed as beneficial. With simi- 
 lar perversity, those who defend the corn laws try 
 to shew that wheat may be obtained from abroad 
 at 30s. a quarter, while those who oppose those 
 laws endeavour to prove that it could not be im- 
 ported at less than 52s. 
 
 It is not enough to say that our barbarous 
 policy deprives us of many of the advantages 
 offered to us by nature ; in many cases it turns 
 her bounties into positive evils. There are 
 scarcely any articles of raw, or slightly manu- 
 factured produce, of which the price in Eng- 
 land does not exceed the average price throughout 
 Europe, except those articles which our soil and 
 our climate do not enable us to produce at home.
 
 OBTAINING MONEY. 35 
 
 If coffee or sugar were of English growth, we 
 should soon have coffee laws and sugar laws, and 
 must submit to hear them defended on the ground 
 that the low taxation and superior fertility of other 
 countries make it necessary to protect the domestic 
 producer against foreign competition. This seems 
 to be the circumstance which makes the public sub- 
 mit so quietly to the apparently strange law which 
 prohibits the growth of tobacco in the British 
 islands. It seems felt that our only chance of 
 obtaining that commodity on fair terms is abso- 
 lutely to prohibit the owners of our own soil from 
 having anything to do with it. That, under these 
 circumstances, our home trade far exceeds our 
 foreign trade is true ; but it is true only in con- 
 sequence of laws introduced and perpetuated by 
 the prejudices of some, the avowed and arrogant 
 selfishness of others, and the ignorant supineness 
 of almost all. Is habitus animorum fait, ut pessi- 
 mum facinus audcrent pauci, plures velle?it, omnes 
 paterentur. 
 
 d 2
 
 LECTURE II. 
 
 ON SOME EFFECTS OF PAPER MONEY. 
 
 In the last lecture, I considered the effects pro- 
 duced on the value of money in any country by 
 the skill and diligence with which the labour of 
 that country is applied. These effects are gra- 
 dual and permanent. In this and the following- 
 lecture, I shall consider some of the effects pro- 
 duced on the value of money in any country by 
 the use or disuse of the substitutes for money. 
 These effects are sudden but transitory. 
 
 If a country should suddenly adopt, to a con- 
 siderable extent, any substitute for money ; if, for 
 instance, England, having previously prohibited 
 the issue of notes for small sums payable to 
 bearer, should suddenly legalise them, and notes 
 equal in value to one-third of the former metallic
 
 EFFECTS OF PAPER MONEY. 37 
 
 currency, which we will suppose to have been of 
 the value of forty-five millions sterling, should be 
 issued, either the issuers must, at the same time 
 that they issue their notes, export the money re- 
 ceived in exchange for them, or both the notes 
 and 'money must circulate together. If the first 
 mode were adopted, it is obvious that the real 
 exchange must be against England, in almost 
 every quarter, until the export of money had 
 ceased. We should for a time be in the situa- 
 tion of a mining country, and as neither the pro- 
 ductiveness of our labour nor the amount of our 
 currency would be altered, the consequences would 
 be that some foreign commodities would be more 
 abundant during the continuance of the increased 
 importation, — that our capital would be increased 
 by that portion of them which would be repro- 
 ductively employed, — and that we should be able 
 to turn to other purposes some of the labour and 
 capital formerly employed in supplying the wear 
 of fifteen millions of specie — a saving perhaps of 
 150,000/. a year. These consequences would be 
 beneficial. 
 But unfortunately the business would be very
 
 38 ON SOME EFFECTS 
 
 differently conducted. The issuers of notes are 
 seldom persons engaged in foreign commerce, 
 and they seldom issue them in immediate ex- 
 change for money. Notes are generally ad- 
 vanced as loans, repayable, at the earliest, in two 
 or three months, and often in not less than two or 
 three years. In the case which I have put, the 
 coin and the notes would at first probably cir- 
 culate together. All prices would rise, and they 
 would rise not merely to the extent of the excess 
 of money, but to the spirit of speculation which 
 such an excess would create. While the rise of 
 prices was going on, all purchases made for the 
 purposes of resale would be advantageous. Great 
 profits would be obtained, and still greater ones 
 expected, and every man possessed of money or 
 credit would be eager only to become a pur- 
 chaser, feeling no doubt of his gains as a seller. 
 Such circumstances would obviously check our 
 exports and increase our imports. It would be- 
 come profitable in England to import many things 
 which, when foreign and English prices bore their 
 former relation, would not bear the expenses of 
 transport ; it would no longer suit foreigners to
 
 OF PAPER MONEY. 39 
 
 import from England many things which were 
 importable at our former prices. 
 
 The necessary consequences would be a gene- 
 rally unfavourable exchange, and an export of 
 money. As long as the issue of notes continued 
 to exceed the export of money, prices would con- 
 tinue to rise, and the apparent prosperity would 
 go on increasing. And, if we could suppose both 
 the issuers and the takers of notes utterly ignorant 
 or regardless of the consequences of what was 
 going on, the issue might continue until the last 
 piece of metallic money had been exported. The 
 crash would then be instantaneous : as prices 
 would then be at their height, so would be the 
 profits on the exportation of money. Those 
 holders of notes who were sending money abroad, 
 would call on the issuers of notes for payment in 
 money ; and there being no money in the country, 
 every issuer of notes must stop payment. No 
 more notes could be issued, and the existing ones 
 would lose their value. The country would be 
 without money, and without the principal substi- 
 tute for money, credit. There would, at first, be 
 no such thing as price, but exchanges would be
 
 40 ON SOME EFFECTS 
 
 performed by barter ; and we may be sure that 
 the discomfort and insecurity of a state of barter 
 would create an intense desire for money. The 
 holders of exportable goods would be eager to 
 send them off. The holders of bills on foreign 
 countries would require their remittances to be 
 made in money. Importation would of course 
 be suspended, and the exchange would be in our 
 favour with all the world. Money would come 
 in from all quarters, though, for several reasons, 
 less rapidly than it went out. 
 
 In the first place, the competition of our ex- 
 porting merchants would sink the prices of our 
 commodities abroad ; and secondly, the waste and 
 misapplication of capital, during the previous pe- 
 riod of prosperity and speculation, the difficulty of 
 obtaining supplies of foreign materials from abroad 
 during our subsequent adversity, and the interrup- 
 tion of that division of labour which is founded on 
 a general system of credit, would probably much 
 diminish the productiveness of our labour. 
 
 The last circumstance, by diminishing the value 
 of English labour in the general market of the 
 world, would keep down, while it lasted, all our 

 
 OF PAPER MONEY. 41 
 
 money prices ; and it may be supposed, there- 
 fore, that the same amount of money as circulated 
 before the issue of the notes took place would 
 not now be necessary. But, during the absence 
 of credit, money would be the only substitute for 
 barter. The exchanges in which it would be 
 necessary would be far more numerous, and its 
 circulation far less rapid. If forty-five millions 
 sterling- were necessary before, it is probable, 
 that, after such a panic as must have been 
 created by the events which I have supposed, 
 ninety millions would not be enough even to keep 
 up prices at three-fourths of their former amount. 
 It is impossible, however, that such a state of 
 things should occur, — that a whole country should 
 at once find itself drained of all its money, unless 
 the imprudence of individuals were heightened by 
 the still greater imprudence of government. In 
 the first place, no banker issues notes without 
 making some reserve of metallic money to meet 
 them. Even if the shock were unforeseen, and the 
 discredit of all the notes simultaneous, there would 
 be some money in the country to meet it. And 
 in the second place, the shock could not be unfore-
 
 42 ON SOME EFFECTS 
 
 seen, nor the discredit universal or simultaneous. 
 The credit, the prudence, and the wealth of the 
 issuers of notes must be of every different degree. 
 In such a country as England, there are some 
 bankers whom no individual would trust with 
 five hundred pounds, and who might be reduced 
 to insolvency by an unexpected demand for one 
 thousand pounds, and others, who at a day's notice 
 could draw hundreds of thousands from their own 
 resources, and obtain millions from their con- 
 nexions. There are some who move in the 
 track which experience has shewn to be safe, 
 with the impassive regularity of mechanism ; and 
 others, who, when extraordinary gain is suggested 
 to them, seem not only willing to encounter 
 chances, but to be deprived of the power of cal- 
 culating them. 
 
 It is impossible that the rise of prices and ex- 
 tension of speculation, which I have supposed, 
 could continue long, before accident or impru- 
 dence should expose some establishments to a 
 demand for money, which they would be unable 
 to answer ; a general feeling of distrust would 
 follow, and would cause a simultaneous demand
 
 
 OF PAPER MONEY. 43 
 
 of money for notes, or, to use a word which the 
 unhappy experience of the year 1825 has ren- 
 dered familiar, a " run/' upon all those esta- 
 blishments whose character for riches did not 
 place their solvency above suspicion ; at first, 
 indeed, an indiscriminate run upon all. The first 
 effect of this would be to bring out the reserves 
 of money : the second would be the failure of 
 many establishments, and the discredit of their 
 notes ; but many would probably stand it, and 
 suffer scarcely a momentary interruption of their 
 credit and circulation. Prices certainly would 
 fall, the exchange would turn in our favour, 
 money would come in, thousands would be ruined 
 irretrievably, and years might be necessary to 
 restore the country to its former state of settled 
 prosperity ; but all these effects would be produced 
 in a lower degree than in the extreme instance 
 with which I set out. 
 
 It will be observed, that I have allowed nothing 
 for the general fall in the value of the precious 
 metals throughout the world, which might be ex- 
 pected to arise from the additional supply afforded 
 by the disuse of metallic money in a single coun-
 
 44 ON SOME EFFECTS 
 
 try. Some effect of this kind would be produced,, 
 but it would be so slight, that it may safely be 
 disregarded. 
 
 The whole amount of the precious metals 
 throughout the world, in bullion, coin, and plate, 
 has been supposed to be of the value of about 
 two thousand millions sterling. The whole me- 
 tallic currency of Great Britain and Ireland is 
 not supposed to exceed thirty millions ; it is 
 subject to much variation, but I believe it to 
 be usually less. Even if we were to export our 
 last sovereign, and our last shilling, how trifling 
 would be the effect in the general market of 
 the world, of an addition of thirty millions to 
 tw r o thousand ! 
 
 The power of individuals, therefore, to affect 
 the currency of a country is limited — that of a 
 government is not so. 
 
 Suppose that, at the commencement of the 
 panic imagined in my last instance, government 
 had taken one banking company under its 
 protection — had forbidden it to pay its notes 
 in coin or in any other equivalent — had per- 
 mitted it to issue, and continue to issue, fresh
 
 OF PAPER MONEY. 45 
 
 notes to any amount — had directed that its notes 
 should be received in all payments to govern- 
 ment, and in private transactions, as of equal 
 value with the money which they professed to 
 promise to pay, and had prohibited the exchange 
 of coined gold and silver, for more than an equal 
 nominal amount in notes, — 
 
 It would be in the power of the banking com- 
 pany in question, by lending to the different banks 
 of the country a sufficient number of its own 
 notes, notes which would cost merely the expense 
 of making and stamping paper, to relieve the dif- 
 ficulties of those which were tottering — to fill the 
 void of those which had fallen, and to enable all 
 those which had still a reserve of metallic money 
 to make use of it, keeping the notes of the fa- 
 voured bank in its room. And it would also be 
 in its power, by still further increasing its issues, 
 either by way of loan, or by dividing them as 
 profits between its own partners, to keep up the 
 high prices, and the unfavourable exchange, until 
 the last piece of coined gold or silver had quitted 
 the kingdom. 
 
 It would be in its power, by still further increas-
 
 46 ON SOME EFFECTS 
 
 ing its issue, to raise prices as estimated in its 
 paper to any scale it thought fit. It would also 
 be in its power, by diminishing its issues, to sink 
 them to any point not lower than the metallic 
 prices of foreign countries. It could not sink 
 bread to a farthing a quartern loaf, but it would 
 be able to raise it to a hundred pounds. 
 
 The real par of exchange between England and 
 foreign countries would be at an end. English 
 paper money, having neither intrinsic utility nor 
 ascertainable limitation of supply, would be inca- 
 pable of export. It still, however, must be used 
 as a medium of exchange, and as an expression 
 of value even in international transactions. The 
 French exporter of wine to England must, in the 
 first instance, sell his wine for a certain quantity 
 of English notes of a given denomination. These 
 notes, as he could not export them, he must again 
 exchange for some other commodity in Eng- 
 land ; and his profit, or loss, would depend on the 
 comparative values in France of that commodity, 
 and of his wine, after deducting the expenses of 
 carriage. We have already seen that no com- 
 modities are so permanent in their value, so uni-
 
 OF PAPER MONEY. 47 
 
 form in their quality, or so easy of transport, as 
 gold and silver. The quantity of gold or silver 
 which they could purchase would unquestionably 
 be the standard by which he would estimate the 
 value of the English notes which he received for 
 his wine. This gold and silver would of course 
 be in an uncoined state, or, in commercial lan- 
 guage, bullion. If five French Napoleons and 
 four English sovereigns, while English sovereigns 
 existed, had each contained the same quantity, 
 say an ounce,, of gold bullion, the real par of ex- 
 change between England and France would of 
 course have been five Napoleons for four sove- 
 reigns. If four English notes, professing to pro- 
 mise to pay four sovereigns, would purchase in 
 England only half an ounce of gold bullion, the 
 nominal exchange would be fifty per cent, against 
 England, or, in other words, a bill in France on 
 England for eight hundred sovereigns, which, if 
 payable in coin, would have sold in France for 
 one thousand Napoleons, would sell for only five 
 hundred. And a bill in England on France, 
 which would have sold for four hundred coined 
 sovereigns, would sell for eight hundred pounds
 
 48 ON SOME EFFECTS 
 
 payable in notes. And supposing- the transac- 
 tions between England and France equal in 
 amount, they would be adjusted by the exchange 
 of bills at this rate of exchange. 
 
 If, however, the exports from England to 
 France should exceed the value of the imports — 
 if, for instance, the French had to pay us five thou- 
 sand Napoleons, and we had to pay them notes 
 to the nominal value of four thousand sovereigns, 
 bills for two thousand five hundred Napoleons 
 would be capable of discharging the whole Eng- 
 lish debt. In that case, the remaining two thou- 
 sand five hundred must be sent from France in 
 gold ; and as all the English creditors would be 
 anxious to avoid the expense of transporting the 
 gold, they would be willing to purchase French 
 bills on England, which would entitle them to 
 obtain payment from their own countrymen, at 
 the rate of something more than eight sovereigns 
 for five Napoleons. Instead of being fifty percent, 
 against England, the nominal exchange might 
 therefore, for a time, be only forty- eight or forty- 
 nine per cent, against England. 
 
 And, by reversing the facts, we may suppose
 
 
 OF PAPER MONEY. 49 
 
 it fifty-one or fifty-two ; fifty being always the cen- 
 tral point to which it would tend, while the quan- 
 tity of bullion contained in a Napoleon, and that 
 purchasable with an English note, for a sovereign, 
 continued to bear the same proportion to one 
 another. 
 
 It may, however, be supposed that we should 
 have no bullion. While the exportation of our 
 coin was going on, we certainly should have none, 
 as it could not be our interest at the same time to 
 import bullion and export coin. But before our 
 export of coin began, we must have been in 
 the habit of importing from the mining countries 
 a certain quantity of bullion, to supply the wear 
 of coin and plate. After our export of coin had 
 ceased, we could have no difficulty in renewing 
 that intercourse. The bullion trade, as it is essen- 
 tially a trade of barter, would probably be the least 
 disturbed of all our foreign commercial relations. 
 There would still be the same demand for English 
 commodities in the mining countries, and the same 
 supply of gold and silver offered in exchange for 
 them. To a very slight degree indeed, we should 
 probably obtain bullion on better terms than be- 
 
 E
 
 50 ON SOME EFFECTS 
 
 fore. First, because we should want rather less of 
 it, our annual wear of coin being at an end, and 
 our import of bullion confined to the supply of 
 plate and the small stock necessary to meet sud- 
 den alterations in our real exchange with other 
 countries ; and secondly, because our export of 
 coin would have had, as I observed before, a very 
 slight tendency to increase the supply of bullion in 
 the rest of the world. The real price, the sum of 
 the produce of English industry, which we should 
 pay for a given quantity of bullion, would be 
 governed by the same causes as before. It would 
 still depend on the cost of producing, in the mining 
 countries, the whole quantity of bullion which they 
 exported, the amount of that quantity, and the 
 portion of it which they would be willing to give 
 in exchange for the results of a given sum of 
 English industry. And as none of these circum- 
 stances would be altered, or, if altered, altered 
 slightly in our favour, there is no reason why our 
 supply of bullion should be more difficult, or its 
 value less steady than before. 
 
 It would appear, however, more unsteady, be- 
 cause real variations in the value of the precious
 
 OF PAPER MONEY. 
 
 51 
 
 metals, which are not easily ascertained when they 
 are employed in the form of money, would now 
 be detected. As the mint in this country returns 
 an equal weight of coin for gold, when we say that 
 the mint price of gold is 31. 17s. 10W. an ounce, 
 we merely express that 2 lbs. of gold of a 
 given fineness are coined into eighty-nine pieces 
 called guineas, and that 40 lbs. of gold are 
 coined into 1869 pieces called sovereigns. And 
 it is obvious that, while gold money is our medium 
 of exchange, and the melting and exportation of 
 money is permitted, the market price of gold bul- 
 lion can never be above the mint price ; for no 
 man would give more than eighty-nine guineas, 
 that is, 2 lbs. of coined gold, for 2 lbs. of gold 
 bullion, that is, 2 lbs. of uncoined gold. And if 
 there were a mint in every town, which, on de- 
 mand, exchanged coined gold for bullion, the mar- 
 ket price of gold bullion could never be below 
 the mint price ; as no man would sell 2 lbs. of bul- 
 lion for less than eighty-nine guineas, when he 
 could obtain eighty-nine guineas for it, without 
 delay or trouble, at the Mint. As, however, we 
 have but one mint, and that mint does not give 
 
 E 2
 
 52 ON SOME EFFECTS 
 
 coin for bullion till after a short delay, the market 
 price is sometimes below the mint price. When 
 the delay was six weeks, the difference was some- 
 times 4*%d. an ounce, or, in other words, 208 
 ounces of bullion might be purchased with a very 
 small fraction more than 207 ounces of coin. And 
 it is obvious, also, that no increase or diminution 
 in the expense of procuring bullion would, in the 
 slightest degree, affect its money price, as any 
 cause which should raise or depress the value of 
 2 lbs. of gold, would equally raise or depress the 
 value of the eighty-nine guineas into which it may 
 be coined, and which form its money price. 
 
 But when our medium of exchange became 
 paper, the market price of bullion, though it could 
 not sink below the mint price, might rise to any 
 extent above it. I started with the supposition 
 that our currency, when notes were first intro- 
 duced, amounted to forty-five millions sterling. 
 And I will also suppose that at that time 2 lbs. of 
 gold were coined into eighty-nine guineas, or, in 
 other words, that the mint price of gold was 31. 
 17?. \0hl. per ounce. If we suppose the forty- 
 five millions sterling of metallic money displaced
 
 OF PAPER MONEY. 53 
 
 by an issue of notes of the nominal value of ninety 
 millions sterling, though the same amount of 
 English industry would still obtain from Brazil 
 an ounce of gold, yet, as the nominal sum which 
 must be paid as wages and profits to the persons 
 who produce the English commodities in exchange 
 for which it is obtained would be doubled, when 
 expressed in notes, the price of the gold, in notes, 
 would be doubled also, or the persons employed 
 in producing commodities for the purpose of im- 
 porting gold would not be on a par with the rest 
 of the community. Gold bullion, therefore, would 
 rise to 71. 15s. 9d. an ounce ; and as long as the 
 cost of obtaining gold and the amount of our paper 
 currency each remained unaltered, the price of 
 gold would be steady at 7/. 15s. 9d. If, however, 
 the cost of obtaining gold should increase, which, 
 of course, might arise from any cause which should 
 diminish either the power of the South Americans 
 to produce it, or their demand for English com- 
 modities, the market price of gold might rise, 
 though the amount of our paper currency should 
 remain unaltered. We have seen that, with a
 
 54 ON SOME EFFECTS 
 
 gold currency, this effect could not be produced. 
 Our inconvertible paper currency would, therefore, 
 afford a new test of alterations in the value of gold. 
 With a metallic currency, if the cost of ob- 
 taining gold should increase five per cent., it pro- 
 bably would be long before the fact would be ac- 
 knowledged. The fall of price in each particular 
 instance would be attributable to some fact con- 
 nected with the commodity itself. Corn would 
 fall from three guineas to three pounds a quarter ; 
 it would be said that the harvest was better than 
 had been supposed. Labour would fall ; that would 
 be attributed by most reasoners to the fall in the 
 price of corn ; and the fall in the price of almost 
 all other articles would be attributed (and rightly 
 enough) to the fall in the price of labour. At the 
 same time, there is no doubt that some of the com- 
 modities, the supply of which depends on the sea- 
 sons, would rise, as no season is equally favourable 
 to all. This would help to keep the real fact out 
 of sight ; and it could be proved only by a very 
 wide induction, and after a considerable period. 
 With an inconvertible and stationary paper cur-
 
 OF PAPER MONEY. 55 
 
 rency, if other prices remained unaltered, and bul- 
 lion rose, the fact would at once be attributed to 
 its true cause. 
 
 But if an increased cost of obtaining- bullion, 
 and an increased issue of notes should be con- 
 temporaneous, there would probably be consider- 
 able difficulty in apportioning the consequent rise 
 in the price of bullion between the two causes ; 
 and the difficulty of estimating- the part to be 
 attributed to the increased expense of obtaining" 
 bullion, would be still greater if instead, or con- 
 temporaneously w T ith the issue of notes, there 
 should be an increased rapidity in their circula- 
 tion, or an increased use of credit, or of balancing- 
 accounts, or of any other substitute for money. 
 When the use of these substitutes increases in a 
 country employing- a metallic currency, they cause 
 a rise of prices, an export of money, and then a 
 return of prices to their former level. In a country 
 possessing solely an inconvertible paper currency, 
 they must operate solely by producing- a rise of 
 prices. 
 
 In my hypothesis, I have supposed a substi- 
 tution of ninety millions of paper for forty-five
 
 56 ON SOME EFFECTS 
 
 millions of money. In such a case, the facls 
 would be so glaring, that no one could doubt that 
 the profuse issue of paper had occasioned almost 
 all the alterations observable in prices. But if 
 the issue had been gradual, and there had never 
 been more than sixty millions in notes at one time 
 in circulation, if the circulation of the inconver- 
 tible paper had lasted ten or twelve years ; and 
 if, during that time, variations, might have been 
 supposed to have occurred from time to time in the 
 expense of obtaining gold, in the rapidity of our 
 circulation, and in the use of substitutes for 
 money, much dispute would probably arise as to 
 the causes of the variations of the market price of 
 gold from its mint price, and as to the respective 
 force of those causes. Some would say that it 
 was not the paper which had fallen, but the gold 
 which had risen, or, in other words, that the 
 market price of gold was above its mint price, 
 not because more notes had been issued than the 
 amount of the metallic money previously in circu- 
 lation, but because the expense of obtaining gold 
 had subsequently increased. Others would con- 
 sider the rise of prices as principally occasioned
 
 OF PAPER MONEY. 57 
 
 by those improvements in banking and commerce, 
 which diminish the use and quicken the circulation 
 of money. And others probably would deny the 
 existence of either of the above causes, and attri- 
 bute the whole difference to the amount of the 
 issues of paper. 
 
 And history bears me out in saying that there 
 might exist a body who would deny the existence 
 of any difference at all, and who would, after 
 debate, solemnly resolve " that the notes of the 
 " Company have hitherto been, and are at this 
 " time, held, in public estimation, to be equivalent 
 " to the legal coin of the realm ;" or, in other 
 words, that when eighty-nine guineas would pur- 
 chase twenty-four ounces of gold bullion, and 
 ninety-four pounds in notes would not purchase 
 twenty ounces, the notes were more valuable than 
 the guineas ; or, to put it in a different shape, that 
 when one hundred sovereigns would purchase one 
 hundred and thirty pounds in notes, yet that one 
 hundred and one pounds in notes were of more 
 value than one hundred sovereigns. 
 
 You must all have long been aware that in 
 my supposition of a country using a currency con-
 
 58 ON SOME EFFECTS 
 
 sisting of inconvertible paper, I have been describ- 
 ing- England during- the continuance of the Bank 
 Restriction Act. 
 
 Before the memorable year 1797, the Bank of 
 England was, what it now is again, a corporation 
 of great wealth, issuing notes payable in gold, 
 and protected by no privilege from the necessity 
 of making that payment on demand. In the be- 
 ginning of that year, circumstances, which I will 
 not now attempt to explain, occasioned a run 
 upon the Bank, to which the Directors believed 
 their reserve of gold to be inadequate ; and in an 
 evil hour for the country, though a fortunate one 
 for the Bank, they begged the assistance of their 
 principal debtor, the Government. Silver and 
 gold Mr. Pitt had not, but he gave them an 
 order, restricting the Bank from paying its notes 
 in gold ; a restriction which, after some interlo- 
 cutory prolongations, was extended to six months 
 after a general peace, and which, in fact, continued 
 in force nearly a quarter of a century. This re- 
 striction removed the danger of bankruptcy ; but, 
 though it appeared to enable the Bank to issue as 
 many of their notes as they pleased without the
 
 OF PAPER MONEY. 59 
 
 possibility of being called on for immediate pay- 
 ment, yet as no one was obliged to take them, the 
 commercial existence of the corporation was in 
 danger of being destroyed. The value of bank 
 notes was, however, for some time kept upon a 
 par with the gold which they represented, partly 
 from habit, partly from their being both received 
 and tendered in payment by Government, and 
 principally from their not being issued in a greater 
 amount than was necessary to replace the coin 
 which had been withdrawn. 
 
 Towards the year 1809, however, circumstances 
 occurred which, if our currency had been metallic, 
 would have occasioned a less amount of it to be 
 necessary. The interruption of our commerce by 
 the general extension of the war, and by Napo- 
 leon's decrees, subsequently aided by our own 
 orders in council, threw great difficulties in the 
 way of obtaining the precious metals from other 
 quarters. At the same time extraordinary impor- 
 tations of corn, subsidies to foreign powers, and a 
 large government consumption abroad, part of 
 which was paid for in bills on England, drawn by 
 our own commissariat, and for all of which gold
 
 60 ON SOME EFFECTS 
 
 was the readiest remittance, kept up a constantly 
 increasing demand for bullion. An unfavourable 
 exchange, an export of coin, and the increased 
 value and efficiency of the portion retained, would 
 have been the consequences if our currency had 
 been metallic. Being inconvertible paper, the 
 consequences must have been a rise of the market 
 price of bullion over the mint price, and a de- 
 pression of the exchange at least in that propor- 
 tion, even if the amount of our paper had con- 
 tinued unaltered. On the contrary, it was in- 
 creased ; and the price of bullion, both causes 
 acting upon it in the same direction, continued to 
 rise. The exchange fell not only to the amount 
 of the difference between paper and gold, but still 
 lower, both because the foreign holder of a bill 
 on England could never be sure that bullion 
 would not rise still higher before he received 
 notes for his bill, and because the bills drawn 
 on England by government agents abroad were 
 thrown on the market without the caution or the 
 skill of men acting on their own account. I have 
 often wondered that, under such circumstances, 
 three years were suffered to elapse before any
 
 OF PAPER MONEY. 61 
 
 English creditor endeavoured to enforce payment 
 either in gold, or in notes estimated at the gold 
 they would purchase. 
 
 At length, however, in June, 1811, Lord King, 
 probably with a view to demonstrate by an experi- 
 menhim cruets the real value of Bank of England 
 notes, gave notice to his tenants that he would no 
 longer receive notes at par, but that his rents 
 must thenceforth be paid in guineas, or in an equal 
 weight of Portuguese gold coin, or in Bank of 
 England notes of a sufficient nominal value, to 
 purchase such an equal weight. 
 
 Lord King's attempt at practical reasoning met 
 with a practical answer. The 51 Geo. III. cap. 
 127, was passed, which made the buying or sell- 
 ing coin at a rate above its nominal value, or the 
 giving or receiving Bank of England notes at a 
 rate below their nominal value, a crime punish- 
 able by fine and imprisonment ; and prohibited a 
 distress for rent after a tender in Bank of England 
 notes of the amount due. Arrest for debt after 
 such a tender had before been prohibited. 
 
 The act seems liable to be easily evaded, and 
 probably would have been so, if there had been
 
 62 ON SOME EFFECTS 
 
 any sudden and enormous depreciation of bank 
 notes ; if there had been a sudden issue, for in- 
 stance, sufficient to sink their value one-half. It 
 was, however, submitted to, with the exception of 
 a petty smuggling traffic, by which the remaining 
 guineas, except a few which were hoarded, were 
 gradually exported. I recollect, however, so late 
 as 1814 being offered 10,000 guineas for 14,000/. 
 in notes. 
 
 The Directors of the Bank abused their power 
 much less than could have been expected. It is 
 true they did not diminish their issues, when the 
 rise in the market price of gold shewed that an 
 increased use of the substitutes for money, or an 
 increased difficulty in obtaining gold, had made 
 them still more excessive. It is true, also, that 
 they did, after a time, increase their issues from 
 less than twenty-three millions and a half, the 
 amount in the beginning of 1811, to 28,979,876/., 
 the amount towards the end of 1814; but such 
 conduct, injurious as it was, is a model of sobriety 
 and moderation when compared with that of any 
 other individual or community invested with simi- 
 lar powers.
 
 OF PAPER MONEY. (33 
 
 At length a period arrived when peace had di- 
 minished our foreign expenditure,, and put an end 
 to our subsidies : trade had returned to regular 
 channels, and more regular, but, perhaps, lower 
 profits. All prices had fallen from the conver- 
 sion of unproductive into productive consumers ; 
 and, in some main articles, from favourable sea- 
 sons, great commercial losses in the preceding 
 years had diminished speculation and credit, and 
 bank notes were rising to a par, indeed had 
 almost reached a par, with gold. The restriction 
 act was gradually repealed, the market price sunk 
 fourpence halfpenny per ounce below the mint 
 price, and the subsequent disorders of our cur- 
 rency cannot be charged on the direct interference 
 of the legislature. 
 
 The 51 Geo. III. was passed to prevent bank 
 notes from being at an open discount. " The 
 " Bank," said Lord Stanhope who introduced it, 
 " is one of the bottom planks of the ship of Eng- 
 (C land, and woe to us if we permit it to be bored 
 " through." There can, I think, be little doubt 
 now, that an open discount in bank notes, a re- 
 cognised difference between paper and metallic
 
 G4 ON SOME EFFECTS 
 
 prices, would have been the best palliative of the 
 restriction act. It is not impossible that it might 
 have induced the Bank to reduce their issues, until 
 their paper had been at a par with gold. They 
 must have been anxious to save their notes from 
 avowed depreciation, and little as they admitted 
 that the amount of their notes had any thing to do 
 with their value, still they probably would have 
 tried the experiment of diminishing that amount, 
 if it were only to shew their opponents the useless- 
 ness of such a measure ; and when they found 
 the plan succeed, perhaps even bank directors, 
 such as bank directors then were, might have been 
 convinced. If, however, their conduct had re- 
 mained unaltered, the public would have had the 
 power, and probably the will, to secure to them- 
 selves the use of a less variable currency. Two 
 prices would have been established, one in gold, 
 the other in notes, diverging or approaching as 
 the price of guineas in notes rose or fell. Or 
 more probably, all prices would have been esti- 
 mated in guineas, and paid in notes according to 
 the discount of the day. The consequences of an 
 increased difficulty in obtaining gold, or of an
 
 OF PAPER MONEY. 65 
 
 increased use of credit, or of the substitutes for 
 gold, would have been, that less gold would have 
 been sufficient. The power of arresting for any 
 debt payable in gold would indeed have been 
 suspended, or at least diminished, as the debtor 
 would have been able to protect himself by ten- 
 dering the amount in bank notes ; but it may be 
 questioned whether that would have been any 
 public injury: in all other respects we might 
 have returned to the state of things before the 
 restriction — and we should have escaped the tem- 
 porary evils produced by the restriction from 
 1811 to 1819, and the permanent ones which 
 have survived it. We should have escaped that 
 part of the variation of prices during those eight 
 years which is attributable to the varying issues 
 of bank notes ; and permanent contracts would not 
 have been entered into, when 1869/. in notes were 
 worth only thirty pounds of gold, to be performed 
 when they were worth forty pounds. 
 
 I have said that the bank directors exercised 
 their power with extraordinary moderation : I can- 
 not support this remark by comparing their con- 
 duct with that of any other individuals in a pre- 
 
 F
 
 66 ON SOME EFFECTS OF PAPER MONEY. 
 
 cisely similar situation, because I am not aware that 
 the power of issuing notes having a forced circula- 
 tion, with a suspended liability of payment, and that 
 payment guaranteed only by the issuers, has in any 
 other instance been confided by the government of 
 a country to any of its subjects. But that power has 
 often been assumed by the government itself, and 
 it is with the conduct of governments, therefore, 
 that we must compare that of the bank. The lowest 
 depreciation of bank notes, or, in other words, 
 the greatest difference between the market and 
 the mint price of gold, was thirty per cent. ; and a 
 part of this difference is probably to be attributed, 
 not to the original excess, but to the absence of 
 subsequent contraction, an imprudence on the part 
 of the bank, but a much less glaring one than 
 over issue. 
 
 In the next Lecture we shall see what govern- 
 ments have done.
 
 LECTURE III*. 
 
 ON SOME EFFECTS OF GOVERNMENT 
 PAPER MONEY. 
 
 In the last Lecture I considered the effect on the 
 value of metallic money which can be produced 
 by paper money, issued by individuals. In the 
 present Lecture Ishall consider the effects of paper 
 money issued by governments. 
 
 My first instance shall be taken from the cele- 
 brated Mississippi scheme of Law. 
 
 In the beginning of the year 171 6_, the specie 
 circulating in France was supposed to amount to 
 about £40,000,000 sterling, or 800 millions of 
 
 * The following account of Law's transactions is taken from Sir 
 James Steuart, book iv. part 2 ; Macpherson's Commerce, vol. iii. 
 p. 107 ; and Storch, vol. iv. notexvi. 
 
 The account of the financial transactions during the French 
 revolution is taken from Storch, vol. iv. note xvi., and from vol. v. 
 of the Histoiy of the French Revolution, by M. A. Thiers. 
 
 The statements respecting the Russian, Danish, and Austrian 
 paper monies, are also taken from Storch, vol. iv. note xvi. 
 
 F 2
 
 68 ON SOME EFFECTS 
 
 livres — the mark of silver, which is worth about 
 40 English shillings, being coined into 40 livres. 
 But for some previous years the quantity of silver 
 denominated a livre had been constantly varying ; 
 in 1715, the mark had been coined into 28 livres; 
 m 1709 it had been coined into 40; in 1689 
 it had been coined into 28; and between 1689 
 and 1709 had been subject to constant alter- 
 ation. Under these circumstances Law established 
 a bank at Paris, called the General Bank, issuing 
 notes payable on demand in livres of the same 
 weight and fineness as those which were current 
 at its institution ; promising, in fact, to pay, not a 
 nominal, but an ascertained quantity of silver*. 
 The security afforded by this promise enabled the 
 bank in the course of three years to issue notes to 
 the amount of 59 millions of livres ; and if we 
 suppose that about 19 millions of livres were con- 
 sequently withdrawn from circulation, the notes 
 of the bank may be supposed to have raised the 
 whole currency of the kingdom to £41,000,000 
 sterling, or 840 millions of livres. 
 
 * The notes ran thus : " The Company promises to pay the 
 bearer at sight livres in coin of the same weight and fine- 
 ness with the coin of this day."
 
 OF GOVERNMENT PAPER MONEY. 69 
 
 On the first of January, 1719, the Government, 
 that is, the Regent in the name of the King-, took 
 possession of the bank. The first alteration was 
 in the form of the notes ; the words, '.' of the same 
 weight and fineness" were omitted, and the note 
 no longer promised to pay any thing more definite 
 than so many livres ; being, in fact, a promise to 
 pay whatever the debtor thought fit, as the debtor 
 had the power, in fact was in the habit, of increas- 
 ing and diminishing the quantity of silver deno- 
 minated a livre according to his notions of expe- 
 diency. The next change was in the amount of 
 its issues. 
 
 The bank issued notes to the nominal amount 
 
 of millions of livres. 
 
 On April 22, 1719 - 51 
 
 June 10, 1719 - 50 
 
 July 25, 1719 - - - 240 
 
 September 12, 1719 - - 120 
 
 October 24,1719 - - - 120 
 
 December 29, 1719 - - 129 
 
 January— , 1720 - - - 21 
 
 February—, 1720 - - 279 
 
 Total issued in eleven months - 1010 millions 
 
 of livres of the nominal value of rather more 
 
 than <£50 millions sterling ; of which at least
 
 70 ON SOME EFFECTS 
 
 600 millions must have been in circulation at one 
 time. What part of the previously existing specie 
 remained in circulation, is doubtful. It is clear, 
 however, that it could not have been all with- 
 drawn, as no run was ever made upon the bank 
 for coin. Its notes, though they lost the pre- 
 mium which they had borne while the establish- 
 ment continued in Law's hands, still exchanged 
 for coin at par. — I must now turn a little back- 
 wards in the story, and state, that while the bank 
 was in the hands of Law and his partners, they 
 received from the government the exclusive privi- 
 lege of trading to the West Indies and the French 
 possessions on the continent of America, (whence 
 the name of the Mississippi scheme has ever 
 since adhered to the whole of the transactions 
 originating with Law,) to all countries to the east 
 of the Cape of Good Hope, and had been incor- 
 porated under the name of " The Company of 
 the Indias." The mint, which in France is a source 
 of profit,, was afterwards made over to them, and 
 they obtained a lease from the crown, first of the 
 duties on tobacco, and afterwards of all those 
 duties which were usually leased under the old
 
 OF GOVERNMENT PAPER MONEY. 71 
 
 regime, and they were at last entrusted with the 
 receipt of all the revenues of the state. In return 
 for these privileges, besides the annual rents 
 for the duties leased to them, they engaged to 
 lend the government 1,600 millions (£80 mil- 
 lions sterling) at three per cent. To enable 
 them to do this, the bank was restored to them, 
 on the 22d of February, 1720 : their proceed- 
 ings, however, were to be under the control of 
 government, and the King guaranteed the pay- 
 ment of their notes. Five days after followed the 
 celebrated arret of the 27th February, 1720, 
 which prohibited any person or corporation from 
 possessing any bullion, or more than five hundred 
 livres (twenty-five pounds) in specie. The most 
 extensive powers of search were given to the 
 police, and informers were rewarded with all the 
 excess found. 
 
 At the same time the notes of the company were 
 not only made a legal tender, but the only legal 
 tender, and the payment of any sum beyond ninety- 
 nine livres, (four pounds nineteen shillings) in 
 specie was made punishable by a fine of three 
 thousand livres. The object of these laws was,
 
 72 ON SOME EFFECTS 
 
 of course, first to force all holders of specie to 
 carry it to the bank to be exchanged for notes ; 
 secondly, to prevent their demanding payment 
 from the bank in specie, except for small sums ; 
 and thirdly, to give a forced value to the notes, as 
 the only money that could be safely tendered, or 
 safely kept. On the 5th of March, 1720, — a con- 
 siderable sum of specie having probably been re- 
 ceived by the bank in the mean time, — an arret 
 was made, directing the mark of silver to be worth 
 eighty livres. This, of course, enabled the bank 
 to pay whatever specie might be demanded by the 
 holders of their notes, at half the former expense. 
 This arret continued in force only a week, for it 
 was followed by that of the 1 1th March, 1720, 
 which declared that on the 1st of April the mark 
 of silver was to be worth only seventy livres, and 
 on the 1st of May, sixty-five ; and all use of gold 
 and silver as a medium of exchange was pro- 
 hibited. As the bank received coin in the mean- 
 time at eighty livres the mark, this occasioned a 
 considerable influx of coin to their coffers, in anti- 
 cipation of its impending reduction in value. In 
 three weeks they are said to have received 44
 
 OF GOVERNMENT PAPER MONEY. 73 
 
 millions of livres, worth nominally about one mil- 
 lion one hundred thousand pounds sterling. 
 
 The government and the bank seem now to 
 have supposed that the ordinary standards of 
 value, gold and silver, being got rid of, bank 
 paper would be unsusceptible of depreciation or 
 excess ; and between the beginning of March and 
 the 2nd of May, they issued notes of the nominal 
 value of 1,626,672,910 livres: being more than 
 double the whole average amount of the money of 
 the country. In the beginning of May, there were 
 in circulation, notes of the nominal value of 
 2,235,083,590 livres ; being a nominal value 
 nearly three times as great as the 800,000,000 
 of coin for which they were substituted. Gold 
 and silver coin would, of course, have disappeared, 
 even if they had not been legally banished. Still, 
 for the purpose of small payments, there was a 
 circulation of small silver coins, and of copper, and 
 in these small coins the bank paid those notes of 
 ten livres which were presented to it. It may 
 appear singular, that this coinage of small silver 
 remained in the country. As the nominal value 
 of every commodity had been at least trebled in
 
 74 ON SOME EFFECTS 
 
 France, we might have expected that the silver 
 would have been collected and exported, and that 
 the failure of the bank would have been occasioned 
 by their subsequent inability to pay silver for their 
 small-notes — and such, I think, would have been 
 the case, if the whole transaction had taken up a 
 longer time. But in less than three weeks after 
 the last issue of notes, the bank was murdered by 
 the government. If the government had not in- 
 terposed, it might have lived in apparent credit 
 for three months longer. 
 
 The history of the Mississippi scheme is a proof 
 how ignorant the whole of a cultivated nation may 
 be of the necessary results of their actions. 
 
 It appears to us obvious, that when the cur- 
 rency of the country was suddenly tripled, all 
 prices must have experienced at least an equal 
 rise. The French government was so little pre- 
 pared for this result, that when it took place, they 
 resorted to the most violent means to correct it. 
 On the 21st of May, an arret was issued, declaring 
 that the bank notes in circulation should in future 
 pass at only half their nominal value. Now this 
 was not, in fact, a greater diminution of the value
 
 OF GOVERNMENT PAPER MONEY. 75 
 
 of the notes than the arret of the 5th of March pre- 
 ceding, which had directed the mark of silver to 
 be worth 80 livres, instead of 40. On the 4th 
 of March, the holder of 40 livres in notes could 
 demand of the bank a mark of silver. On the 
 5th of March he could demand only | a mark. 
 So on the 20th of May, the holder of 65 livres in 
 notes was entitled to a mark of silver. On the 
 21st, he was entitled to only f a mark. The first 
 operation diminished the value of the notes di- 
 rectly only as compared with silver. The second 
 diminished their value directly, not only in silver, 
 but in everything- else. The first was injurious to 
 creditors ; the second to debtors. In the first case, 
 the holder of the notes, so far as he was a debtor, 
 could throw his loss, or much more than his loss, 
 upon his creditors ; in the second case, so far as he 
 was a creditor, he could reimburse himself, or much 
 more than reimburse himself, from his debtors. 
 But in both cases, as between him and the bank, 
 he was equally defrauded ; and as the arret of the 
 5th of March had not interfered with the circu- 
 lation of the notes, the government probably ex- 
 pected that of the 21st of May to create as little 

 
 76 ON SOME EFFECTS 
 
 alarm. But they were mistaken. Though the 
 French public were too ignorant to perceive the 
 consequences of raising the nominal value of 
 silver, they understood those of sinking the no- 
 minal value of notes. Up to the 21st of May, 
 holders of commodities possessing intrinsic value 
 seem to have given them in exchange for the 
 notes, in blind confidence that others would do 
 the same. Others did not, in fact, do the same, 
 for as prices kept rising, the man who in Decem- 
 ber had sold a given quantity of corn for one 
 thousand francs in notes, would not have been 
 able in February to purchase an equal quantity of 
 corn, or of any other commodity, with the same 
 notes. Strange, however, as it may appear, the 
 deterioration of the notes in value does not appear 
 to have affected their circulation. All that people 
 looked to was nominal value, and while the notes 
 were called livres, nobody inquired what a livre 
 meant. But the instant the denomination was 
 altered ; the instant government declared that a 
 note for ten livres should be worth only five, the 
 baselessness of the paper fabric was detected. 
 The terror was as universal and as blind as the
 
 OF GOVERNMENT PAPER MONEY. 77 
 
 confidence had been. To use Sir James Steuart's 
 words, on the 22d day of May, a man with 
 one hundred millions of bank notes might have 
 starved in the streets. The Regent and his mi- 
 nisters, as much alarmed as the people at the 
 tremendous machinery they had set in motion, 
 tried the most arbitrary and the most inconsistent 
 expedients to control it. They revoked the 
 arret of the 21st of May, and at the same time 
 raised the denomination of the coin, by declaring 
 that the mark of silver should be worth 82^ livres. 
 To stop the run on the bank, they ordered its 
 payments to be suspended. And when 9000 
 livres in paper would purchase only 82^ in silver, 
 an arret was issued, prohibiting any person from 
 refusing to take the notes at par, under a penalty 
 of double the value of the notes refused. Under 
 a similar forfeiture all persons were commanded 
 to bring back whatever funds they had ex- 
 ported, and forbidden to make any investments 
 in foreign securities. All persons were forbidden 
 to meet together, and soldiers were employed to 
 prevent and disperse all assemblies of merchants 
 and brokers. And when it was found that confi-
 
 78 ON SOME EFFECTS 
 
 dence could not be restored by forbidding people 
 to communicate their fears, and that the credit of 
 the notes was irretrievable, the transaction was 
 wound up by the arret of the 10th of October, 
 1720, which, after providing, not for the payment, 
 but for the investment, at a very low interest, of 
 the outstanding notes, declared that after the 
 1st of December following, they should have no 
 value. 
 
 The next great financial bubble of France was 
 the issue of Assignats. A few years before 1789, 
 the specie current in France had been estimated 
 at 2200 millions of livres, or about 88 millions 
 sterling. The revolutionary government pos- 
 sessed great wealth in confiscated property, but 
 wanted money. To supply this want, and to 
 create a market for the confiscations, they issued 
 notes in the following form : 
 
 " National property Assignat of 100 francs." 
 
 These notes were a legal tender, and in that re- 
 spect resembled every other paper currency having 
 a forced circulation ; but they differed from all 
 others in not even professing to represent any spe- 
 cified thing. The words " National property"
 
 OF GOVERNMENT PAPER MONEY. 79 
 
 signified that their value might be obtained by pur- 
 chasing 1 with them the confiscated property at the 
 auctions of such property, which were constantly 
 occurring. But there was no reason why that value 
 should have been called 100 francs. It depended 
 on the comparative quantity of the property so pur- 
 chasable, and the number of assignats issued. They 
 were first issued in May, 1 790, and the amount 
 was fixed by law at 400 millions French, or 
 sixteen millions sterling. In September, 1790, 
 1200 millions French had been issued; in 1793, 
 36-26 millions ; in 1794, 8817 millions and a 
 half; in 1795, 19,699 millions and a half; and 
 on the 7th of September, 1796, the issue had 
 amounted to 45,579 millions, or about ^1,823,160 
 sterling*. 
 
 We have seen the consequences of the issue by 
 Law of paper of the nominal value of 2200 mil- 
 lions of livres, — we may conceive the conse- 
 quences of issuing 45,000 millions. 
 
 The value of assignats fell from day to day. 
 The prices of commodities rose in proportion, 
 
 * Storch, vol. iv. p. 162.
 
 80 ON SOME EFFECTS 
 
 not merely to the existing depreciation, but to the 
 well-founded apprehension of a still further de- 
 preciation. 
 
 When the supply of a durable commodity is 
 suddenly increased, the value falls, but not neces- 
 sarily in proportion to the additional supply. 
 Unless the causes of the additional supply are 
 ascertained to be permanent, most of the dealers 
 prefer holding their existing stock, in the hope 
 that the market may alter, to parting with it at a 
 certain loss. But when a commodity is perishable, 
 no loss can be so complete, or so certain, as to 
 retain it. A small increase of supply may create 
 such a competition among the sellers, as to reduce 
 the price to nothing. A fish market might be so 
 over supplied as to reduce the sellers to give 
 away a portion of their stock, or even to pay 
 people to remove it from their stalls. Assign ats 
 were a most perishable commodity. Every body 
 taxed his ingenuity to find employment for a 
 currency, of which the value evaporated from hour 
 to hour. It was passed on as it was received, 
 as if it burned every one's hands who touched it. 
 Those who had never engaged in business, became
 
 OF GOVERNMENT PAPER MONEY. 81 
 
 speculators. Others purchased estates, built 
 houses, or bought pictures and furniture. What 
 was yesterday an extravagance became a bargain 
 to-day. No one scrupled any expense, even for 
 mere transitory pleasure, if it afforded a means 
 of investing or spending, or in any way getting 
 rid of what he possessed in assignats*. 
 
 Those who depended on fixed money payments 
 were reduced to beggary, and beggary, at periods 
 of general distress, is starvation. Every morning- 
 there were found in the waters, and on the shores 
 of the Seine, the bodies of wretches who had pre- 
 ferred death by suicide to death by hunger f. 
 The state of the labouring- classes was scarcely 
 more tolerable. An increase in the rate of wages 
 is never contemporary, even under the most favour- 
 able circumstances, with a forced depreciation of 
 money. The labourers, generally speaking, have 
 but weak means of combining to demand higher 
 wages, or of persisting- in their combination, if 
 the advance be refused ; while capitalists are 
 almost always combined to resist the advance, and 
 
 * Say, Traite d'Economie Politique, vol. i. 202. 
 t S torch, vol. iv. 1G3.
 
 82 ON SOME EFFECTS 
 
 have funds to stand out in their resistance. And 
 in the general disorganization of both the internal 
 and the external commerce of France, which 
 marked the periods which I am describing-, the 
 funds for the maintenance of labour, and the 
 average rate of wages must have fallen off, even 
 if the currency had remained metallic, and at its 
 former standard. The sovereign people felt and 
 acted with the usual folly and violence of a despot. 
 The depreciation of the assign ats was attributed 
 to the conspiracies of the Aristocrats, and to the 
 intrigues of Mr. Pitt. The rise of prices was ex- 
 plained by the favourite theory of a monopoly ; 
 and it was thought that all this could be re- 
 medied by terror, by substituting fine, imprison- 
 ment, confiscation, and death, for the ordinary 
 motives to commercial transactions. " If provi- 
 " sions and commodities are wanting," said the 
 Procureur-General Chaunette, "on whom will the 
 " people, the legislator people, lay the blame ? 
 " On the authorities ? — no. On the convention ? 
 " — no. It shall lie on the merchants and the 
 " dealers. Rousseau was one of the mass of the 
 "people, and he well said, 'when the mass of
 
 OF GOVERNMENT PAPER MONEY. 83 
 
 " ' the people have nothing- else to eat, they must 
 " ( feed on the rich*.'" To prevent the con- 
 stantly increasing- difference between the value of 
 paper and metallic money, the purchasing assig- 
 nats with money at less than their nominal value, 
 or the sale of money for more than its nominal 
 value in assignats, or the making any difference in 
 price according- as that price was to be paid in 
 money, or in assign ats, was made a crime punish- 
 able by six years' imprisonment in irons f. 
 
 To prevent the hoarding of the precious metals, 
 all concealed gold and silver, in whatever form, 
 became forfeited, half to the state, and the other 
 half to the informer. These measures had the 
 success that might have been expected. The law 
 against taking assign ats at less than par, was 
 passed in April 1793. In the following June, 
 100 francs in silver were worth 300 in paper. 
 In August they were worth 600 J. The failure 
 of the law seems to have been attributed to its 
 mildness. The punishment was raised to twenty 
 years' imprisonment in irons § : and in 1796, 
 
 * Thiers, vol. v. 319. t lb. vol. v. 117. % lb. vol. v. 117. 
 
 § lb. vol. v. 162. 
 
 G 2
 
 84 ON SOME EFFECTS 
 
 an assignat of 100 francs, professing to be worth 
 41. sterling, was currently exchanged for 5 sous 
 6 deniers, or rather less than three pence in 
 money *. 
 
 These efforts to prevent the depreciation of 
 assign ats in money, were accompanied by efforts, 
 as violent as senseless, and still more mischievous 
 to prevent their depreciation in commodities. 
 
 The first of these attempts was the celebrated 
 maximum. By that law, which was passed in 
 May 1793 t» when the issue of assign ats was not 
 one-tenth of the amount to which it afterwards 
 rose, corn was directed to be sold exclusively, 
 in open market, at a price to be fixed by each 
 commune ; or, as we should say, by the vestry of 
 each parish, according to the average price of 
 the four months of January, February, March, 
 and April, preceding the enactment. 
 
 As that price was even then grossly inadequate, 
 and became more so every day, the markets were 
 of course unsupplied. This was attributed to what 
 the French call accaparement, and we, when with 
 equal wisdom we made it a crime, called engross- 
 * Starch, vol. iv. 162. t Thiers, vol. v. 118.
 
 OF GOVERNMENT PAPER MONEY. 85 
 
 ing\ The decree * which made accaparement a 
 crime, defined an accaparenr to be " one who 
 withdraws from circulation commodities of the first 
 necessity, and does not publicly sell them ;" and 
 it defined commodities of the first necessity to be, 
 bread, wine, butcher's meat, corn, flour, leg-umi- 
 nous vegetables, fruit, charcoal, wood, butter, 
 tallow, hemp, flax, salt, leather, liquors, salted 
 provisions, cloth, wool, and all clothing- except 
 silk. Every dealer was bound to make periodical 
 declarations of his stock, which the communes 
 were to verify by search ; and each commune was 
 to appoint persons who were to fix such prices to 
 each article, as would leave a moderate profit to 
 the dealer, but not exceed the means of the people. 
 " If, however," added the decree, " the cost of 
 " production be such as to leave no profit to the 
 " dealer, the commodity must still be sold at such 
 u a price as the purchaser can afford." And 
 any violation of the decree, any refusal to sell, 
 any concealment of stock/ or even the being" ac- 
 cessory to any such violation, was punished by 
 death. 
 
 * Thiers, vol. v. 163.
 
 86 ON SOME EFFECTS 
 
 Of course the majority of the shops were shut, 
 and in those which continued open only the worst 
 articles were exposed to public sale, and all that 
 was tolerable was reserved to be sold in secret 
 bargains to those who still retained the means, and 
 were willing to incur the risk of becoming pur- 
 chasers at the metallic value. 
 
 The convention appear to have thought that 
 the inefficiency of the law arose from the maxi- 
 mum having been imposed on the finished com- 
 modities in the dealer's hands, leaving the charges 
 of production and transport unregulated. Com- 
 missioners were directed to be appointed in every 
 parish to state the prime cost of all the enumerated 
 commodities at the place of production, accord- 
 ing to the prices of 1790, that is, according to 
 metallic prices, which were not one-tenth of those 
 which existed at the time of the decree. To this 
 one-third was to be added (that is, not one thir- 
 tieth part of what ought to have been added) to 
 compensate for the subsequent rise. A sum was 
 then to be fixed for the expense of carriage to the 
 market ; five per cent, on these sums was to be 
 added for the profit of the wholesale merchant,
 
 OF GOVERNMENT PAPER MONEY. 87 
 
 and ten per cent, for that of the retailers ; and 
 the aggregate of these sums was to be the price 
 of the commodity *. To diminish in some mea- 
 sure the competition of purchasers, the consumer 
 was forbidden to purchase from any one but the 
 retailer, and the retailer from any one but the 
 wholesale dealer: even the quantity which each 
 might purchase was defined. The grocer was for- 
 bidden to take more than twenty-five pounds of 
 sugar at once from the sugar merchant, and the 
 seller of lemonade more than ten : and the au- 
 thorities gave to each intended purchaser a certi- 
 ficate specifying the amount that he might pur- 
 chase. 
 
 As the French subsist chiefly on bread, the 
 bakers' shops were the principal subjects of legis- 
 lation. They were not to be entered without a cer- 
 tificate, which at the same time was a test of the 
 good political principles of the bearer, and speci- 
 fied the quantity that he might purchase. A long 
 rope was extended from the counter into the 
 street which the file of candidates for purchase 
 
 * Thiers, vol. v. 321.
 
 88 ON SOME EFFECTS 
 
 were to lay hold of, in order to ensure their en- 
 tering- the shop in fair succession *. But it was 
 found that persons spent whole nights in the 
 street, in vain attempts to make their entrance. 
 Sometimes the rope was cut through wantonness 
 or malice, and the feeble were suffocated or tram- 
 pled to death in the consequent struggles ; and 
 the disorder became the more frightful when, as 
 a remedy, it was decreed that the last comers 
 should be served first. To prevent the closing 
 the shops, every person who, having been a year 
 in trade, discontinued or diminished his business, 
 was declared a suspected personf ; and this when 
 suspicion was imprisonment, and imprisonment 
 the guillotine. At length, even the revolutionary 
 government seem to have felt the impossibility of 
 using fear instead of hope as the motive of produc- 
 tion and exchange. The assignats, having sunk 
 below one three-hundredth part of their nominal 
 value, were called in %, the government offering 
 to take them at one per cent, in payment of 
 a forced loan which, in violation of all resem- 
 
 * Thiers, vol. v. 1 20. f lb. vol. v. 320. 
 
 •| Storcli, vol. iv. 164.
 
 OF GOVERNMENT PAPER MONEY. 89 
 
 blance to honesty, was imposed in money, and 
 to give mandate, a new species of paper money, 
 in exchange for them at the rate of three per 
 cent. The ultimate result was, that of the 
 whole 45,579,000,000, 12,744,000,000 were, in 
 some way or other discharged : the remaining 
 32,835,000,000 of the nominal value of about 
 £1,313,000,000 sterling, about twice the amount 
 of our national debt, remained waste paper in the 
 holder's hands. 
 
 The mandats were of the nominal value of 
 2,400,000,000 French, or about £96,000,000 
 sterling : they were directions to the authorities 
 to put the bearers into possession, without auc- 
 tion, of a definite portion of the confiscated estates. 
 Such, however, were the comparative values in 
 money of the property and the mandats, that they 
 came out at a discount, and gradually sunk to less 
 than a seventieth of their nominal value. They 
 were issued on the 9th of June, 1796, and were 
 extinguished, partly in the purchase of confiscated 
 property, and partly in the payment of taxes, 
 before the end of the following September*. 
 
 * Storch, vol. iv. 164, from whom the rest of the lecture is taken.
 
 90 ON SOME EFFECTS 
 
 The length of the details into which I have been 
 led as to the paper currency of France, forces me 
 to pass quickly over the history of the other paper 
 currencies of the continent. Catherine II. gave 
 Russia a paper currency, and, by the moderation 
 of her issues, for some time kept it at par ; but in 
 1814, the period at which Storch closes his narra- 
 tive, four roubles in paper were worth only one in 
 silver*. 
 
 The Bank of Copenhagen was founded in 1736. 
 Nine years afterwards the government freed it 
 from the obligation of paying its notes in full. In 
 1773, the king, thinking probably the privilege 
 of issuing an inconvertible paper money too 
 valuable for a private corporation, took the bank 
 into his own hands. In October 1813, a dollar 
 in silver was worth 1600 dollars in paper f . 
 
 The Austrian paper money owes its origin to 
 Maria Theresa, In 1810 a florin in silver was 
 worth thirteen florins in paper. In 1811 the go- 
 vernment called in the existing paper money, and 
 directed it to be exchanged, at one-fifth of its no- 
 minal value, for a new paper money; and in 
 
 * Storch, vol. iv. 233. t lb. vol. iv. 195.
 
 OF GOVERNMENT PAPER MONEY. 91 
 
 1812, eight florins in paper were worth only one 
 in silver. 
 
 These examples are enough to show that the 
 depreciation of our paper money, great and disas- 
 trous as it was, was far less than has usually at- 
 tended an inconvertible paper currency ; and if on 
 any future war a new bank restriction is proposed, 
 I hope it will be recollected that the evils which 
 that unhappy measure actually produced, great as 
 they were and continue to be, bear no proportion 
 to those which the example of other nations shews 
 us to have been exposed to.
 
 92 NOTE. 
 
 Note to page G. 
 
 Few doctrines appear to me more evidently erroneous 
 than that any considerable variation in the amount of 
 wages can be compensated by a rise or fall of profits. 
 The usual supposition is, as I observed in the text, that 
 the capitalist, at an average, advances the wages of his 
 labourers for one year, and receives, after deducting rent, 
 one-tenth of the value of what they produce. I am in- 
 clined to think, that the average rate of profit is rather 
 greater, and the average period of advance rather less. 
 After making many inquiries on these subjects in Man- 
 chester, I found the general opinion to be, that the 
 manufacturing capitalist turns his capital, at an average, 
 twice in the year, and receives on each operation a 
 profit of 5 per cent. ; and that the shopkeeper, at an 
 average, turns his capital four times in a year, and re- 
 ceives on each operation a profit of about 3£ per cent. 
 On these data, the labourer's share would, of course, be 
 much greater than according to the ordinary estimate. 
 We will suppose, however, that estimate to be correct, 
 and that, after rent has been deducted, the labourer re- 
 ceives, at an average, nine-tenths of the value of what he 
 produces. Under these circumstances, a rise in the 
 amount of wages, amounting to one-tenth, or from 10s. 
 to lis. a week, if that rise is to be deducted from the 
 capitalist's share, would utterly destroy all profit what-
 
 NOTE. 93 
 
 ever. A rise of one-fifth, or from 10s. to 12s. a week, 
 would occasion to the capitalist a loss equal to the whole 
 amount of his former profit. A fall in wages of one- 
 tenth would double profits ; a fall of one-fifth would treble 
 them. Now we know that general variations in the 
 amount of wages to the amount of one-tenth or one-fifth, 
 or to a greater extent, are not of unfrequent occurrence. 
 Yet who ever heard of their producing such an effect on 
 profits ? 
 
 And yet this doctrine has received the sanction both 
 of theoretic and practical men. Mr. Francis Place is 
 asked by the Committee on Artizans and Machinery 
 (First Report, p. 46)*, " Do not the masters in conse- 
 " quence of a rise of wages raise their prices ? " 
 
 " No," he answers, " I believe there is no principle 
 " of political economy better established than this of 
 " wages; increase of wages must come from profits." 
 
 Did Mr. Place ever apply this doctrine when his men 
 asked for higher wages on a general mourning ? Even 
 the Committee appear to have taken this view of the 
 question. The subject is so important, that I will ven- 
 ture to extract the following passage from the Report 
 made in the following Session : — 
 
 " Those eminent persons, who, during the last fifty 
 " years, have reduced the rules that govern the opera- 
 " tions of trade and industry to a science, undertake to 
 " show, by arguments and facts, that the effect of low 
 " wages is not a low price of the commodity to which 
 " they are applied, but the raising of the average rate of 
 * Session of 1824.
 
 94 
 
 NOTE. 
 
 li profits in the country in which they exist. The ex- 
 " planation of this proposition occupies a large portion 
 " of the justly-celebrated work of the late Mr. Ricardo, 
 " on the Principles of Political Economy ; and is also ably 
 " set forth in the following evidence of Mr. M'CulIoch, 
 te to which your committee particularly desire to draw 
 iC the attention of the house : 
 
 " ■ Have you turned your attention to the effect of 
 ei ' fluctuations in the rate of wages on the price of com- 
 " ' modities ? — I have. 
 
 " ' Do you consider that when wages rise, the price 
 " ' of commodities will proportionally increase ? — I do 
 " ' not think that a real rise of wages has any effect 
 " ' whatever, or but a very imperceptible one, on the 
 H * price of commodities. 
 
 " ' Then, supposing wages to be really lower in France 
 " ' than in this country, do you think that that circum- 
 i( e stance would give the French any advantage over us 
 " ' in the foreign market? — No, I do not; I do not think 
 " ' it would give them any advantage whatever. I think 
 H ' it would occasion a different distribution of the pro- 
 11 ' duce of industry in France from what would obtain 
 " ' in England, but that would be all. In France, the 
 " ' labourers would get a less proportion of the produce 
 " ' of industry, and the capitalists a larger proportion. 
 
 " ' Could not the French manufacturer, if he gets his 
 " ' labour for less than the English manufacturer, afford 
 " ' to sell his goods for less ?— As the value of goods is 
 " ' made up wholly of labour and profit, the whole and 
 " * only effect of a French manufacturer getting his
 
 NOTE. 95 
 
 u ' labour for less than an English manufacturer, is to 
 " ' enable him to make more profit than the English 
 i( ' manufacturer can make, but not to lower the price 
 " £ of his goods. The low rate of wages in France goes 
 " ( to establish a high rate of profits in all branches of 
 " ' industry in France. 
 
 " ' What conclusion do you come to in making a 
 f c comparison between wages in England and wages in 
 " ' France ? — I come to this conclusion, that if it be true, 
 " • that wages are really higher in England than in France, 
 " ' the only effect of that would be to lower the profits 
 " ' of capital in England below their level in France, but 
 " ' that will have no effect whatever on the price of the 
 " ' commodities produced in either country. 
 
 " ' When you say that wages do not affect prices, what 
 11 ' is it that does affect prices ? — An increase or diminu- 
 " ' tion of the quantity of labour necessary to the produc- 
 " ' tion of the commodity. 
 
 " ' Supposing that there was a free export of ma- 
 " 'chinery, so that Fiance could get that machinery, do 
 " ' you think that under those circumstances we should 
 " ' retain those advantages which we possess at the 
 " ' present moment ? — Yes, we should ; for the export 
 " ' of the machinery would not lower our wages, or 
 " ' increase the wages in France, so that we should pre- 
 " « serve that advantage to the full extent that we have it 
 11 ' at this moment. 
 
 " ' Will you explain to the committee why you are of 
 " * opinion that the French manufacturer would not 
 " ' undersell the English, seeing that his profits are larger
 
 (C i 
 
 << « 
 II ( 
 
 96 NOTE. 
 
 " ' than the English manufacturer? — Because if he 
 " ' were to offer to undersell the English, he can only do 
 " ' it by consenting to accept a less rate of profit on his 
 " ' capital, than the other French capitalists are making 
 " ' on theirs, and I cannot suppose a man of common 
 " ' sense would act upon such a principle. 
 
 " 'Are the committee to understand, that although a 
 " ( French manufacturer pays half the wages to his men 
 " 'in France, which our manufacturers do in England, 
 yet that his wages being on a par, or a level, in 
 general, with the other wages in France, will render 
 his profits on a par with them, and consequently he 
 V 'would not undersell the English merchant by lower- 
 " ' ing his profits below the average rate of profits in 
 11 ' France ? — Precisely so. I believe, in point of fact, 
 " 'there is no such difference; but he could not under- 
 <s * sell the English manufacturer unless he took lower 
 (C ' profits than all other producers in France were making. 
 " ' I might illustrate this by what takes place every day 
 " ' in England, where you never find the proprietor of 
 " ' rich land, in order to get rid of his produce, offering 
 " '. it in Mark-lane at a lower rate than that which is got 
 " ' by a farmer or proprietor of the very worst land in 
 " ' the kingdom. 
 
 " * Would it not produce a larger sale if the French 
 " ' manufacturer were to sell at a less price ? — Supposing 
 " ' that to be so, the greater the sale the greater would 
 " ' be the loss of profit.' " * 
 
 * Report from Select Committee on Export of Tools and Machi- 
 nery. Session of 1825, pp. 13, 14.
 
 NOTE. 97 
 
 I have extracted this passage rather as indicative of 
 the views of the Committee, than of those of Mr. 
 M'Culloch. Mr. M'Culloch, as will appear on turning 
 to his evidence, meant by wages really high and really 
 low, not a larger or a smaller amount, but a larger or 
 a smaller proportion. But the Committee appear to 
 have understood him to mean a larger or a smaller 
 amount. 
 
 Mr. Bradbury had previously stated the common day 
 wages in France to be about half the wages paid in 
 England. 
 
 He was asked — (i In what way do you consider that 
 " lower wages in France give the French manufacturers 
 " an advantage over English manufacturers? 
 
 " I conceive that, if they pay 3d. a pound for spin- 
 " ning to the operative spinner, and we pay Gd., that 
 " would give them an advantage of 3d. a pound in the 
 '* cost. 
 
 " You mean to say, that the French would be able to 
 " sell the article they make, in consequence of pay- 
 " ing lower wages, cheaper than the English could 
 " sell it? 
 
 " They could afford it 3d. a pound cheaper. 
 
 " You mean to say, that, according to the rate of 
 " wages paid, the price of the article for which they are 
 " paid is high or low ? 
 
 a It may be afforded higher or lower, I should ima- 
 ** gine, as the cost be more or less. 
 
 " Therefore, the whole reason and ground on which 
 " you think that low wages give them an advantage, is, 
 
 H
 
 98 NOTE. 
 
 " that low wages contribute to enable them to sell the 
 " article cheaper than if they paid higher wages ? 
 
 ie Yes ; labour constituting a material feature in the cost. 
 
 " You conceive that increased cost would be a loss to 
 " the party, if the price was not increased in proportion? 
 
 " I should imagine so. 
 
 ** Might not the profits of the proprietor be lessened ? 
 
 iC They might be lessened, which is in effect a loss. 
 
 u Might not that enable him to bear the loss which 
 ft the difference of wages produces * ? 
 
 " If he chose to make that sacrifice. 
 
 " Might not the profits be lessened until there were no 
 (t profits at all ? f 
 
 " Very easily I should think." — (Fifth Report of the 
 select Committee on Artizans and Machinery, p. 547, 
 549, 550.) 
 
 It was with reference to this evidence that Mr. 
 
 * In other words, " Might not the loss enable him to bear the 
 " loss ? " 
 
 t This question appears to have come from a different interro- 
 gator. Injustice to the clear and intelligent evidence of Mr. Brad- 
 bury, I should observe that he was far from falhng into the common 
 error, that a generally high rate of wages can be unfavourable to 
 a country. He set out by supposing that with the assistance of 
 English machinery and English superintendents, the labour of the 
 French spinners might be as productive as that of the English 
 spinners. Under such circumstances, if their wages could remain 
 at one half of English wages, he believed that the French manu- 
 facturer could undersell the English manufacturer. Of the accu- 
 racy of this opinion I entertain no doubt, though, from the tenor 
 of the questions, it appears not to have met with the approbation 
 of the Committee.
 
 NOTE. 99 
 
 M'Culloch was examined. His examination commences 
 thus : 
 
 " Have you read the evidence which has been given 
 " before this Committee? 
 
 11 I have read portions of it only. 
 
 " Have you read the evidence given by Mr. Bradbury ? 
 
 " A part of it. 
 
 " That part in which he conceives that foreigners have 
 " an advantage over the English manufacturers in conse- 
 " quence of wages being lower in France ? 
 
 " Yes, I have read that." 
 
 And then follows the question : 
 
 " Have you turned your attention to the effect of fluc- 
 ie tuations in the rate of wages on the price of com- 
 " modities ?" 
 
 Now if the committee understood Mr. M^Culloch to 
 mean, by high or low wages, not a great or small amount, 
 but a great or small proportion, his evidence and that of 
 Mr. Bradbury had nothing in common. 
 
 The whole of the confusion has arisen from a verbal 
 ambiguity. Mr. Ricardo has demonstrated that, in the 
 absence of natural or artificial monopoly, all that is pro- 
 duced is divided between the capitalist and the labourer, 
 and that, cceteris paribus, the rate of profit depends on 
 the proportion of the produce which the capitalist receives 
 in return for having advanced, for a given time, the 
 labourers' wages. This doctrine, though, like almost all 
 other truths in political science, when once stated, almost 
 self-evident, is one of the most important discoveries of 
 modern times. It has given to the subject of profits the 
 
 h 2
 
 100 NOTE. 
 
 clearness which the discoveries of Mr. Malthus and Sir 
 Edward West gave to that of rent. Most unfortunately, 
 however, Mr. Ricardo applied the terms high wages, and 
 a rise of wages, and low wages and a fall of wages, to an 
 increase or diminution of the labourer's proportion, whether 
 the amount of what he received were or were not dimi- 
 nished or increased. 
 
 " It is according to the division of the whole produce 
 " of the land of any particular farm between the three 
 " classes of landlord, capitalist, and labourer, that we are 
 " to judge of the rise or fall of rent, profit, and wages, 
 " and not according to the value at which that produce 
 •' may be estimated in a medium which is confessedly 
 " variable. 
 
 " It is not by the absolute quantity of produce ob- 
 n tained by either class that we can correctly judge of 
 " the rate of profit, rent, and wages, but by the quantity 
 " of labour required to obtain that produce. By improve- 
 " ments in machinery and agriculture the whole produce 
 " may be doubled ; but if wages, rent, and profit be also 
 " doubled, the three will bear the same proportions to 
 " one another as before, and neither could be said to 
 " have relatively varied. But if wages partook not of the 
 " whole of this increase ; if they, instead of being dou- 
 " bled, were only increased by one-half; if rent, instead 
 " of being doubled, were only increased three-fourths, 
 " and the remaining increase went to profit, it would, I 
 u apprehend, be correct for me to say, that rent and wages 
 " had fallen while profits had risen; for if we had an 
 " invariable standard by which to measure the value of
 
 NOTE. 101 
 
 " this produce, we should find that a less value had fallen 
 " to the class of labourers and landlords, and a greater to 
 " the class of capitalists, than had been given before. 
 " We might find, for example, that though the absolute 
 " quantity of commodities had been doubled, they were 
 " the produce of precisely the former quantity of labour. 
 " Of every hundred hats, coats, and quarters of corn pro- 
 <f duced, if 
 
 " The labourers had before . . • 25 
 
 " The landlords 25 
 
 " And the capitalists . . • • 50 
 
 100 
 " and if, after these commodities were double the 
 " quantity, of every one hundred 
 
 " The labourers had only ... 22 
 
 " The landlords 22 
 
 " And the capitalists .... 56 
 
 100 
 u in that case I should say, that wages and rent had 
 " fallen and profits risen ; though, in consequence of the 
 " abundance of commodities, the quantity paid to the 
 '* labourer and landlord would have increased in the pro- 
 " portion of 25 to 44. Wages are to be estimated by 
 " their real value, viz., by the quantity of labour and 
 " capital employed in producing them, and not by their 
 " nominal value either in coats, hats, money, or corn. 
 " Under the circumstances I have just supposed, com- 
 " modities would have fallen to half their former value, 
 " and if money had not varied, to half their former price. 
 " If, then, in this medium, which had not varied in value, 
 " the wages of the labourer should be found to have
 
 102 NOTE. 
 
 " fallen, it will not be less a real fall, because they might 
 " furnish him with a greater quantity of cheap commo- 
 " dities than his former wages *." 
 
 According to this nomenclature, if one labourer were 
 to receive 30/. a year, and the produce of his labour to 
 sell at the end of the year for 40/., and another were to 
 receive 60/. a year, and the produce of his labour to sell 
 for 100/., the first labourer would be said to receive higher 
 wages than the second ; and if the wages of the second 
 were to be altered from 60/. to 40/. a year, and the commo- 
 dity to sell for 50/., the alteration must be termed a rise of 
 wages. According to this nomenclature, the wages of the 
 best workmen are always the lowest, for it is known to be 
 more profitable to employ them. This strange use of 
 words must have been perplexing, even if Mr. Ricardo's 
 language had been consistent. But it is almost impos- 
 sible to affix to terms of familiar use a perfectly new 
 meaning, and not from time to time to slide into the old 
 one. When Mr. Ricardo says, that " nothing can affect 
 '* profits but a rise of wages," p. 118; that u whatever 
 " raises the wages of labour lowers the profits of stock," 
 p. 231 ; that " high wages invariably affect the em- 
 " ployers of labour by depriving them of a portion of 
 " their real profits," p. 129 j that " as the wages of labour 
 " fall the profits of stock rise, and they are together always 
 ci of the same value," p. 499, he means by high wages a 
 large proportion. But when he speaks of the " encou- 
 " ragement which high wages give to the increase of 
 " population," pp. 88, 361 ; when he admits, that " on 
 * " Principles of Political Econ." p. 48—51.
 
 NOTE. 
 
 103 
 
 " an increase of population wages fall," p. 494 ; he 
 means by high or low wages a large or small amount. 
 
 Mr. M'Culloch has stated, with great clearness, the 
 difference between proportional wages and real wages, 
 or wages estimated in money or in quantities of produce. 
 And he adds, with equal accuracy, " If the productive- 
 " ness of industry were to diminish, proportional wages 
 " might rise, notwithstanding that real wages, or the 
 u absolute amount of the produce of industry falling to 
 " the share of the labourer, might be diminished; and if, 
 " on the other hand, the productiveness of industry were 
 " to increase, proportional wages might be diminished, 
 " while real wages might, at the same time, be increased.' 1 
 Principles, &c. p. 365. And he generally uses the words 
 " high and low wages " to express, not a large or small 
 proportion, but a large or small amount. It is in this 
 sense that he contrasts (p. 353) the low wages of Hindos- 
 tan with the high wages of America. But is this use of 
 language consistent with his statement (p. 322) that the 
 high wages we pay to our workmen cause low profits ? 
 Or, is it consistent with the inferences drawn by the Com- 
 mittee from his evidence ? 
 
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